Why rents are rising in Houston even as the housing market cools

Nora Diaz Arroyo spent almost three months searching online for an apartment she could afford before recently hopping into her car to drive around Houston looking for for-rent signs. Nine hours later, the results were the same as her online search: unsuccessful.

Diaz Arroyo’s search was spurred by a 16 percent rent increase on her Northwest Houston apartment and the likelihood of another big increase coming soon when her lease is up for renewal. With her roommates relocating for work and inflation driving grocery, utilities and gasoline costs higher, she knows she can’t cover the rent on her own — even with two pay raises over the past year.

“On paper, yes, I’m making more but I’m spending more, so saving for a new apartment has been difficult considering the prices of everything has gotten higher,” said Diaz Arroyo, a 21-year-old flight attendant. “It’s a struggle finding a reliable, safe apartment that’s not just like throwing your wallet out the window.”

Diaz Arroyo is among the thousands of Houston renters scrambling to find — or keep — places they can afford. Average apartment rents across the Houston area have climbed 12 percent since 2019 to an average of almost $1,300 a month, according to commercial real estate data firm CoStar. Rents in older buildings with fewer amenities — so called workforce housing — have risen slightly faster, jumping nearly 14 percent since 2019 to an average $1,100 a month.

In many Houston neighborhoods, the days of a one-bedroom for $1,000 are long gone.

Diaz Arroyo has scoured online posts and toured units in central Houston, Humble, Bellaire and Spring Branch trying to find a one bedroom for under $800. But so far everything she’s found within her budget felt unsafe, run down or too far from her job .

Frustrated, she said she likely will stay in the same complex, but move into a smaller two-bedroom for $1,200, including utilities, then find a roommate to split the bill. That would still increase her rent bill by at least $100, pushing her housing cost to more than a third of her monthly income. So she’s taken on a second job doing data-entry from home, limiting driving to necessary trips and trying to only grocery shop once a month.

“I’ve talked to coworkers and friends in other fields,” Diaz Arroyo said. “They’ve also had the same issue of not being able to keep up and having to move back home (with parents) or having to find like multiple roommates.”

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Pressures are only expected to build on renters as consumer prices, including rents, are rising faster than their paychecks. In a survey of 1.1 million renters in Houston, almost 41 percent reported relying on credit cards to make ends meet and nearly 40 percent were borrowing money from family, according to the U.S. Census Pulse Survey from July and early August. Nearly 20 percent said they were not caught up on rent payments, putting them at risk of eviction .

“We’re seeing a lot of tenants that are in places that last year cost $800-900 a month and they’re being told their rent is increasing $200-$300 more,” said Jay Malone, communications director for the advocacy group Texas Gulf Coast Area Labor Federation. “Very few people can afford that kind of rent increase.”

Move or fight?

Alex Spike, a tenant organizer with the grassroots advocacy groups Houston Tenant’s Union and Socialist Alternative, lives in an older apartment complex in southwest Houston where new owners with Fat Property were asking for about $200 rent increase on his 850-square foot apartment, he said.

The 24-year-old negotiated the rent increase down and is now paying $1,000. But many of his neighbors haven’t been as fortunate. Through his work with the tenants’ union, he’s seen similar situations at other properties where rents have jumped as much $300 monthly.

“We found people are just moving instead of picking a fight,” he said.

During the pandemic, many of those older apartment complexes became targets for investors looking for safe places to park their cash away from the tumult of the stock market or the uncertainty of office properties. Often new owners would raise rents after making cosmetic repairs or remodeling .

Spike’s landlord said the rent increases were needed to cover a 63 percent increase in fire insurance premiums, plus other rising costs, said Cody Lutsch, acquisition manager at Fat Property. In general, the apartment owner has seen its property taxes double across its Houston portfolio, said Lutsch.

Even with the rent increases, Fat Property’s occupancy rates are well above 90 percent, in part because the landlord charges comparatively lower rents than other properties within the Inner Loop, he said.

Vacancy rates have fallen across the apartment market throughout the pandemic as demand soared from a growing population, strong in-migration and a robust job market. Since 2020, Houston’s apartment vacancy rate has fallen by about 3 percentage points, with less than 8 percent of all apartment units in Houston available.

And as rising home prices and mortgage rates lock out potential homebuyers, many are continuing to rent, creating even more demand for rental housing. Only 39 percent of Houston households could afford to buy a median-priced home here in the second quarter, down from 53 percent in the same period last year, according to Houston Association of Realtors.

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Equal opportunity inflation

Landlords themselves are acing escalating costs. Property tax bills skyrocketed for many apartments after appraised values jumped during the pandemic. The appraised value of all apartment properties in Harris County rose by 22 percent in the past year, according to appraisal district data.

Texas property insurance premiums climbed , too, by an average of 16 percent in the past year, according to online insurance marketplace Policygenius. Houston-based apartment manager Morgan Group said its insurance rates soared 15 to 30 percent across its portfolio, which includes 10,500 units in Houston.

Morgan Group’s property tax bills rose by 10 percent or more several years in a row, said Philip Morgan, CEO of Morgan Group. Property taxes and insurance make up about half of the firm’s operating expenses.

“Certainly, in my career I’ve never seen anything like this with inflation,” Morgan said. Morgan Group typically is seeing 10 percent rent increases year-over-year across its Houston portfolio.

Another major apartment manager, Greystar of Charleston, S.C., is also facing increasing costs at the 45,000 units it oversees in Houston. Typically, rents are up by about 10 percent on renewals and 15 percent on new leases across its Houston portfolio, said Ryan Terrell, Greystar’s managing director of client services in Houston.

Rent increases could ease as more supply comes on the market – there are about 23,600 apartment units under construction across the region, according to CoStar – but most of these new units are targeting renters in the middle-to-upper segment of the market. That means lower income renters won’t see a large expansion in the availability of apartments they can afford in the near future.

Tight supplies mean competition for affordable apartments can be fierce. Last year, Kris Obregon, a 27-year-old restaurant server, and his cousin searched across west Houston for a two-bedroom apartment under $1,400 monthly, but without success. They decided to try again this year, bumping their budget to about $2,100 and taking on another roommate.

Obregon recalled filling out applications in a leasing office when another group of three young men came into the office to apply for the same apartment. The landlords chose the other applicants.

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