The Texas Multifamily Market: A Rent Growth Comparison

Two main factors drive expected returns in multifamily real estate: price and income growth. Setting price aside, income growth is largely a function of rent growth, and ultimately, the dynamic difference between the supply and demand for apartment units within a particular geography. In Texas, extraordinary demand growth since the Great Recession defines this dynamic relationship. According to the Census Bureau, Texas has experienced the largest annual population increase in the U.S. over the past several years. Recent data shows that the Lone Star State grew by 367,000 people from 2018 to 2019, bringing the state’s total population to a mighty 29 million. Trusted statistics from the U.S. Census Bureau and Postal Service consistently show that many individuals who move to Dallas-Fort Worth, Austin, or San Antonio leave higher-cost markets, particularly on the East and West Coasts. This could be attributed to the competitive cost of living in major Texas markets combined with the Lone Star State’s diverse state economy. Using rent data provided by RealPage Analytics on over 10 million apartment units, we examine the past decade of dominance for Texas multifamily and assess future rent growth expectations amidst the COVID-19 pandemic.

*Projection. Source: RealPage Investment Analytics; CONTI Organization

Our analysis includes a comparison between High-Cost Markets and CONTI’s target Texas Markets of Dallas-Fort Worth, Austin, and San Antonio. We define High-Cost Markets as U.S. metropolitan areas with a cost of living index greater than 125 percent of the U.S. average and among the top 25 most active multifamily markets according to real estate data provider, Real Capital Analytics. The High-Cost Markets, including New York City and Los Angeles, represent 13 metropolitan areas and over 50 million residents. During the decade spanning from 2010 to 2019, rent growth in the CONTI Texas Markets averaged 5.1 percent annually, compared to only 3.9 percent in High-Cost Markets. This is a cumulative total of 12 percent additional rent growth in the CONTI Texas Markets. While the COVID-19 pandemic has paused rent growth nationally, the Texas Markets are still poised to continue their outperformance during both the near and long-term.

Over the next 18 months, CONTI’s Texas Markets are forecast to remain at stable rent growth. Over the same period, projections show rents declining in High-Cost Markets. Through 2024, a similar pattern emerges; rents in the Texas Markets are projected to have further growth over the next five years compared to smaller gains in the High-Cost Markets. We believe that the demographic trends in place before the pandemic, migration flowing from high-cost areas to low-cost cities in the Southern U.S., will only accelerate in the coming years. Over the past decade, robust demand for multifamily in the Texas Markets has translated into exceptional rent growth compared to their higher-cost counterparts. At CONTI, we believe the historical data and trends support our expectation that Texas Markets will continue their persistent path of stability and growth.