Steve Spillette, the president of Community Development Strategies, a Houston-based consulting firm that provides economic analysis, public planning and market research services, discussed how the economy drives housing demand during a Houston Apartment Association luncheon Jan. 8.
According to Spillette, while the oil and gas industry boomed in the Greater Houston area from 2011-14, driving the local economy, the boom has since turned into a “bust” remaining stagnant in 2015-16 and slow to recover thereafter.
“The bad news for Houston is that the oil and gas industry ... it’s in pretty bad shape,” Spillette said during the presentation. “And it’s not looking like it’s going to be any better anytime soon. Unless there’s some radical factor that we just can’t anticipate, we may have had our last real oil boom, ever.”
Instead, Spillette said growth in low- and moderate-wage sectors is anticipated for the Greater Houston area, some of which include education, health care, hospitality and food service—meaning more affordable housing for these employees will be necessary.
According to Spillete, the national standard for “affordability” means that no more than 30% of a household’s income goes directly toward housing costs. However, nearly three-fourths of the apartment units under construction or planned for the Greater Houston area are Class A—or luxury apartments with high-end rents.
“It’s just not financially feasible anymore [for developers] to build moderate-rent complexes,” Spillette said. “In terms of new development, except for subsidized projects, the only thing that gets built is Class A. The vast majority of what’s planned or under construction is at that Class A level, so we’re talking rents that are only affordable for people who are making really good money.”
At the same time, Spillette said research shows occupancy rates in Class A apartment units across the Greater Houston area is at approximately 87%, while occupancy for all classes of apartments is at about 91.2%. Based on this information, Spillette said he anticipates a surplus of Class A apartments in the Greater Houston area and by contrast a strong demand for lower-class apartments as the economy shifts.
“We’re adding all these warehousing jobs, medical jobs—everything that pays moderate and low wages. Where are these folks going to live?” Spillette said. “[Non-Class A apartment complexes] have pretty high occupancy, and yet it’s not financially feasible to build new for those rents that people can reasonably afford. Are we building too many Class A apartments?”
Spillette added the Greater Houston area was on the brink of another apartment building boom; however, the type of complexes being developed may not necessarily meet the needs of the local workforce.