Houston’s multifamily market poised for most deliveries since 2017

Houston’s multifamily market is expected to hold steady this year after a solid 2023 performance. 

Developers are expected to deliver 21,500 apartments to the market this year, according to Berkadia. 

That is the largest number of single-year deliveries since 2017. With increased delivery, multifamily occupancy rates are projected to dip to 92 percent in 2024, a decrease of 50 basis points year-over-year. 

“2023 overall was a positive year for Houston multifamily, and part of the reasoning there is that Houston was one of the few  — maybe even only — major metros that saw positive rental growth over the course of 2023,” said Joey Rippel, managing director of investment sales in Berkadia’s Houston office. “We ended the year with about 1 percent rent growth, which was above a lot of the markets.”

Half of major metros saw effective rental rates decline last year, according to Avison Young. The rate is expected to increase by over 2 percent in 2024, potentially reaching a fourth-quarter rate of almost $1,400. 

The strength of Houston’s multifamily market is underpinned by the expectations of the region’s population growth. Houston’s population will expand by 1.4 percent in 2024, potentially adding 54,000 new residents, Berkadia estimates.

After 2022’s negative absorption rate of nearly 9,000 units and a depressed construction pipeline, last year marked a rebound, even while the rest of the country reeled from deflated growth. The multifamily construction pipeline decreased 53 percent nationwide, but Houston bucked that trend, with a 40 percent increase in deliveries between 2022 and 2023.    

However, distress continues bubbling up.

Over one-third of Houston’s multifamily properties were designated “criticized” going into 2024, according to Trepp. Houston had the highest rate of criticized loans among the country’s 10 largest metros. Rippel thinks that report is largely overblown, and remains optimistic for Houston’s multifamily market. 

“There’s been headlines about Houston’s market, but I would say we’re in the same position as all of the major metros across the country: everybody is feeling the pain from the higher interest rates,” Rippel said. “One thing Houston has experienced that not many other major metros have is the insurance increases. We’ve had clients whose insurance premiums have gone up over 150 percent, and that is putting a major strain on cash flows and contributing to the criticized loans.” 

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