Mark O’Briant, Henry S. Miller Cos.
Most of us have read articles or seen reports that suggest we are building too many apartment units in the Dallas/Fort Worth Metroplex. Thus, we potentially could have a surplus of multifamily units resulting in lower occupancies and stabilizing rents (sorry to all the apartment renters — don’t anticipate rents going down).
Let’s review historical data and trends, then see if we are truly overbuilding. Over the past 22 years, an average of 29,542 single-family building permits were issued annually across the Dallas/Fort Worth area. However, the figure fell to 22,678 on average from 2011 to 2015. Thus, over the past five years there were 34,320 less single-family units delivered than what the market has historically absorbed.
In comparison, multifamily permits (those of two or more units) have averaged 14,094 annually over the past 22 years, and 18,417 annually from 2011 to 2015. Over the past three years, 2013 through 2015, the average increased for both single-family (25,937) and multifamily (21,231). The combined average of 47,168 permits over the last three years is above the 22-year average of 43,636 permits.
Multifamily permits have most likely increased as a result of a significant decrease in single-family permits. We have only recently seen the number of single-family permits reach the levels achieved prior to 1998. Considering the increased cost of land, materials and labor, we do not anticipate a significant increase in single-family units for 2016 and 2017.
Population and employment trends would suggest an annual need for between 48,000 to 65,000 new residential units, based on an average household size of 2.5 to 3.5 persons. So, if we only add 30,000 single-family units, the multifamily segment would need to make up the difference and add 18,000 to 35,000 units annually.
Keeping up with Demand
According to The MPF Report, as of the first quarter of 2016 there are 43,185 multifamily units under construction or coming on-line over the next two years. Of this total, 27,334 are slated for completion by the end of the first quarter of 2017.
Based on a typical construction time of 12 to 16 months, the overall total for the two-year period could potentially increase. Considering the projected population and employment growth over the same time period, the number of multifamily units under construction appears reasonable.
As with any statistical data concerning the real estate market, there are exceptions to the trends, and there could be some multifamily submarkets that see a decrease in occupancy based on deliveries exceeding demand.
However, as previously noted it is extremely doubtful that there would be a decrease in rent prices. The rising cost of land, materials and supplies for single-family construction has also increased the demand for multifamily units.
The increasing cost of single-family units has also allowed multifamily owners to increase rents, as the monthly cost of a mortgage, homeowners insurance, property taxes and general upkeep and maintenance would exceed $2,000 per month on a $250,000 home.
The projected employment and population growth within the metroplex will continue to fuel the housing market, and based on the data it would appear that multifamily developers are simply providing or filling a void of demand not being met by single-family builders.
— By Mark O’Briant, Managing Director, Henry S. Miller Cos. This article originally appeared in the June 2016 issue of Texas Real Estate Business.