Jan. 3, 2018, 11:44 a.m. | Lucro Staff | Deal Review

How Hurricane Harvey Will Transform Houston's Multifamily & Student Housing Market

Hurricane Harvey, the superstorm that dropped record rainfalls on Houston last August had an immediate effect on the families and victims of the flooding. The disaster is also expected to have a strong impact on Houston’s housing market.

Before the storm devastated the Houston area, the multifamily and student apartment housing market was making a turn-around. Just days before the storm hit, it was reported that 54,200 new jobs were created in the past 12-months, new housing construction was coming to a halt, and multifamily was showing positive absorption again.

That all changed when flooding forced 39,000 people to evacuate their homes and caused $180 billion in damages. This damage was more costly than any other natural disaster in US history.

With one-third of Houston underwater, it’s obvious that the natural disaster is going to leave a major restructuring of the city’s multifamily and student housing market. We’ll talk you through why that is below.

Higher Demand Than Supply = Steeper Rent

With so many people forced out of their homes and hundreds of thousands of houses ruined by water damage, there are not a lot of places for victims to relocate. With demand far outstripping the supply of homes, landlords will take advantage of the opportunity and raise the rent on most properties. The annual rental growth rate is expected to reach 4.5%.

Houston’s apartment vacancy rate is expected to fall dramatically (even more so than New Orleans’ after Katrina in 2005) as victims scramble to find housing for their families. The main worry of Houston residents is that there will be more competition for small and inexpensive apartments. Soon, there’s a chance that many affordable housing options will cease to exist, leaving thousands of people without a place to call home.

Good News for Owners, Bad News for Renters

Even before Hurricane Harvey, affordable housing was hard to come by in Houston. With a booming economy and more high paying jobs being created by the oil industry, the majority of construction has been high-rise luxury apartments and condos. Coincidentally, these high-rise condos are some of the only housing that survived the flooding, and are some of the only available vacant spaces. The problem is that these units are more expensive than most families and students can afford. The majority of the damages from the hurricane affected the city’s much needed affordable housing market. With affordable housing no longer an option, victims are finding themselves moving back in with family members or fleeing the city in search of cheaper rent in the suburbs.

Finding Homes for Harvey Evacuees

It’s expected that the multifamily apartments that did manage to survive the hurricane will see a large jump in revenue. As displaced families won’t qualify for FEMA apartment vouchers, they’ll continue their search for temporary housing. New multifamily units are not expected to be built in the future due to lack of resources a decline in potential rentals.

Houston has seen three major floods in the last three years and there is a lot of concern from lenders about flood risk and increasing insurance premiums. With the low level of new multifamily and student apartments being built, there is expected to be a sustained higher level of demand than supply.

While uncertainty is high, the storm will undoubtedly cause problems with available affordable housing. However, there are some silver linings for Houston’s apartment residents. 2,000 of the current 2,725 existing apartment complexes are classified as class B and C. B and C class apartment complexes are in aging conditions and will be in need of repair sooner rather than later. With the increased rent and supply of revenue, it’s likely that these properties will get the maintenance and upgrades they need to improve their residents’ quality of life.

There’s no doubt that Houston’s multifamily and student housing market is going to be transformed in a major way in the aftermath of Hurricane Harvey. While the city starts to see affordable housing options dwindling and rent prices rising, we can assume many large scale impacts will change the multifamily market in Houston.