C O N F I D E N T I A L © 2 0 1 8 R E A L P A G E , I N C .1
Greg WillettChief Economist, RealPage, Inc.February 23, 2018
Finding Shelter: Affordability Squeeze in a Tight Texas Housing Market
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Unlike in the for‐sale sector, there’s a rental housing building boom nationally and across some – but not
all – key markets in Texas.
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365k as of 4Q 2017
0k
100k
200k
300k
400k
500k1Q
053Q
051Q
063Q
061Q
073Q
071Q
083Q
081Q
093Q
091Q
103Q
101Q
113Q
111Q
123Q
121Q
133Q
131Q
143Q
141Q
153Q
151Q
163Q
161Q
173Q
171Q
183Q
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U.S. data is based on the 150 metros that form the core of RealPage’s coverage
U.S. apartment annual completions
Nationally, apartment deliveries hit a three‐decade high in 2017, and completions will remain elevated in 2018
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Texas plays a big role in the U.S. apartment market
Metro 2010+ Completions
Inventory Growth
Houston 94,872 16.4%
Dallas 92,871 19.2%
Austin 48,434 26.3%
San Antonio 38,141 23.9%
Fort Worth 16,245 9.1%
El Paso 6,209 12.7%
Midland‐Odessa 4,675 25.3%
Corpus Christi 4,187 13.7%
Lubbock 3,001 15.2%
College Station‐Bryan 2,657 13.1%
McAllen‐Brownsville 2,082 6.3%
Major Texas Markets 313,374 17.9%
• Eleven Texas metros are among the nation’s 150 biggest markets (by apartment inventory). These areas account for 12% of the top 150 stock.
• The key Texas markets have contributed 18% of the top 150 deliveries in this economic cycle, and they contain 15% of the product under construction.
• Houston and DFW each have added more product during this cycle than exists in total for all but 50 or so U.S. metros.
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U.S. overall occupancy remains healthy, even withlots of new product moving through initial lease‐up
95.0%
90%
92%
94%
96%
98%
100%1Q
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061Q
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113Q
111Q
123Q
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133Q
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143Q
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153Q
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overall occupancy
U.S. data is based on the 150 metros that form the core of RealPage’s coverage
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Apartment occupancy in Texas tends to run a little below the national norm
90%
92%
94%
96%
98%Midland
‐Ode
ssa
U.S.
Average
Fort
Worth
Dallas
Austin
McAllen‐
Bville
Houston
Corpus
Christi
Lubb
ock
El Paso
San
Antonio
CS‐Bryan
overall occupancy
U.S. data is based on the 150 metros that form the core of RealPage’s coverage
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Apartment occupancy in Texas tends to run a little below the national norm
90%
92%
94%
96%
98%Midland
‐Ode
ssa
U.S.
Average
Fort
Worth
Dallas
Austin
McAllen‐
Bville
Houston
Corpus
Christi
Lubb
ock
El Paso
San
Antonio
CS‐Bryan
overall occupancy
U.S. data is based on the 150 metros that form the core of RealPage’s coverage
Conventional product occupancy has faltered following student housing deliveries at Texas A&M
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We’re experiencing an unprecedented run‐up in national apartment rents
2.6%
‐6%
‐4%
‐2%
0%
2%
4%
6%
8%1Q
003Q
001Q
013Q
011Q
023Q
021Q
033Q
031Q
043Q
041Q
053Q
051Q
063Q
061Q
073Q
071Q
083Q
081Q
093Q
091Q
103Q
101Q
113Q
111Q
123Q
121Q
133Q
131Q
143Q
141Q
153Q
151Q
163Q
161Q
173Q
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year‐over‐year change in same‐store effective rents for new leases
19 quarters averaging 2.8% 31 quarters averaging 3.6%
U.S. data is based on the 150 metros that form the core of RealPage’s coverage
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Most Texas markets also have experienced sizable apartment rent bumps this cycle
0%
10%
20%
30%
40%
50%Midland
‐Ode
ssa
Fort
Worth
Austin
Dallas
U.S.
Average
Corpus
Christi
Houston
San
Antonio
Lubb
ock
CS‐Bryan
El Paso
McAllen‐
Bville
total rent growth since early 2010
U.S. data is based on the 150 metros that form the core of RealPage’s coverage
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Apartment market rent growth has cooled from the previously
aggressive levels in much of TexasMetro Monthly Rent
Current Annual Growth
Midland‐Odessa $1,262 41.6%
Austin $1,200 ‐0.7%
Dallas $1,124 2.1%
Houston $1,080 3.5%
Fort Worth $995 3.8%
Corpus Christi $945 1.6%
San Antonio $934 1.0%
College Station‐Bryan $835 ‐1.3%
El Paso $754 1.0%
McAllen‐Brownsville $737 ‐0.8%
Lubbock $726 ‐1.4%
U.S. Average $1,306 2.6%
• Previously hot DFW and Austin have dropped from the national leaderboard for rent growth. Austin prices actually are declining a bit. Some of the smaller metros also register very modest pricing power right now.
• Rent growth is beginning to trail wage growth in quite a few locations.
• The energy‐influenced markets are regaining rent growth momentum, after significant cuts occurred in 2016 and the first half of 2017.
• Even the most expensive Texas apartment markets register rents below the national average.
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Most of this cycle’s completions are luxury communities
MetroClass AMonthly Rent
Class BMonthly Rent
Class ARent
Premium
Austin $1,708 $1,116 53%
Houston $1,486 $1,024 45%
Fort Worth $1,272 $948 34%
Dallas $1,417 $1,094 30%
San Antonio $1,152 $900 28%
U.S. Average $1,734 $1,254 38%
• Today’s typical suburban project is a mid‐rise building with garage parking, rather than a low‐rise development with surface parking. The higher‐density communities are simply more expensive.
• Urban core projects account for a bigger share of total building than in the past. Urban land costs drive up the rents, and high‐rise construction pushes the numbers even higher.
• The rent premium for Class A development over Class B product is up drastically in this cycle.
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U.S. rent‐to‐income ratios are inversely correlated to apartment product class
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
20%
22%
24%
26%
28%
30%
32%
34%
A+ A A‐ B+ B B‐ C+ C C‐ D
Median Rent‐to‐Income (left)Median Income (right) Those who opt for Class A
apartments rarely face affordability constraints. But, with other housing options available to them, there’s always the possibility
that they will choose some alternative.
Affordability gets somewhat more challenging moving to lower‐end
product segments.
Market‐Rate Apartment Product ClassSource: RealPage analysis of nearly 5 million individual leases
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Neighborhood Type
Metro Dallas Neighborhood
Current Monthly Rent
Current Annual Rent Growth
Urban Core Intown DallasOak Lawn
$1,678$1,528
‐0.1%‐1.6%
Upscale Suburb
FriscoLas ColinasRichardson
Allen/McKinney
$1,275$1,270$1,256$1,171
+0.9%+1.6%‐1.8%‐0.2%
Workforce/Blue‐Collar
Area
MesquiteNortheast DallasSouth Irving
Northwest Dallas
$940$924$921$885
+2.7%+5.8%+4.5%+4.5%
Neighborhood Type
Metro Atlanta Neighborhood
Current Monthly Rent
Current Annual Rent Growth
Urban Core MidtownBuckhead
$1,746$1,587
+1.2%‐2.1%
Upscale Suburb
DunwoodyVinings
AlpharettaSandy Springs
$1,393$1,313$1,309$1,251
+1.7%+6.8%‐0.4%‐3.8%
Workforce/Blue‐Collar
Area
DoravilleDouglasvilleWest MariettaStone Mountain
$975$941$908$846
+4.5%+4.9%+2.9%+4.2%
As building cools top‐end product rent growth, workforce housing neighborhoods are rent growth leaders in Texas and elsewhere
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Key Takeaways
• We’re building apartments at an aggressive pace in most Texas markets.
• Rent growth exceeded the historical norm during the early years of this building boom. But, of late, rent inflation has slowed to levels more typical of past periods of substantial construction.
• New product is expensive. That’s always been true, but the concentration on luxury‐priced development is exaggerated by where we’re building (increased emphasis on the urban core) and what we’re building (higher‐density properties).
• Luxury‐product renters generally don’t struggle to afford those rents. However, residents of middle‐market communities and especially lower‐end properties have a harder time budgeting rents.
• Current rent growth is now more pronounced toward the bottom end of the apartment product spectrum.
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