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Houston’s multifamily market is the tale of two cities. For Class A properties, developers continue to deliver more units to the market than it can absorb. For Class B, C, and D properties, the tenants’ financial struggles have reduced occupancies and pulled down monthly rents. For Class A renters, there are deals to be had. Class B, C, and D renters have fewer options.

The market absorbed 16,846 Class A apartment units over the 12 months ending March ’24, according to Partnership analysis of MRI Apartment Data. Normally, that level of absorption would reflect a stellar performance. However, Class A inventory expanded by 21,227 units over the same period, leaving a surplus of over 4,300 units. That was on top of the existing vacant inventory. As of early April, there were 33,500 Class A units vacant and available for rent. That’s up from 24,100 this time last year. This mismatch between supply and demand is pulling down rents. The average Class A rent is down $47 (3.0 percent) from March ’23 levels. Rents have ticked up since the first of the year, but it’s too soon to determine if this reflects improving market conditions or noise in the data.

Class B, C, and D properties are dealing with significant negative absorption. Since March ’22, over 14,500 B, C, and D units have been thrown back on the market. This includes over 7,000 Class B units, 6,400 Class C units, and nearly 1,100 Class D units. Rents for all three have declined or stayed flat after adjusting for inflation.

The decline in occupancy has spurred owners to offer concessions to draw prospective tenants to their properties. This may include free rent, waiver of a security deposit, or floorplan upgrades. As of April ’24, incentives were available on over one-third of all apartment units in Houston. Nearly half of all Class A units have an incentive, roughly one-third for B and C, and one in nine for Class D.

Over 21,700 apartment units, virtually all Class A, were under construction as of April 1. Another 32,900 were proposed or in the planning stages. An industry rule of thumb holds that Houston absorbs one apartment unit for every six jobs created. At the current pace of construction, Houston will need to create roughly 130,000 jobs to keep the market balanced. The region will likely create 80,000 or less this year.

Prepared by Greater Houston Partnership Research Department

Patrick Jankowski, CERP
Chief Economist
Senior Vice President, Research
pjankowski@houston.org

Leta Wauson
Research Director
713-844-3661
lwauson@houston.org