Will Houston's Building Boom Ease Pressure on Rents?

Houston will build more new apartments this year than any other metro area in the United States, a real estate research firm projects — but will the new stock ease pressure on rents?

Rent Cafe estimates about 26,000 new units from 95 projects will come online this year, outpacing larger metro areas like New York City and Los Angeles. Most of that growth will come from within city limits, with a staggering 16,000 new units, but outlying cities like Katy and Tomball are each expected to see more than 1,000 new units open this year.

But whether new housing stock and a subsequent increase in the Houston area's vacancy rate will make rents cheaper depends on a number of factors, said Bruce McClenny, president of Houston real estate research firm Apartment Data Services.

For one thing, McClenny said many of the units coming online are higher-priced than existing apartments. That explains why average rent has increased over the past year, to $984, even as the vacancy rate has tumbled several points. Overall, McClenny said rents for all property classes rose 1.4 percent in the past year — which compared to steep rent hikes between 2011 and 2015 was a welcome respite for renters. But this decrease was not spread evenly across all apartment classes.

A glut of expensive Class A units (more than $1,398 per month) may cause rents for those types of properties to sink — but that will have little effect on average Houstonians living in older, less desirable class C and D apartments (at the bottom of the price scale). Rents for Class B apartments (about $819 per month), which compose more than half of the area's rental housing stock, have flatlined, McClenny said. Areas with lots of new construction — McClenny demarcated the area as from 610 around the Galleria west to Katy and north to The Woodlands — put pressure on existing apartment complexes to lower rents. Buildings in neighborhoods with fewer new projects have less incentive to alter what they charge tenants.

But all factors considered, McClenny said this is a renter's market.

"Now we've had a downturn in the economy, more supply, not as many people looking," McClenny said. "Landlords are decreasing rent by adding specials, like adding two months free…I'm assuming the word is out there are deals to be had out there."

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