We know from the cranes: apartments are going up in Dallas like crazy.
More than 7,200 apartments are being built in North Texas right now to satisfy the need for more rental housing. Most construction projects, like homes, are almost non-existent, the Home Builders Association has lost almost a third of its members, but construction workers are hammering away on multi-family projects.
Steve Brown reports that “Dallas-Fort Worth apartment starts are up more than 80 percent this year, while single-family home construction continues to fall. And the area leads the country in apartment building.”
We need the nation in home sales, now Texas leads in apartment construction. Texas really is like it’s own country! Experts tell Steve we will stay put as the number one building center for a while: tenants are knocking the leasing office doors down and apartment occupancies are at all-time highs. Will we overbuild? Probably, but apartment building in Dallas-Fort Worth is still less than half of what it was before the recession and credit crunch.
Net leasing has outpaced apartment completions in North Texas for more than two years. Mike Puls of Foley & Puls says demand is better than we have seen since the 1980s, since there are fewer young people today who can afford a home and more people moving to Texas. He called it a structural change in the mindset of the consumer: older households don’t want to own anymore because they don’t see the value in the investment. Younger people can’t get jobs and move in with mom and dad.
I know of a very smart couple who shed their home not too long ago.
“I am paying $3000 a month for rent and they have to cover all the repairs,” he told me. “I love it. In my home I was paying twice that per month and where was it going?”
But these tenants are a sophisticated crowd: developers know they have to provide a higher-quality product to attract and maintain renters. The market is too competitive to be be cutting corners, says Brian Tusa, managing director with builder Alliance Residential, who is building in Dallas like there’s no tomorrow.
One of the most expensive Alliance projects to date is a 303-unit apartment building under construction on Market Center Boulevard in Dallas’ Design District — my husband asked me about it when we were going downtown the other day.
Alliance has other projects across the area: Lewisville, North Fort Worth, and the Medical District near Parkland Hospital, which is exploding, as I reported about a year ago. JLB Partner’s is building on Maple Avenue, and just opened a 281-unit apartment project on University Drive east of Southern Methodist University: already 50 percent leased.
JLB is also hammering away at a 372-unit apartment complex east of downtown on Ross Avenue, and has started 300 units on North Central Expressway in Cityplace.
Everyone, said Sherwood, wants to come to Texas to do something. But with tougher lending standards, he doubts that all the proposed projects will actually get built. Of 15,000 to 16,000 units on the planning sheet, Sherwood says maybe 8,000 to 10,000 could actually be completed.
One thing for sure: rents are and will continue to go up. Average D-FW rents have risen about 9 percent since the end of 2009, and are forecast to increase 4.4 percent. The average Dallas apartment rent is $800 a month, but these snazzier units go for much more — $1500 to $3000 a month. Most experts agree that as rents go up from higher and higher demand, buying a home will look better and better.
But we have problems with that.
One, financing is much harder to get and shows no sign of easing.
Two, 20% down is the new down payment norm. That means a young couple buying a $300,000 home need to have $60,000 saved up for a downpayment.
Three, the unemployment rate exceeds 17 percent for the younger Gen Y’ers, compared to 7 or 7.5% wth Baby Boomers.
Four, Gen Y is more mobile and may prefer leasing over buying after seeing parents and older sibs with underwater mortgages. We are becoming a renter nation, and the smart commercial multi-family builders are all over it.