By now, you probably already feel the pinch. As more and more people move to Texas, the least surprising thing ever is happening in Dallas: Rents are skyrocketing.
The Texas Realtors 2021 Relocation Report found that between 537,000 and 582,000 people moved to Texas in 2019, and the state ranked second overall in relocation activity in the same year. But with this influx of new people comes the problem of where they are going to live, and demand is now higher than supply.
“The influx of people moving to our area is a big part of our increased demand and keeping up continues to be a struggle,” Phil Crone, the executive officer for the Dallas Builders Association, said by email. “For example, we have been building between 20-25k apartment units a year pretty consistently, but occupancy rates are still really high, around 95-96%.”
In May, according to the Dallas-based real estate technology firm RealPage, the average rental price in North Texas had risen 17.5% year over year, as reported by The Dallas Morning News. In Dallas, the average rent clocked in at $1,526 a month.
Texas isn’t just attracting people, though; companies are setting up shop here too. And institutional buyers, which include companies and corporations, bought 43% of homes sold in Dallas County last year, according to a report by the National Association of Realtors.
According to Forbes, Texas has some of the most “business-friendly policies in the U.S.,” and in 2021, “some 62 companies relocated their HQs to Texas from 17 states and three countries.”
Meanwhile, builders can’t keep up with demand in part due to ongoing supply chain problems.
“[Getting new materials] is a massive industry-wide problem, and it feels like we are still playing whack-a-mole with it,” Crone said. “Lumber prices are improving as well as appliances. However, siding products are on allocation, builders are waiting six months for windows and some brick and siding products are on allocation. If you can get them, they may need to be shipped across the country with $6 per gallon diesel.”
“The biggest victims here are the tens of thousands of families no longer able to find attainable new housing in any form.” – Phil Crone, Dallas Builders Association
When building new apartment complexes costs more money than usual, owners charge higher rates to tenants to recoup those costs.
The Real Deal, a Texas real estate news site, reported that bidding wars for rent prices are now happening around the state: Owners are asking applicants to submit their best offer in order to get the highest possible rent payments for the properties.
Ian Mattingly, one of the owners and managers of the Apartment Association of Greater Dallas, said problems in the supply chain can affect the costs of providing safe, quality rental housing.
“We buy a lot of the same types of products that developers buy, that builders buy, that single family homeowners buy,” said Mattingly, who is also president at the Luma Residential property management firm. “Those are currently the same types of products that are most impacted by supply chain disruptions. So that’s everything from refrigerators, dishwashers, lumber, drywall, lightbulbs, all of these kinds of things we’ve seen, really, really significant cost input increases.”
Mattingly added that the record cost of energy, which started spiking during the 2021 Texas freeze, also accounts for price increases. “All of that contributes to this record growth in what we would call our operating expenses,” he said.
Building materials and energy costs aren’t the only thing going up. Property values in Texas are spiking, driving property taxes up. Because rental properties are taxed as commercial properties, they are not eligible for single-family homeowner exclusions.
“We have some of the highest property taxes per capita of any state in the country,” Mattingly said of Texas. “Property taxes can be 20-25% of our cost inputs, so you know, if eight or nine cents out of every dollar is profit … 20-25 cents out of every dollar is just going to pay the local property taxing authorities.”
But no matter what the problems are, prices for rental properties in Texas are going up, and it is getting more difficult for tenants needing housing to find something affordable.
Although Crone thinks the “days of runaway property values” might have passed now, he worries that development companies are using up available land too quickly for project approvals to keep up.
“The pandemic era has made that go from bad to worse,” he said. “The biggest victims here are the tens of thousands of families no longer able to find attainable new housing in any form. This market has thrived on being more attainable than others so I’d argue these pricing and supply concerns hurt DFW more than anywhere else.”