Virtually all of the 20,200 apartment units delivered to the Houston market in 2016 will be class-A units, meaning luxury apartments. According to a Marcus & Millichap year-end multi-family report, 96 percent of Houston’s new apartments, 19,400 were luxury apartment homes.
With the Federal Reserve driving an echo bubble in asset prices, combined with the major bubble in shale oil, land prices spiked throughout the Texas market. Houston was particularly affected by this economic development. Developers have found it difficult to build more affordable class-B apartments because the numbers often don’t look appealing unless they have tax subsidies. It’s a matter of economics, and developers have been chasing the money because that’s where the profits were at. Now Houston is awash in luxury apartments.
Developers could soon be changing their tune, however, because the Houston rental market is continuing to roll over in a sea of financialization. Here in the Katy area we are already seeing dramatic softness in the rental market compared to the 2014 peak prices. A number of those class-A apartment projects are offering three months of free rent to bolster occupancy. In essence, the economy is turning their developments into class-B projects by virtue of supply and demand.
The jobs being added in 2016 have not been sufficient to sustain the lofty expectations of area developers…