TEXAS: Record Job Growth, Surging Demand, and Strong Fundamentals
Texas has become a top destination for real estate investors due to its thriving economy and attractive multifamily fundamentals. Major metro areas like Dallas-Fort Worth and Houston are magnets for corporate relocations and domestic migration, both key factors behind the state’s surging job growth and housing demand.
Here, we’ll dive deeper into population growth, job opportunities, and other core fundamentals that position Texas as (still) one of the most desirable states for multifamily investors in 2024.
Surging Population Means Increased Demand
Texas’ population grew more than any other state in the country between 2022-2023 according to the recent estimates from the U.S. Census Bureau. Of the 1.6 million people the nation gained between July 2022 and July 2023, nearly 30% are Texas residents.
Dallas-Fort Worth, Houston, San Antonio, and Austin rank among the top 10 Metro Areas with the biggest population increases from 2022 to 2023.
Although Nearly 70% of residents live in the state’s four largest metro areas, according to estimates from the Texas Demographic Center, a considerable portion of Texas’ growth is happening in ‘suburban’ counties, especially in the DFW metroplex.
Texas holds eight out of the top ten counties for annual growth of residents from 2022 to 2023, with Harris, Collin, and Montgomery counties holding the top 3 positions.
The counties of Collin, Denton, and Tarrant, located in the Dallas-Fort Worth area had significant gains, with Denton becoming the seventh county in Texas to surpass 1 million residents.
Record Job Growth Creates Opportunities for New Residents
The primary forces driving migration to Texas are the job opportunities the state offers its residents to earn a reasonable income in some of the nation’s top booming industries.
For the second year, Texas has led the nation with the most Fortune 500 headquarters, growing to 55 in 2023. The Lone Star State made up more than 10% of the Forbes Fortune 500 list and featured 14 companies in the Top 100. The greater Houston metro area is No. 2 in the Nation with 25 Fortune 500 headquarters, and the Dallas-Fort Worth-Arlington metro area is No. 3 with 24.
With companies including Exxon Mobil, CBRE, Caterpillar, Hewlett-Packard, and Tesla having moved their headquarters to Texas in recent years, the state reported 33 months of uninterrupted job growth as of November 2023. Companies are moving and expanding their presence in Texas due to the strong labor pool and the absence of any state income tax.
Between September 2022 and October 2023, Texas’s employment grew by 435,800 positions as its annual growth rate of 3.2 percent outpaced the nation by 1.1 percentage points. During that time, Texas recorded historic milestones in job count, boasting 14 million total jobs.
Additionally, the cost of living in Texas is around 8% lower than the national average, making it an attractive option for those considering relocation.
What It All Means: Opportunity
It’s no secret that 2023 was an interesting year for real estate, particularly for new developments such as ground-up multifamily construction. Securing financing for new multifamily construction has been challenging as banks have reduced real estate lending due in part to the outflow of deposits to money market funds. Further, the normal institutional investors many developers rely upon have put investing on hold until they shore up other areas of their portfolio. This tightening of capital has drastically slowed new project starts as many developers are unable to secure proper financing to proceed with projects.
According to GlobeSt.com, new multifamily construction starts have dropped across Texas from 2022 at a sizable margin. Houston multifamily starts have fallen by 79%, Austin by 74%, and Dallas-Fort Worth by 64%. With fewer units coming online and the migration to Texas showing no signs of slowing, this will create a future supply and demand imbalance that, to investors, can mean only one thing - opportunity.
Once the multifamily projects currently under construction are completed and leased up, few new properties are coming online behind them to meet the demand of the current population growth. At BV Capital we expect to see this supply-demand imbalance materialize in 2025, so the construction projects that begin today will provide some of the only new multifamily properties that will come online in 2025. These projects will be able to demand higher rents as they will be the only new properties in their markets.
“We are particularly bullish on Class A multifamily builds in Texas, given the high demand and constrained supply — an imbalance that has historically driven rents higher, increasing net operating income (NOI) and thus increasing returns for investors."
rob anderson - BV Capital president
As you devise your investment strategy for 2024 consider the strong fundamentals in the Texas real estate market. With the state’s steady population and job growth anchored by its affordability, the only thing brighter than Texas’s past is its future.
Article Sources: BEST EVER CRE, Texas Tribune, Commercial Observer
Data Sources: U.S. Census Bureau, Texas Demographic Center
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