When Higher Rents Are a Good Thing
The recession that put a death-grip on the U.S. economy starting in late 2007 took toll on almost every segment of the U.S. economy. From the housing industry to the financial markets to the jobs market, most Americans have felt more than a pinch from what is now commonly referred to as the greatest economic collapse since the Great Depression. In particular, the vast majority of Americans most affected by the recession either lost their house, their job, or both. The ramifications of millions of people losing their jobs and their homes were multiple with devastating consequences for the entire U.S. economy. Only recently have there been signs that the dark cloud that stubbornly parked overhead is starting to dissipate, and in Houston, the light peaking through the clouds is an improving jobs market and a construction industry that depend on a healthy labor market.
In Houston, one of the signs that things are indeed improving is an overall unemployment rate of just 7.1% versus the national average of 8.3%. Houston is putting more Americans back to work in high paying jobs, which comes as no surprise considering that this southwest urban center is the epicenter of the U.S. energy industry. It is estimated that in 2012 Houston’s many corporate giants, healthcare centers, and school campuses will create more than 60,000 new jobs in addition to putting many of those that lost their old jobs back to work again. The influx of new workers into the greater Houston area is the driving force behind a rise in new apartment construction and along with greater demand for housing, higher rents.
On the surface, higher rents aren’t normally the kind of thing to stand up and cheer over. However, rent, like interest rates do reflect the state of the economy. Interest rates hovering at record low levels are certainly great if you need to borrow money, and can actually find a lending institution willing to make a loan. But at the same time, record low borrowing costs are one of the main indicators of stagnant economic growth and slack demand for investment capital. To some extent the same can be said for rents with low rent being a good thing, but not really a sign of vibrant economic activity in a particular city. Such is the case in Houston, where higher demand for apartment housing based on more people being hired into the local economy means that, ‘Houston, we may not have a problem after all.”
In the U.S. builders are seeing much greater demand for apartments with permits to build new apartments surging by 68% over the last six months to 285,000 permits. And Houston is doing its part to keep up the pace with more than 3,500 new units being constructed this year alone and more than 8,500 units to be under construction in the coming months. A corollary to more people working and looking for a nice apartment to chill during their down time is that rents are also on the rise. With the vacancy rate for Houston’s high-end rental properties now hovering just under 94%, greater demand will push prices higher, especially considering that most of the new units now under construction won’t be ready until the end of 2012.
Higher prices always gives rise to new players coming into the market and established players increasing their investment and presence, and the same is true for multi-dwelling housing in Houston. One large real estate firm responsible for building many of Houston’s skyscrapers intends to expand its multi-family business, announcing a new 300 unit project to be built on a site near the Williams Tower.
Houston is indeed a city on the mend and while higher rent isn’t exactly the first thing that economists will point to as a sign of better fiscal health, it is certainly the consequence of better economic conditions and a better jobs market in Houston. And while a higher monthly rent payment will give almost anyone a headache, perhaps the better paying job that you can now find in Houston will help to ease the pain.
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