Monday, December 11, 2023 Chad Swiateki
Austin’s diverse and growing economy has made the Central Texas region one of the most attractive real estate markets in the country in recent years, but local developers are looking for affordability, land-use policies and local labor supply. We believe that several recurring issues are affecting housing construction. and other building types.
A recent Urban Land Institute Austin luncheon examined emerging trends in real estate across the country, not just in Austin, which ranks as the No. 5 market in the U.S. based on a survey of ULI members nationwide. I did.
The continuing cost of debt due to high interest rates and weak demand for office space due to the shift to hybrid work are national trends that are being felt in Austin. Josh Parks, a partner at financial consultancy PwC, said the market for high-end Class A office space is likely to remain strong due to demand for premium features, but lower-margin Class B space is likely to default. Converting the space can easily occur or at considerable cost.
The move is significant in Austin, where some of downtown’s most high-profile office towers remain vacant.
Panelists said middle-income earners are struggling to make projects affordable, as rising interest rates have increased typical monthly mortgage payments for homes by up to 50%.
“The median home price in the metro area is approximately $430,000, and interest rates drive costs significantly higher, making single-family (development) homes affordable,” said Terry Mitchell, president of Momark Development. There is a price issue.” “If you live in an apartment complex, the typical apartment project costs $2 million more to finance than it did two years ago, and your rent doesn’t necessarily cover that.” If you do, you’re driving a tanker. Unfortunately, the demand is for speedboats, and speedboats can swerve toward you.”
Robert Lee, CEO and principal at Pearlstone Partners, said an ongoing problem with Austin’s housing crisis is that many residents are reluctant to add density to existing neighborhoods. He said it was true.
“The NIMBY problem still exists, but I’m baffled as to why people can’t understand the basic economics of supply and demand. If you increase supply from demand, prices should go down,” he said. He added that he sees local land-use policies as an obstacle to increasing supply.
“If you look at everything that’s coming out of the city because of the economic climate and the political environment, we’re probably going to run into difficulties again in terms of shipping. It’s not the end of the world, but we’re going to have a lot of trouble with the same issues. It takes a lot of time and effort.”
Lee also said that while recent steps to increase density throughout the city make sense, developers are being forced to pay higher rents and purchase prices than many want due to increased borrowing fees, labor costs and permitting fees. He said the economy is reaching a “compression point” where it becomes higher than the average.
“Everyone is familiar with spreadsheets…the difference in yield on units for 2 units, 4 units, 50 units, or 160 units. If you spread it over more units, you’ll get a cheaper price.
“I personally feel that we’ve reached a compression point where we can’t compress any more. It’s because of labor, construction costs, construction costs, material costs, etc.”
On the investment side, Jennifer Wenzel, director of the Texas Teachers’ Retirement System, said the organization is closely monitoring local trends as it allocates 15 percent of its funds to real estate investments. Wenzel said the growth of major technology companies in the region will likely necessitate the construction of large data centers, impacting land costs within the city limits and suburbs.
“A large facility is planned in Pflugerville, north of Austin, that could create something of a new regional power hub for data centers,” she said. “I think it would be great if we could create some kind of data center hub in our region.”
Photos are available through a Creative Commons license.
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