With its unique culture, relatively low cost of living, warm weather and booming economy, Austin has emerged as one of the fastest-growing cities in the United States. As more people and companies flock to this vibrant city, the multifamily real estate market looks primed for growth from both a development and investment perspective.
At its core, this real estate potential lies in the fact that the housing supply needs to keep up with a growing population of workers. According to the Austin Board of Realtors (AboR), in October 2019, the number of homes sold reached new highs, while the inventory of single-family homes reached new lows. As this gap shows, and as ABoR notes in its report, housing demand is outpacing housing stock, particularly in areas close to major employers and transit options.
Ari Rastegar, Rastegar Property Co.
To remedy this problem, multifamily developers and investors can step in to build multi-unit buildings throughout Austin. Adding multifamily buildings can help tackle the housing shortage much faster than building more single-family homes, and many newcomers to Austin are young, well-paid professionals looking to rent apartments in exciting urban neighborhoods.
As such, developers and investors can look to add more units in both existing high-density areas that blend commercial and residential life, as well as in neighborhoods that would benefit from density, such as because of more employers moving nearby.
Population Growth Trends
Over the past several years, Austin has been one of the fastest-growing cities in the country. In fact, among large metropolitan areas, data from the U.S. Census Bureau shows that the Austin region has been the fastest-growing area for eight years in a row.
From 2010 to 2018, the region grew by 26.3 percent to reach nearly 2.2 million people, whereas the state of Texas grew by 14.1 percent and the United States as a whole grew by 6 percent, according to an analysis from the Austin Chamber of Commerce. For 2020 to 2030, the projections are even higher, with an estimated growth rate of 27.6 percent in the Austin region over the decade, compared to a projected 17.6 percent growth rate across Texas.
Part of this growth is fueled by millennials, with nearly 41,000 per year moving to Austin, according to a SmartAsset analysis of Census data. At the same time, over 38,000 millennials also moved out of Austin, but this net migration still puts Austin on a growth path among young people. Moreover, this turnover underscores the need for multifamily rentals, as millennials moving in and out of cities often want the flexibility to rent and may not have enough capital to purchase a home.
Other Growth Patterns
Austin’s growth can be attributed to a convergence of factors that make the region so appealing, such as a strong employment market with a flourishing tech scene. For example, Apple has been adding thousands of jobs in Austin and is building a $1 billion campus.
Other major employers like Amazon, Facebook and Google are also growing in Austin. In addition to these expansions in tech, other projects like the U.S. Army’s new headquarters also contribute to a growing economy, both now and likely in the future.
This type of economic development spurs demand for new people moving to the area who need housing. This helps explain why Austin ranks first for overall real estate prospects and No. 1 in local expectations of investor demand in 2020, according to the PricewaterhouseCoopers and Urban Land Institute’s Emerging Trends in Real Estate 2020 report.
Austin’s relative affordability also provides a draw in comparison to high-cost areas like Silicon Valley and other parts of California. For example, net migration from the San Francisco and San Jose metro areas to the Austin area totaled nearly 1,400 people from 2013 to 2017. Similarly, over 1,400 people on a net basis migrated from the Los Angeles area to the Austin area during that time, per Census data.
Yet Austin isn’t just attracting out-of-state residents. During this same period, nearly 5,000 people migrated from the Houston area to the Austin area on a net basis, as did over 2,500 people from the Dallas-Fort Worth area.
Even though these other cities in Texas have a lot going for them — and the state as a whole has advantages such as no personal income tax and generally low business taxes — Austin stands out in many ways. In fact, U.S. News & World Report ranks Austin first among the “Best Places to Live,” with draws ranging from its live music scene to its prevalence of parks.
Prime Opportunities
With all this growth in Austin in terms of both population and employment, multifamily real estate developers and investors have a prime opportunity to create more housing that can attract well-paid tenants. Not only can multifamily building potentially help solve Austin’s housing shortage faster than single-family development, but placing these buildings in strategic locations near employers and/or public transit options can help tackle challenges such as Austin’s heavy car traffic.
Altogether, this development can contribute to making Austin an attractive area for years to come, creating win-win situations for developers, investors, residents, employers and other stakeholders.
—By Ari Rastegar, CEO, Rastegar Property Co. This article first appeared in the February 2020 issue of Texas Real Estate Business magazine.