- June 14, 2016
- Posted by: admin
Texas has consistently been ahead of the curve when it comes to the ability to maintain steady employment. The only time in the last 40 years when Texas’ economy declined faster than the nation’s was during the mid-’80s, when the oil market fell flatter than it has ever been since.
Currently, as oil prices have plummeted from $102.59 a barrel in March 2014 to $45.36 in August 2015, the market for Texas apartments in certain areas throughout the state have been hit hard, even though the state’s job market continues to grow, according to Axiometrics’ apartment market research. While oil-rich areas suffer, other markets located nearby also slip. So far this year, a little more than 23,000 jobs have been lost in Texas’ Mining & Logging sector, of which oil and gas comprise the largest part. As the unemployment percentages rise in oil-dependent locales – Houston’s, Odessa’s and Beaumont-Port Arthur’s jobless rates are higher than the state average — both the single-family and apartment housing markets recede in a very similar manner.
Metropolitan cities that do not depend on oil, such as Dallas and Austin, have felt little to no effect from the oil prices. Dallas continues to be one of the fastest-growing cities in the nation. The metropolitan feel it provides, coupled with a low statewide corporate tax rate (compared to the other states in the U.S.) and a young workforce are attractive to many corporations looking to relocate, and therefore, bring more potential leases to the market for Dallas apartments.
Austin is very much in the same boat. This metro has a large graduating workforce, it’s the capital of the nation’s second-largest state, it has a booming tech sector, and it has a central location, all of which are appealing factors to potential relocating businesses.
So while these cities grow and flourish, so does the apartment market. In the six months from January-June 2015, the average rent for Dallas apartments increased by more than $100 and occupancy rates increased every quarter, the apartment data shows. These trends reflect the 4.0% job-growth rate in June. The numbers for Austin are very similar. The average rent, in the same time frame, increased by $99 and occupancy improved at a steady pace until the end of 2014.
However, while one area booms, another declines. Odessa has seen a steady rise in unemployment over the last six months, reaching 4.4% in June. While that looks good compared to many states, that is an increase of more than 1 percentage point in half of a calendar year, which is not the trend wanted by job seekers. Once again, these economic issues have been reflected by the rental housing market. Rental property occupancy has dropped more than 2 percentage points in the last 18 months, with no sign of slowing down.
Houston has seen similar trends, but on a much less severe scale. Though oil is a major part of Houston’s economy, it is a lot more diverse than a metro such as Odessa. While Odessa’s apartments saw an occupancy drop of two percentage points, Houston apartments have seen only a .93% drop thanks to its ability to mitigate the loss of oil jobs with gains in other sectors, such as Leisure & Hospitality and Education & Health Services. However, with a half-percentage-point rise in the unemployment rate and an over two percentage point decrease in effective rent growth, Houston’s economy is at a standstill all thanks to job availability.
What does this mean? As Texas continues to try to attract big businesses through low tax rates, large tax breaks and an immense workforce, the statewide economy will continue to grow. However, much like Detroit’s dependence on manufacturing, as long as oil is the economic cornerstone of cities such as Odessa, those cities will be at the mercy of the oil market, which has shown to be far less than stable.
Developers and investors would be smart to avoid breaking ground on any new projects in these smaller, oil-heavy markets because of the lack of demand. Workers will likely flock away from these oil boom cities and move to somewhere they can find a job. As the number of vacant units increases, the need for new properties will vanish.
As mentioned earlier, not all is lost for the entire state. Cities such as Dallas and Austin, and the enormous suburbs that surround them, are in need of housing. The strong rent growth is forecast to continue, so there is a draw for developers and builders. Even though the population will shift and the jobs will be in different markets, the economy and, in relation, the rental market, will continue to grow in the business friendly state of Texas.
Kenneth Herbert, August 6, 2015 http://www.axiometrics.com/blog/oil-prices-make-a-difference-in-performance-of-texas-apartments
Kenneth Herbert is a Research Associate for Axiometrics. He received his Bachelor’s degree in Political Science from Austin College. He helps gather the data used for Axiometrics’ analysis and reports.