Recently, McClenny spoke with Community Impact Newspaper about the state of multifamily housing in the Greater Houston area as well as about how the ongoing coronavirus pandemic has affected different aspects of the industry.
Overall, McClenny said rental prices, occupancy rates and leasing activity is down across the board in the Greater Houston area, which is atypical for this time of year. However, he said he remained hopeful that as the economy continues to reopen and the unemployment rate goes down, leasing activity could pick up later this year during typically slower months.
This interview has been edited for length and clarity.
How has COVID-19 affected the demand for multifamily housing in the Greater Houston area?
Rental activity has slowed dow even though housing is an incredibly important factor in everybody's life—we've got to have housing. So I think single-family and rental housing is going to hold up well because of the needs of individuals to have it, where, on the other hand, retail and commercial office are going to be under a lot of stress on a commercial real estate basis.
How has COVID-19 impacted rental rates across the industry?
The absorption is down. There's less people moving around. They're staying in place. So we're not seeing as many leases happen so because of a lack of demand, people staying at home, in place—that directly impacts rent, so we've seen rents come down, especially in the [Class] A spaces where there's a lot of availability. There's 21,000 [Class A] units across Houston that are in the leasing stage, so that brings pressure on the rents in the A spaces. We're starting to see the Class C—the affordable, workforce housing—rents flatten out.
Is this slowdown typical for this time of year?
This is typically the time when there's a lot of people buying houses and renting apartments. The fast season for leasing, when occupancy goes up and rents rise—that's from February until August. This is a time when things are [usually] at their best in the apartment industry, and then, things slow down from September through January as people try to stay settled for the school year and the holidays.
How is the eviction moratorium affecting landlords?
The property owners are going through the motions to let their tenants know that they're in default of the lease because of nonpayment, and they're having to hold those until the courts open up. But I think there's a very high percentage of residents that are still paying their bills and their rent, and that really doesn't surprise me because of the unemployment that's there now and the benefits that the federal government sent in and are paying that $600 per week, which is equivalent to $15 an hour on top of normal unemployment benefits. So in many cases, people are able to meet their obligations, such as rent, because of that.
Is there a demand for affordable multifamily housing in the Greater Houston area, and if so, is anything being done to meet that demand?
Houston has the most affordable apartments of any major metro at all. If you compare our rents to Dallas or Austin or any other major metro, our rents appear very, very reasonable compared to other markets. But that still doesn't mean that we have enough that's affordable. It's hard to define affordability because it's such [a] very subjective term, ... but there are major companies that are starting to address that [demand] with their development. Alliance Residential is a very large developer in the city and across the country, as [is] Trammel Crow Residential. And those two developers have shifted their focus to a different kind of product that they call 'workforce housing,' which is another term for 'affordable.' So they're doing those in what they call a 'B' location, which is not in the inner loop or the Galleria. ... So there is some response from the development community to try to address that.
Are there specific suburbs in the Greater Houston area where multifamily housing development is happening more than others?
Really, over the last several years, Katy and the outlying areas of The Woodlands and Spring have been leading the city in suburban development in terms of apartments, and I think that has to do with the jobs available and [the] desirable schools that are located there. I think development is just driven by where people want to live and raise their families.
What trends, if any, do you expect will come out of this crisis?
I think renters will be looking for more single-family home styles as opposed to a denser apartment[-style dwelling]. I'm sure there will be adjustments made, design-wise, but it takes so long to design and execute building plans, ... so I think it will be two or three years before we start hearing about architects even starting to make those changes [such as dedicated home office and study spaces in apartments].
How do you foresee the local multifamily housing industry performing for the remainder of 2020?
I think unemployment and job growth will impact how much people can move around and have more choices for themselves to rent and buy. Right now, it's kind of a wait-and-see; there's no way to tell, but things seem to be coming back. We're in the third phase of reopening, and we've had a little bit of a scare, but I think that should have been fully expected—the uptick in cases—because we're getting back out, and we've just got to find the right balance between economic activity and the safety of the health care system.
August is going to be a critical month. As people get back to normal with jobs and to school, some of these things are going to start happening in the season that's typically slow, so I don't know if that's going to be a reversal [of what we typically see]. Just like March and April—they're typically very fast and strong months but were very weak [this year]—maybe we get into August and September, and we've got this demand looming for people needing to make new housing choices. It could very well be just the opposite of what we normally expect.