Real estate experts said developers and investors began planning multifamily projects two or three years ago when interest rates were at record lows. Bruce McClenny, industry principal for MRI ApartmentData at MRI Real Estate Software, said because of this trend, he saw more apartment complexes open in 2023 and 2024 than he has in his entire career.
A spike in multifamily housing in Houston’s suburbs can also be attributed to regional population growth, job growth and nearby retail development, said Steven Spillette, president of real estate research and planning firm Community Development Strategies.
“At a very basic level, we just have to have housing for everybody that is coming here or ... emerging here because they’ve been born,” Spillette said.
Two-minute impact
More than 18,635 apartment units are set to open within Katy ISD’s boundaries between October 2023-October 2033, accounting for about 40.4% of all new incoming housing units, according to demographic firm Population and Survey Analysts’ November 2023 report for KISD.
The Katy area is experiencing an influx of new multifamily products, which has driven rent levels down by 3.7% year over year as of the end of June, McClenny said.
“This is good news for renters trying to catch a break, but this rent adjustment does not make up for the massive rent increase that occurred in 2021 when rents increased by 20%,” he said. “The massive amounts of new supply will continue to play in the favor of renters for 2024.”
A number of the apartments are poised to open near commercial areas or along major thoroughfares, including the intersection of I-10 and the Grand Parkway.
Two of the developments under construction are:
- San Paseo, a four-story midrise development with class-A apartments and townhomes
- The Oak at Katy Park, a luxury multifamily complex off Morton Ranch Road
“The site’s proximity to the Katy Park H-E-B and The Market at Katy Park master development is extremely compelling as walkability to new Class-A experiential retail will separate this community from others in the North Katy area,” he said in an email.
Diving in deeper
Patrick Jankowski, chief economist and senior vice president of research for the Greater Houston Partnership, said in a May multifamily market update that Houston has shifted from a landlord-friendly to a tenant-friendly market because:
- Average multifamily occupancy is below 90%.
- Rental rates have fallen over the last year.
- Incentives such as free rent and security deposit waivers are prominent.
- Developers continue to overbuild.
With 19,000 apartment units under construction in the Greater Houston area and another 33,000 planned for the region as of June 1, Jankowski said supply greatly exceeds demand.
“At the current pace of construction, Houston will need to create roughly 114,000 jobs to absorb what’s currently under construction,” he said. “The partnership’s forecast calls for the region to create half that many jobs—57,000—this year.”Taking a step back
Because interest rates have basically doubled in the last few years, the cost of financing new apartment projects is less sustainable for developers today, McClenny said.
“That causes a lot of problems for a lot of companies to have to ante up more capital to cover that,” he said. “The other thing that’s going on in Gulf Coast markets is insurance has really gone through the roof.”
Apartment operators are paying more than double for insurance now than they were before the COVID-19 pandemic, according to RealPage, a property management software corporation. The national average insurance cost for apartment owners was $30 per unit per month in January 2019 and $70 per unit per month five years later.
RealPage reports Houston apartment owners pay an even higher premium due to the region’s recent history of inclement weather events at $128 per unit per month. That’s about $384,000 to insure a complex with 250 units annually.
Population and Survey Analysts’ report for KISD predicts the multifamily housing growth within the district’s boundaries will continue through the next 10 years. New multifamily units are projected to outpace growth from single-family homes from October 2023-October 2025.
When there’s limited land availability in mature communities such as Katy, multifamily housing will increase to meet the needs of young professionals and empty nesters, PASA demographer Susan Cates said. KISD is 85% built out, with only 53% of that remaining land developable, meaning it’s outside of the flood plain.
“As these districts get built out ... you’re going to see multifamily; you’re going to see townhomes and condos that are coming in and kind of filling that urban lifestyle that is attractive to young professionals and maybe empty nesters that are on both ends of the life spectrum,” she said.
Contributions by Jovanna Aguilar, Cassandra Jenkins & Emily Lincke.
