Austin home sales recently declined for the first time in three years. Although the reason is not obvious, some local experts cite a lack of affordable supply, increased prices or residents' move to renting.
Affordability has seemingly become one of the top buzzwords in Austin, particularly among candidates vying for public office in the Nov. 4 election.
Living within one's budget has been a daunting task for many Austinites as the housing supply has failed to meet the demands of the past decade. Until recently, that demand would have no end.
However, July and August were unusual for the Austin real estate market as year-over-year homes sold declined for the first time in three years.
Since 2011 the number of year-over-year home sales had increased each month until July and August based on data from Austin Board of Realtors, a real estate advocacy group that tracks area housing data. In September, however, homes sales bounced back, according to ABoR data, with a year-over-year increase of 10 percent.
"It takes a long time to prescribe a trend," said Emily Chenevert, ABoR's director of public affairs. "We're still in a really unique time in our local economy, so it's a little difficult sometimes to assess what every statistic means and you want to be careful not to look at them in a vacuum."
However, the slight drop in year-over-year home sales may be a sign Austin cannot keep growing at its present rate—roughly 110 net people per day, according to city estimates—and a decline will eventually occur, HousingWorks Executive Director Mandy DeMayo said. HousingWorks is an affordable housing advocacy group.
"Every decade or so we hit a blip, so I've got to assume we've got a blip coming up, which will allow us to do some sort of market correction," DeMayo said. "Rents will come down a little bit, landlords will be offering more concessions, those kind of things."
The 'missing middle'
Although no single reason can be attributed to this recent sales decline, many within the industry point to the city's lack of housing that is affordable for an average Austinite's budget.
A research and analysis group called Opticos hired by the city to find problems within Austin's existing land development code affirmed that point, according to a code diagnosis document released in May as part of CodeNEXT, the process through which the city is rewriting its land development code—a document that dictates development in Austin. Opticos said Austin's lack of affordable housing—the so-called "missing middle" that falls within a price range comfortable for median-income Austin residents—might prevent the city from realizing its Imagine Austin comprehensive plan, a framework that guides Austin's long-term development.
Although single-family homes are common in Central Austin, about 55 percent of the population rents their housing, said Kristan Arrona, vice president of the Austin Apartment Association.
The younger generation flocking to Austin seems to lean more toward renting and are willing to sacrifice space to stay within their budget, Taylor Jackson, Austin Apartment Association director of business development said.
Opticos' diagnosis suggested adding more duplexes, townhomes, multiplexes or apartment complexes to help fill in the missing middle gap.
"Once you get that taste of what it's like to rent, there are just people who choose to rent instead of owning a home, and the only way for them to be happy is to be where they don't have to worry about the maintenance, the lawn, the upkeep and all of that," Arrona said.
New generation, new trends
There is also a move to living in smaller and more affordable spaces, a sign younger residents might be making decisions based on their lifestyles and limited budget, said Jackson.
There are a vast number of multifamily housing projects, or apartments, currently coming down the development pipeline, DeMayo said, that will lessen the demand and could lower rent prices.
The affordability of housing options in Austin is simply controlled by supply and demand, said Ward Tisdale, president of Real Estate Council of Austin, another industry advocacy group. To meet demand and lower prices, more supply must be created, he said, and the easiest way to get more supply is by increasing density.
"It would be disingenuous for us to say that Austin is going to go back to the days when it was cheaper to live [here]. It's never going to go there because it's an attractive place to live; there are more people that want to move here," Tisdale said.
Affordability: then and now
Slowing down demand requires slowing population growth, which could lead to a downward spiral for Austin, Tisdale said.
Finding a home costing less than $300,000 is now considered affordable, Capitol Market Research President Charles Heimsath said, because the monthly mortgage would be about $2,000 a month. Heimsath's group conducts real estate market research and analysis.
"That would probably be the upper limit of affordability for most people," Heimsath said. "Within the central core of Austin it's very difficult to find anything affordable to purchase. Occasionally, someone will build a condominium with units in that price range. Occasionally, you will find something, but it's generally going to be a fixer-upper if it's a single-family home."
Fifteen years ago finding a home below that price range would have been an easy task, Heimsath said.
Interest rates are expected to gradually increase in the next few years after years of historic lows, so achieving affordability could become even more difficult in Austin, said Brett Smith, director of research at Keller Williams Realty International.
"[Increased interest rates] will affect the rise in prices because one of the things Austin has gone through in the last few years is an enormous increase in prices," Smith said. "That kind of increase is difficult to sustain over time."