Over the last 10 years, perhaps no market saw its star shine brighter than Austin. Population growth. Job growth. Company relocations. Perched at the top of every “Best of” list that was produced. We emerged into a national and even international city in a way that never registered as we were growing up here. The pandemic accelerated all of that and the roof blew off the top.
Over the last two years, perhaps no market has taken more figurative bullets than Austin. Everyone’s home was now overvalued, there were massive affordability issues everywhere, and the bloom was off the rose. We are way overbuilt and leading the country in supply, and the bottom is falling out on rents and occupancy.
As with most things, you can’t just rely on skimming headlines. You have to dig a little deeper to get the real story. When you do, you will find it’s likely never as good or as bad as the headlines suggest. At Wildhorn, we’ve recently been spending a lot of time digging into the details and reading past the headlines. There has been a lot of new market data coming out looking at the first half of 2024, and future forecasts are being updated and revised. With our focus on Central Texas real estate investments, it’s critical we understand our local data to inform our investment decisions and criteria.
Our big takeaways from reviewing the data:
- The Sky Isn’t Falling.
- The Sun Will Come Up Tomorrow.
We don’t say that flippantly, or through the lens of any sort of rose-colored glasses. The story of Central Texas continues to be “up and to the right”, and when you look at things from a long-term perspective it’s clearly a market that we want to continue investing in.
As we consistently preach, the two biggest data points we track for our business are population growth and job growth. When you’re in the housing business, those are points 1 and 1A. We continue to score extraordinarily well on those metrics.
Between 2014-2024, Austin has seen more job AND population growth (on a percentage basis) than any other market. We saw 30% population growth and 48% employment growth over the last 10 years.
Between 2014-2024, Austin has seen more job AND population growth (on a percentage basis) than any other market. We saw 30% population growth and 48% employment growth over the last 10 years.
Today the population sits at 2,500,000; we are expected to top 3,000,000 by 2033 and add ~52,500 people per year through 2034.
From Q2 2021 – Q2 2024, Austin saw 19.65% growth in employment, again leading the nation.
Austin is projected to lead the nation in employment growth over the next five years at 8% while experiencing 13% growth in GDP.
What we find interesting about those metrics is how the very recent data and future projections show continued strength. Everyone knows about the rocket ship figures that emerged coming out of the Global Financial Crisis. But if you have been reading headlines in the last year or so, you’d think everyone was fleeing Austin, and it was going to be an overbuilt ghost town. That’s just not the case.
What is very real are the headlines that have shown Austin at or near the top in future supply/units being delivered and year-over-year negative rent growth. We’ve experienced that in our own portfolio over the last 18 months or so. But in looking at the data today you can see how the continued growth of the market can (and will) prevail—and just may crush the current expectations in the process.
Rents in Austin have declined by 9% since their peak two years ago. However, rents grew by 37% in the prior three years. Averaged over the last 5 years, Austin has seen a nearly 5% annual rent growth—that is well above the historical trend line of 3%.
The construction pipeline remains robust, with ~30,000 units expected to be delivered between now and the end of 2025. In the first half of 2024, 14,000 units were delivered. That equates to about 12% of our inventory being under construction, which has caused some of the market softness we’ve gone through.
On the flip side, the market is absorbing those deliveries better than anyone expected and rents have started to stabilize. Through the first half of 2024, we’ve already absorbed more units (12,400) than all of last year (9,100) and are on pace to beat the absorption record that was set in 2021. Over the last year, Austin ranks #2 nationally in percent absorption and #3 in nominal absorption.
Meanwhile, construction starts are nearly nonexistent and are down 93% from their peak in 2022. Getting a new project financed and started in the last two years has been nearly impossible. The result is that 2026 shows less than 4,000 new units being delivered, and less than half of those have actually started construction. Of the projects that will actually move forward, a large percentage are being built using affordability programs and will not have (many) market-rate units
As it sits today, Costar is projecting Austin rents to grow above 3% annually between 2025-2029, and those figures were calculated before the Q2 absorption data had come out. The reality could be much higher than that. Going back over the last 20 years, Austin has seen five years when rent growth doubled the historical average of 3%, and those usually followed a trough in the supply pipeline; we’ve never experienced a supply cliff to the extent we’re about to—will history repeat itself when we see rent growth of 6%, 8%, or even higher? It certainly seems possible.
There’s a lot there to digest here. If I’ve lost you in the numbers, let me give you our headlines:
- Austin experienced a ton of growth (jobs and population) that led to a lot of euphoria, rent growth, and new construction projects starting.
- We’ve got a temporary issue with supply coming online, which will impact rents and occupancy slightly over a two-year period that we’re halfway through now. Even with that dip accounted for, annualized rent growth sits above the historical and national averages.
- Once we enter 2026 there will be hardly any deliveries for several years, which will again put pressure on demand and drive rents higher than expected.
- The straw that stirs the drink continues to be the general growth and appeal of Central Texas. We are seeing that continue on both the population front and the job front.
Taken as a whole, this data tells us one thing—you want to be investing in a growth market. In times of boom and of bust, population and job growth will prevail. We believe it and will be putting our money where our mouth is as we look to acquire assets that are well-positioned to take advantage of these trends.
Many of the stats quoted above were taken from a presentation our friends at JLL Austin put together, which is full of even more great data and lots of good charts. If you’d like to see the entire presentation, please reach out and we can share it with you—or we’d be happy to connect you directly with the JLL team.
Andrew Campbell is a native Austinite and Managing Partner at Wildhorn. He is a real estate entrepreneur who first broke into the business in 2008 as a passive investor. In 2010 he transitioned into active investing and management of a personal portfolio that grew to 76 units across Austin and San Antonio. He earned his stripes building and managing his personal portfolio before founding Wildhorn Capital and focusing on larger multifamily buildings. At Wildhorn, he is focused on Acquisitions and maintaining Investor Relations, utilizing his marketing and communications background to build long-term relationships.
