Earlier this year I attended the Bisnow Multifamily Summit in Houston to discuss insights on several topics related to the multifamily industry. There were a few key takeaways from the meeting about changes in the Houston multifamily development and construction market that I’d like to share.
The market has embraced individuals who are “renters-by-choice”
After the Great Recession, attitudes toward homeownership changed. The “American Dream” is now more about financial stability and less about being a homeowner. The multifamily market will continue to see an increase in growth with more Millennials choosing to postpone homeownership and opting to stay in apartments longer while Baby Boomers are choosing to downsize from their homes to apartments after retirement.
The largest obstacle is the cost of construction
According to industry experts, two of the biggest challenges facing Houston’s construction industry are the rising cost of building materials and a shortage of skilled labor. The Associated General Contractors of America reported that, nationally, the price of concrete is up 4% from last year. Other materials that have increased in price include lumber and plywood, up 11%, gypsum, which is used for interior wall and ceiling coverings, up 8%, and steel, up 4%.
As the cost of individual materials continues to rise, the overall cost of a project will continue to rise as well. The Fingers Company, a featured speaker at the Bisnow Multifamily Summit, has been a part of the Houston multifamily construction industry for quite some time and builds its own projects. The company posted the following numbers as the average cost per square foot for a comparable product:
- 2011 – $65
- 2013 – $83.50
- 2015 – $102 (projected cost)
The labor shortage in Houston has become so severe that builders are stationing guards on jobsites to keep competitors who are offering to pay workers more from poaching workers. Developers are seeing an increase in scheduling delays and cost overruns as a result of a smaller job pool.
The city has seen a rental rate increase in high-rise apartments with $2,700 being the average rent for a 900 sq. ft. unit
Another obstacle faced by multifamily developers is that they are running out of lots available to build on in the city. It is predicted that there is a two-month supply remaining, primarily in upscale neighborhoods. The growing population and rising land prices are forcing developers to build upward. With so many apartment projects coming down the pipeline, this growing demand for more apartment units is, in turn, driving rental prices higher.
According to The Houston Business Journal, the Houston multifamily market will continue to grow in 2015. Developers are rushing to build new apartments to keep up with the city’s strong job growth, which is attracting thousands of new residents. Today, one in three properties in Houston is a rental property, and experts believe that one new apartment unit is necessary for every five or six jobs created.
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