KUT's Nathan Bernier reports:
Apartment prices are at a record high in the Austin-area, averaging $1.15 per square foot, according to a report by Austin Investor Interests.
More people are moving to Austin and there hasn’t been a lot of new apartments constructed, although that is changing. But many of the new apartments being constructed are centrally located and aren't cheap.
There are construction cranes all over downtown, West Campus and South Lamar. But the new construction has lagged demand. The Great Recession wrecked the financial markets, and construction lending recovered after demand recovered. And there is always a natural lag for residential construction, particularaly for infill apartment construction, which takes a long time to complete. So while there is a lot of stuff in the pipeline, very little has been delivered recently.
That residential supply in the pipeline has zero impact on current rents. None. Zilch. No one will charge a tenant less rent today to compete with apartments that will not come on line for a year or more.
The point is this: today's rental market is indistinguishable from a market in which nothing is being built. If you want to know what a low-housing supply strategy looks like, you're looking at it. Record high rents. Constant complaints about the lack of affordable housing. Renters being pushed out to the suburbs or forced to double up.
This is ridiculously obvious (I think). But people still get confused. They see all the construction cranes, they see the high rents, and they infer causation. There is causation, but it's the rents causing the construction cranes, not vice versa. No one can propose a credible mechanism by which the mere act of commencing construction on an apartment building will raise rents in the area.
And this is worth bookmarking because people will really get confused once the new housing hits the market. The way the market dynamic works is, unless Austin's economy collapses, rents will continue to rise until enough new housing supply comes online to moderate them. This, in turn, means that the rent peak will coincide with a massive influx of shiny, new, expensive apartments. People who wouldn't blame today's high rents on the new supply (because there is very little) won't hestitate to blame the high rents on new supply then. They will have conveniently forgotten that rents were rising long before the new supply hit the market.
