Ben Schwertner won't pay next month's rent.
The 28-year-old from Lubbock isn't forgoing payment out of protest or because he can't afford it. He's not paying because he doesn’t have to.
When Schwertner signed a lease for a one-bedroom apartment near the Austin airport earlier this year, the management company extended him a sweet deal: one month rent free. It’s a tactic used by companies to fill apartments when they sit empty.
“I get to live in a space that felt previously out of my reach,” Schwertner, who works at the University of Texas, said. He pays $1,470 a month for an apartment with a bathtub separate from the shower, a luxury he never imagined he could afford. With March rent waived, he will pay closer to $1,350 a month over his year-long lease.
Austin has something it hasn’t had for years: a glut of new apartments. Fueled by a surge in migration to the city and low interest rates at the start of the pandemic, builders began turning soil on a dizzying number of new rental homes.
But two years into the construction boom, building costs have ballooned. Interest rates have more than doubled. And while thousands of new apartments have brought rent prices down and provided some financial relief for people like Schwertner, developers can no longer make the same kind of cash. So, they're tapping the brakes on new buildings.
“I’ve talked to a number of people who’ve said we've kind of hit the pause button,” Charles Heimsath, president of Capitol Market Research, said.
The realities of the real estate market are now up against an ever-growing refrain from politicians and policymakers in Austin to build more. As more homes go up, prices go down — a phenomenon supported by troves of research. But once prices go down and the cost of building goes up there’s less money to be made and less incentive to keep building.
“It's an unavoidable side effect of how we mostly provide housing in this country, which is through privately owned, profit-motivated real estate development and ownership,” said Jake Wegmann, professor of real estate at UT Austin.
More homes go up, rents go down
Austin’s population grew by nearly 100,000 people in the first years of the pandemic. With buying a house increasingly out of reach, more people sought out rental homes. The average price of monthly rent jumped 24% in one year. Some renters had to outbid their neighbors to get a home.
“Think of all the ingredients together: rising rents, rock-bottom interest rates and a huge amount of migration to Austin from other cities,” Wegmann said. “It seemed like a really great place to get into the apartment-owning business if you weren't already in it.”
As the joke goes, the official bird of Austin is the crane. The construction crane.
This may have been most true in 2022. In the first few months of the year, developers in the Austin area started construction on nearly 13,000 apartments. (This does not include homes reserved for people earning low incomes.) That’s double the number builders broke ground on a year before.
Builders spent the next couple of years finishing framing, installing windows and turning over brand-new apartments to management to lease. By the end of 2023, just over 10,000 new apartments were available to rent in the Austin metro. At the same time, the rate of people moving to the city slowed.
Rents began to fall. In May, the average price of rent year-over-year declined for the first time since 2020. Average rents have continued to fall and are now down 6% compared to this time last year. And rent prices are falling across the spectrum, not just for new apartments with lavish amenities such as gyms and swimming pools, but also at older complexes where renters may do battle with outdated appliances and unsanitary conditions.
Mycah Miller has lived in a 1960s-era apartment in Hyde Park for the past two years. Last year, her landlord raised the rent by nearly 15%, to $1,500 a month. A graduate student at the time, she worried about the increased cost. When her landlord came by for a plumbing repair, Miller mentioned she was considering a move to a cheaper place.
Weeks later, she got an email. Her landlord was lowering her rent to $1,460 a month.
“I was definitely surprised because the area that I live in is in high demand,” Miller said. “I've never seen an apartment in my building be vacant for longer than the transition period for people to move out and people to move in. So, I was kind of shocked.”
Forty dollars less a month is not a big drop, Miller noted. Despite declining rents across the region, prices are much higher than they were before the pandemic. Researchers with the Harvard Joint Center for Housing Studies found that in 2022 nearly half of tenants in the Austin metro were spending at least a third of their income on rent. Recently, officials said 7,000 families had applied for rent help from the City of Austin; they estimate there is only enough money to help a quarter of those families.
"It's not like there has been a complete course correction in our economy,” said Awais Azhar, deputy director of HousingWorks Austin.
Rents go down, new construction goes down
Revolve ATX is a new 300-apartment complex now open near Austin Community College's Highland campus. It features a game room, a coffee bar and a podcast suite, according to its website. Currently, you can rent a one-bedroom for $1,428 a month with one month rent-free. For a year-long lease, that means paying closer to $1,300 a month.
As places like Revolve ATX were being built, the financials of housing were changing. In the middle of 2022, interest rates began to rise. Buying land and paying for construction became more expensive.
Some developers sold off projects. Others held onto developments, but adjusted their plans, no longer guaranteed easy cash by building apartments.
“We did have a piece of property that we thought could work really well for a rental project,” Brad Stein, the president of Intracorp Texas, said. “We couldn't pull all the pieces together to move forward as a rental project. And now that project will be a condo project.”
At the end of last year, developers began building just under 4,500 new apartments. That represents a drop of 42% in the number of new rental homes started compared to two years before.
Real estate experts agree that rent prices should continue to drop as thousands of new apartments that builders began constructing during the boom become available to lease. While building has slowed, developers can't halt mid-project.
This is characteristic of how quickly builders can respond to changes in the housing market. People can move to a new city faster than developers can build an entire apartment building. Real estate experts and builders in Austin estimate it can take up to five years — from land purchase to leasing — to build a new complex.
“Demand is a gazelle and supply is an elephant,” Wegmann said. “Decisions made years ago are only now coming to fruition with apartment buildings opening up.”
The name of the game
Over the past year, Austin politicians have altered land use policies in the pursuit of making it easier to build and to build more. Developers are no longer required to construct parking alongside homes (although they likely still will). A landowner can now build up to three homes on a piece of land where historically you could only build one or two.
But allowing people to build doesn’t mean they will. And if they don’t, that means rent prices could reverse their descent.
"If everybody stopped building because things are more expensive, you could end up in a situation where you are back in the undersupply situation again and rents start rising,” Julia Coronado, a professor of finance at UT Austin, said. It’s the way a capitalist market works — if there is no money to be made, no one will build. “That is the name of the game.”
Economists and real estate experts argue now is the time for the government or philanthropic institutions to find ways to make building cheaper — ensuring a profit for developers and continued falling rents.
"I really don't like this analogy because I don't like cars. But this is kind of that place where we have to make sure that we keep our foot on the gas pedal,” Azhar said.
Wegmann with UT Austin says there's an opportunity for those who build low-income housing to start scooping up land. They could benefit because of less competition from other developers, assuming they too are not squeezed out by the high cost of building.
“When things slow down and building stops, that's a great time to either build subsidized housing or for the government or for nonprofit entities to acquire existing market-rate developments,” he said.
Meanwhile, Schwertner, the 28-year-old with the bathtub separate from his shower, wonders if this year’s low rent was just a fluke. If next year he’ll await his lease renewal the way Austin renters have for years: with nail-chewing dread.
“What happens when my renewal time comes?” he said. “In a year, will they be willing to keep my rent around the same? Will it go up a little bit? Will it go up a lot?”
