Make no mistake: Those involved in North Texas residential real estate are thrilled with the robust job growth, corporate relocations and expansions, and demographic shifts pushing thousands into new homes and apartments. It’s all creating significant increases in both sales prices and rents. But the fervent demand also is putting immense pressure on developers and builders to crank out new product, and on agents to secure and close sales.
Fortunately, the region is home to some of the most talented industry players in the nation. In its October issue, D CEO honored six of them with its inaugural Residential Real Estate Awards: Gables Residential, Hillwood Communities, StreetLights Residential, Terra Verde Group, Trammell Crow Residential, and Robbie Briggs of Briggs Freeman Sotheby’s International, our Residential Real Estate Executive of the Year. (Links to stories about the winners are at the end of this post.)
Like other major metros, Dallas-Fort Worth has seen housing market swings before. But this upturn is unchartered territory, Briggs says.
“I can’t ever remember a cycle like the one we’re in now,” he says. “There is so much growth in Dallas and Fort Worth, in all directions. And it doesn’t seem to be false growth—it’s all real. Toyota’s headquarters, Liberty Mutual, Facebook coming into Fort Worth—it’s not speculative. On top of that, the growth of the medical industry is phenomenal, with all of the new hospitals.”
It’s created the false impression, though, that real estate agents have hit easy street. In reality, they’re working harder than ever. Briggs says: “If they have clients trying to find something in the Plano-Frisco area, a home might have 15 contracts on it.”
Lot developers and homebuilders are doing their best to boost inventory. They’ve been stymied, however, by a shortage of construction workers, spiking land and materials costs, and the torrential rain that swept through earlier this year.
“That put the builders behind by two or three months,” says Ted Wilson, principal at Residential Strategies Inc. “They all have huge backlogs and are scrambling to get units built.”
The Great Recession pushed construction laborers to get into other lines of business. Many migrant workers went back to Mexico—and they’re finding it more difficult to return to the states. On top of that, owners of what are typically family-run subcontracting companies are dealing with offspring who want to get desk jobs instead of working in the trades. “It’s encouraging, because it shows the American Dream is alive and well, but who is going to fill these jobs?” Wilson says. “Politically, we should be making it easier for Mexican workers to come here, not harder. They are not heralded in our society, but these workers perform a vital role in making the wheels turn every day.”
Another challenge for developers is securing approvals from municipalities, says Fred Balda, president of Hillwood Communities. “Cities got skinny in the downturn and don’t have enough people to process designs, engineering, and entitlements,” he says. “We’re doing about 2,000 lots a year locally. We could easily double that and still not meet demand.”
The dearth of single-family homes is creating even more customers for multifamily developers, which are already getting plenty of business from millennials. “Without multifamily, the housing shortage in North Texas would be exacerbated,” says Steve Bancroft, senior managing director of development for Trammell Crow Residential. “By most accounts, this is the best multifamily market that Dallas-Fort Worth has ever seen.”
Millennials, which the government defines as those born between 1980 and the mid-2000s, are packing a one-two punch. Not only are millions hitting that magic 22-year-old mark—prime time for apartment rental—but older millennials are delaying milestones like marriage and home ownership. Many are opting to pay off student loans first, and rigorous lending requirements are making it more difficult for first-time buyers to qualify.
It’s the baby boomers, though, who will drive multifamily demand in the future. According to a recent report from the Federal Reserve Bank of Kansas City, older Americans are “increasingly downsizing,” especially as they enter their 70s. The oldest boomers will turn 70 next year.
Sue Ansel, president and CEO of Gables Residential, says her company is experimenting with bigger floorplans to meet the needs of baby boomers. “As an industry, we haven’t done a good job of providing the size of apartments that generation wants,” she says. “They’ve accumulated things that don’t necessarily fit into an 800- or 900-square-foot apartment home.”
StreetLights Residential’s newest project, The McKenzie, a 22-story high-rise at Harvard Avenue and Tracy Street in the Knox-Henderson area, is designed to cater to that emerging base with much larger units, higher-end finishes, and amenities like concierge and valet services. “It’s really for residents who would choose to sell their homes and have this as a rental option,” says Doug Chesnut, StreetLights’ CEO. “In our experience, this market has not been tapped, outside of the northeast and in places like San Francisco and Los Angeles.”
Even with brisk development, demand has pushed North Texas apartment occupancy to 95.5 percent, according to statistics from Axiometrics Inc. Annual rent growth in Dallas came in at 6.4 percent in June.
“When we project the top-performing markets for rent growth and occupancy, typically they’re on the East Coast or West Coast,” says Jay Denton, senior vice president at Axiometrics. “Now Dallas is up there with that group, and we expect that to continue going forward.”
Rent growth is expected to moderate to around 4 percent over the next three years, but ongoing increases likely will compel renters to begin considering other options. Some, Denton says, will look at doubling with a roommate. It could also push more renters into—you guessed it—home ownership.
But affordability is a looming concern for the single-family market, too. Interest rates are bound to tick up, says Wilson of Residential Strategies, and another 15 percent increase in housing prices would not be surprising. “The impact of those two increases means a typical payment for the same house could become 25 percent higher than it is today,” he says. “Builders are looking at the situation and scratching their heads. The hope is that, with the very tight employment situation we have right now, increases in wages will be forthcoming.”
Read about the winning projects and developers in D CEO’s 2015 Residential Real Estate Awards here. Click here to read about Residential Real Estate Executive of the Year Robbie Briggs. And click here to see a photo gallery from the awards event.