According to an Austin Business Journal article1, the Austin region will require more than 100,000 extra housing units by 2035 to meet demand. According to a survey commissioned by the American Apartment Association and the National Multifamily Housing Council, Austin ranked as the top city in the country for apartment demand. The NAA claims that there is just not enough housing nationwide or in the Austin region. On top of a 600,000-unit shortfall and the loss of 4.7 million affordable apartment dwellings, the United States has to construct 3.7 million additional apartments only to keep up with projected demand.
AUSTIN’S TECH BOOM MAKES IT THE NEXT SILICON VALLEY DRIVING DEMAND FOR APARTMENTS.
Austin has developed into a hub of activity, particularly in the IT industry, due to its location virtually in the geographic center of Texas and its proximity to all of the other major cities in the state. The University of Texas at Austin, which offers dependable work in the public sector and ongoing education, is located in Austin, the state capital of Texas.
The expanding tech-based economy, which is driving Austin’s population expansion and the need for homes throughout the metro area, is what has, nevertheless, contributed to the city’s explosive rise on the global stage. With 931,820 residents as of 2015, Austin is the second most populous state capital in the US, only behind Phoenix, Arizona, and Texas’ fourth most populated city. With 2.056 million inhabitants, the metro area is the 31st most populous in the country.
High-tech businesses are moving to Austin due to the city’s strong economy, hospitable business climate, and a sizable workforce of millennials. Because of this, several Silicon Valley titans, such as Apple, IBM, Samsung Austin Semiconductor, and Dell, continue to have a sizable presence in Austin. Newly graduating young professionals who want to start their careers in exciting high-tech fields without having the government take a sizable piece of their salary find Texas’ cheap taxes and lack of a state income tax to be highly enticing aspects.
Austin continues to attract business investment. One of the longest streaks among comparable cities, the yearly employment growth has been about 4% for 45 straight months. Even better, many of these professions pay well, making it a city of the future, especially for younger generations.
Austin is a top destination for real estate investors wishing to enter the rental market due to the region’s predicted sustained population expansion, particularly with millennials and younger professionals. Millennials frequently favor renting over buying as they start to establish their lives. Also, renters have been deterred from becoming purchasers for longer than in the past by rising housing prices and borrowing rates.
Austin Has a Wonderful Population for the Rental Market
Without the existing significant presence of competent employees and the anticipated future population growth, there would not be this increase in employment. That is indeed what is occurring in Austin, but it is not just due to the robust employment market.
Moreover, Austin is home to more than 200 parks, as well as several lakes, rivers, and other outdoor recreation areas.
Austin was the third-fastest-growing city in the nation in 2016, while Georgetown, a nearby suburb located approximately 28 miles south, was the fifth-fastest-growing city in the nation in 2017. Austin’s population is expected to increase by 10.3% by 2020, the highest growth rate of any U.S. metro area, bringing the population of the city to over 1 million.
The 20 to 34 age group is the largest cohort in this population expansion. This group grew by 12.4% in Austin between 2011 and 2016, which is nearly three times the national average. No of the area, this is the group of people that are most drawn to the rental market. As they are just beginning their adult life, these young professionals frequently delay entering the housing market. Instead, many choose to live in rentals while they establish themselves in the workforce or as they begin their own families.
As interest rates rise nationwide and, in particular, as housing prices continue to rise in Austin, more individuals are choosing to stay in rentals rather than make the move to homeownership. By the end of 2017, the typical single-family investment price had climbed by a significant 11% year over year to $275,000. This continues a pattern over the previous five years, during which time price increases for investment homes have generally averaged over 10%.
The single-family rental vacancy rate has therefore fallen below 5% and is anticipated to stay there until the end of 2018. Long-term fundamental market improvement is anticipated to gradually replace short-term rivalry as new inhabitants absorb the inflow of newly constructed apartments. 14,100 single-family dwellings were permitted annually in the fourth quarter of 2017, which was somewhat on pace with the third quarter. Developers of multifamily housing obtained 4,300 permits during that period, a significant 26% decline from the prior year.
Because of this, the rental housing market is quite competitive. It is anticipated that the competition from new flats and single-family homes would push up the vacancy rate by 40 basis points, to 4.9%. Single-family rental rates are anticipated to average $1,705 per month at the end of the year, a 2.1% increase over 2017.
Since house prices are rising so rapidly and the return on investment may be a little tougher than in the past, savvy investors are getting pickier when they search for regions to invest in Austin’s single-family sector. While the average cap rate now hovers around 4%, older houses in the C neighborhood might change hands for first-year returns that are closer to 6%. In 2019, it’s anticipated that a general slowdown in apartment construction would enable more growth in the single-family rental market.
Austin’s Economy is Strong
Due to its location along the Colorado River, Austin was established in the 1830s by settlers. The position was beneficial at the time and has remained so as modern development spread across the nation. Austin took over Houston as the Republic of Texas’ capital just nine years after it was first established.
Austin became a significant regional commerce hub following the Civil War as a result of the building of the Houston and Texas Central Railway, and the Missouri, Kansas & Texas rail line was constructed shortly thereafter.
Early municipal development and beautification initiatives in Austin helped to build much of the city’s infrastructure and make it a tranquil and appealing place to live.
Austin started to develop itself as a corporate and technological center in the 1990s. Tech businesses started to swarm to the area to take advantage of this highly educated and talented workforce as a result of the huge population of students and recent graduates from the University of Texas at Austin and other higher education institutions. Austin started to adopt its present moniker of Silicon Hills at this point, in addition to having strong employment figures in the public sector and in academia.
Nowadays, Austin is home to the regional offices or headquarters of a number of Fortune 500 firms, including
- 3M
- Amazon
- AMD
- Apple
- Cisco
- Dell
- eBay
- General Motors
- IBM
- Intel
- Oracle Corporation
- PayPal
- Texas Instruments
- Whole Foods Market
A strong economy is the product of all this activity. The GDP increased by approximately 5% yearly between 2013 and 2017. With an unemployment rate of 2.9% in April 2016, Austin has the lowest rate among major cities. According to CNN and the Kaufman Foundation, Austin is the finest location in the country to establish a business in the technology sector.
The following are further forthcoming job and development market highlights:
- At the adjacent Round Rock, construction on a waterpark and conference facility with an African theme has just begun. The 1,000 guest rooms, 200,000 square feet of conference center space, and 10,000 square feet of retail space are all part of the $550 million project.
- Recently, Austin-based internet job search company Indeed negotiated a deal for an office facility measuring more than 600,000 square feet. The business plans to increase its present 1,600 employees by as many as 3,000.
- In the first quarter of 2019, HomeAway.com will move its worldwide headquarters to Downtown Austin. This will create hundreds of new positions in its 315,000-square-foot building.
- By the end of 2018, Progressive Insurance will have hired 7,500 people countrywide, with 10% of those employees working at the contact center in southeast Austin.
There might not be much potential for considerable job growth in Austin with an unemployment rate as low as it is currently. Instead, it is most probable that payrolls will be where the rise occurs. In 2017, there was a 3.2% growth in payrolls, and future projections indicate that the trend will continue.
Austin Investment Locations
With the aforementioned elements, it is obvious that this is a fantastic moment to invest in the Austin home market. Both inside the boundaries of the city and in the suburbs, there are numerous investment opportunities. The city’s real estate market could be a little more challenging with all the new buildings and high-rise growth, though. So many investors are searching for chances on the outskirts of Austin.
Here are a few excellent single-family home investment prospects in the Austin metro area.
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Lago Vista, Texas, 21709 Crystal Way
A suburb of Austin, Lago Vista is situated about 35 miles northwest of the city center. This 1,556-square-foot house features three bedrooms, two bathrooms, and a living area. A $211,211 purchase price and a $61,639 investment would result in a predicted rent of $1,750 per month for the owner. It would produce a gross yield of 9.94% and an operating profit of $10,093.
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Round Rock, Texas 602 School Days Lane
Almost 19 miles to the north of the Austin city center is the suburb of Round Rock. This two-unit, 1,628-square-foot house offers four bedrooms and four bathrooms. A predicted monthly rent of $2,100 could be obtained for a purchase price of $259,000 and an investment of $84,020. An investor would receive a gross return of 9.73% and a net operating income of $9,642 as a result.
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Austin, Texas, 9616 Point Vista Place
About nine miles separate this property’s location inside the city boundaries from Downtown Austin. It contains two apartments and 1,632 square feet of living area, four bedrooms, and two bathrooms. A predicted monthly rent of $2,150 could be obtained with a purchase price of $274,900 and an investment of $88,472. An investor would receive a gross return of 9.63% and a net operating income of $12,386 as a result.
CONCLUSION
Since Austin, Texas, is expected to remain a major center for technology for a very long time, there will likely be both young and old workers who, in essence, need a place to live as part of their existence. Research and insight from numerous organizations and writers have shown the public that apartment demand will continue to rise, and investors should seize the opportunity to build wealth in their real estate business.
As informed investors, we should understand the risks associated with real estate investing and that there is no guarantee. Please do your due diligence.
