A rapidly expanding employment base and issues on the single-family side are helping boost renter demand in Houston. The occupied unit count has increased by roughly 6,000 homes in the first half of the year, according to Greg Willett, first vice president and national director of IPA Research, a division of Marcus & Millichap.
Willett says the loss of renters to homeownership is running below normal in the metro, with a shortage of existing for-sale inventory and high interest rates creating affordability challenges.
Completions in the first half of the year in Houston exceeded the absorption pace; however, the development pipeline isn’t at the level of other big Texas markets. Ongoing construction at the midyear point was at 39,000 multifamily units, a 5.2% near-term inventory growth for the market, which has about 750,000 existing apartments.
Willett explains the development activity is spread throughout a wide variety of neighborhoods, which will help the metro handle the new supply deliveries.
“Following the pattern seen in other metros, Houston apartment starts are plunging this year, so deliveries should slow considerably when we get into the last half of 2025 and on into 2026,” he adds.
Multifamily fundamentals remain strong in Houston. Willett says rent growth is holding up better than many markets across the country. Overall average monthly rents are up 4.4% year over year at $1,358, while the luxury Class A product rents are averaging $1,839, a nearly 5% annual increase. Operators are also pushing renewal lease rents by 5% to 6%. While Houston’s vacancy rate is around 7%, it is similar to the long-term average. The vacancies also are being seen more in Class C product rather than luxury or middle-market properties.
Transaction activity saw a sizable slowdown in the first half of the year; however, sales didn’t come to the near-complete halt seen in other markets. According to Willett, while transaction volumes were cut in half year over year, primary markets in the state are still preferred areas for investment. “There has been some willingness to stretch to make deals work across the state,” he says. “Less construction than in Dallas-Fort Worth or Austin adds to Houston’s appeal for those seeking investment opportunity.”
Looking ahead, Willett expects the metro’s multifamily sector to perform well over the next few years, with some caveats.
“Apartment demand drivers are in good shape, and new product additions should be moderate,” he notes. “Still, there’s always some risk that comes in a market where the local economy is prone to comparatively big shifts in momentum. Also, it’s important to be aware that the for-sale home construction volume can escalate quickly and sharply. It’s likely that loss of renters to purchase will move back toward levels that were typical historically.”