Austin Market Update: Housing Demand Increasing

Surging new supply has caused the vacancy rate to level off despite strong demand in the 166,900-unit Austin apartment market. The vacancy rate had plunged from 10.9% in the third quarter of 2009 to just 4.3% in the second quarter of 2012, but it was still at that level in the second quarter of 2013. The rate was 5.1% for Class A units, up 60 basis points during the second quarter on 1,460 new units and 846 units of net absorption, and 3.3% for Class B/C units, unchanged. The overall rate was 4.2% in July: year-to-date through that month there were 1,853 units of net absorption and 1,958 units of new supply. Austin Investor Interests reports “occupancy hovering at a healthy 95.0% and rental rates continuing to hit all-time highs, currently reaching $1.15 psf,” according to the Texas Real Estate Commission. An influx of new units “will impact the steady nature that has defined this market since 2011.”

ACA does not foresee a housing bubble in Austin. According to the Austin American Statesman: “Despite rising prices, bidding wars, and rapid sales, experts say Austin’s housing market is simply responding to legitimate supply-and-demand issues, not to speculation, Wall Street mortgage bond-financing machinations, easy credit and other conditions that burst the housing bubble in many markets in the country a few years ago. Rather, in Austin, prices are going up because of Economics 101: Demand is up due to job and population growth, and there simply isn’t enough housing to handle the influx of newcomers and current residents looking to buy.”

Though our acquisition velocity has slowed as competition has increased, ACA remains a buyer of multifamily and student housing on Austin. We feel there’s plenty of runway left supported by a strong and deep confluence of economic drivers.