Statewide Trends in Apartment Data

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Statewide Trends in Apartment Data

California, Texas and Florida

By Louis Rosenthal | Tuesday, January 24, 2017

In analyzing apartment market research, we typically use metropolitan areas as the unit of analysis. Metro areas capture not only the core urban areas of cities across the U.S., but also the interconnections between urban-core areas, suburbs and exurbs. Metro areas are useful because they concentrate employers, workers, and entrepreneurs within one easy-to-use geographic unit.

But metro areas also obscure economic activity that occurs regionally or statewide. The individual states also are worthy of analysis because the cities and towns within a single state share a similar institutional and regulatory environment — one that changes simply by crossing state lines. Rather than analyzing apartment data at the metro-area level, what follows is a look at statewide apartment fundamentals to see how they correspond with national and metro-level trends.

First, consider the largest state by population, California.

California rent growth

The statewide market for California apartments bottomed out at -9.0% rent growth in September 2009, at the depth of the Great Recession. The initial recovery period lasted from late 2009 until July 2011, when rents grew by 6.1%, before holding steady around 4-6% through early 2014. California’s peak rent growth for this cycle was 8.0% in March 2015. Since then, rents have fallen by almost 500 basis points, with the November 2016 rate at 3.5%, the lowest it’s been since February 2013.

California Apartments Metro ERG

When we compare metro-level rent growth to statewide rent growth, we see that the Bay Area (which actually consists of two metro areas, San Francisco-Oakland and San Jose) has had the sharpest swings in apartment performance, sometimes pulling up the statewide average (as in the early years of the economic recovery) and sometimes dragging down the statewide average (as we’ve seen since the start of 2016). Los Angeles and San Diego rent growth tends to track the statewide average, with San Diego currently performing higher than the state, Los Angeles and the Bay Area markets.

Texas Apartments rent growth

Texas has had a slightly slower recovery from the Great Recession compared to California, at least from the perspective of the multifamily market. Texas entered positive rent growth territory in August 2010, while California reached positive rent growth in May of 2010. However, the Texas apartment market bottomed out at only -7.3%, compared to California’s recession-era low of -9.0%.

After peaking at 6.9% in July 2011, Texas held steady with an average of 4.9% rent growth from mid-2011 through late 2015. But in 2016, Texas rent growth has moderated to 1.1% in November, down from 3.8% in January, primarily because of Houston’s dramatic falloff caused by plunging oil prices and resulting economic slowdown.

Texas Apartments Metro ERG

Looking at statewide performance compared to the three largest metro areas in Texas, we see that Austin had a much faster post-recession rebound than Houston, Dallas-Fort Worth and the statewide average. In fact, Austin’s peak rent growth this cycle was 10.5% back in July 2011; since then, the Austin metro area has generally tracked that of the statewide average.

Also, note that the Houston metro area had the slowest post-recession rebound, and is now facing the steepest fall-off in rent growth. The decline in Houston’s fortunes is so severe that if we remove Houston from the statewide average calculations, current Texas rent growth would have been 3.4% in November instead of 1.1% with Houston included.

Texas, Florida, California Rent Growth

Finally, Florida, compared to Texas and California, had the fastest post-recession rebound, entering positive rent growth territory in the spring of 2010. However, Florida rent growth stabilized at a much lower level than the other two states.  Hindered by Houston’s weakness, Texas’ rent growth leveled off in late 2014 as California and Florida continued to rise, but all three states declined at about the same rate beginning in late-2015.

Florida Apartments Metro Rent Growth

The metro-level trends in Florida show fewer deviations from the statewide average compared to Texas and California. For most of the time period considered here, the Jacksonville metro area has underperformed the statewide average, sometimes significantly so. As it stands today, Florida’s statewide average rent growth was 3.4% in November; Jacksonville recorded 2.1% rent growth; and Miami achieved only 1.8% rent growth. Orlando, another major Florida metro area, is not shown in the chart above, but it tracks very closely with Tampa’s performance.

The strongest predictor of apartment rent growth is job growth. More jobs mean more employees, which in turn means higher demand for housing. Generally, we track job growth at the metro level, but statewide job growth also tracks rent growth.

California Job Growth

Texas Job Growth

Florida Job Growth

While job growth serves as the demand-side driver of apartment market performance, new supply levels (measured in number of new units delivered) serves as the supply-side driver. Of course, Texas, California and Florida feature very different housing development environments, with California being notorious for its low housing inventory in the state’s most productive metro areas.

California, Texas, Florida Permitting

Some 50,000 multifamily permits were issued in Texas from November 2015-October 2016, compared to 47,000 in California and 36,000 in Florida. Although the three states considered here are the most populous states in the country, there are roughly 7 million more people in Texas than Florida and about 12 million more people in California than Texas. A better way to look at new supply levels, then, is to look at new apartment units per-capita.

Texas and Florida permitting agencies authorized about 180 new multifamily units for every 100,000 people over the last year. California, with its population of more than 39 million, issued only 121 units per every 100,000 people. It’s no myth that California is undersupplied relative to the rest of the country and relative to its own job-growth figures.

When it comes to investment, development and management decisions in the apartment market, we often pay careful attention to supply and demand factors at the market or submarket level. However, a more complete picture of the market should include statewide dynamics, which in turn trickle down to the metro and submarket levels.

Louis Rosenthal

Louis Rosenthal

Real Estate Analyst

Louis Rosenthal researches and analyzes current apartment trends in the United States and correlates them with economic indicators. He also studies the urban landscape and other metrics to develop in-depth reports and presentations for clients. Louis recently earned his Master of Science in Public Policy, focusing on housing, landuse patterns, real-estate dynamics and economic development. He combines that knowledge with his four years of practical experience in tax analysis, regression analysis and presentations to develop insightful analysis. An accomplished writer, Louis’ work has appeared on Forbes.com and Axiometrics’ blogs, among others.

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