Austin Construction Fails and Real Estate Market Struggles
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Austin Construction Fails and Real Estate Market Struggles

Austin, Texas, saw the biggest drop in multifamily building permits in the country as demand declined, in part because residents found it difficult to afford rent that skyrocketed during the height of the COVID-19 pandemic.

The city has seen 21 building permits per 10,000 residents this year, nearly half the average seen between 2021 and 2023, according to real estate platform Redfin. The decline is part of a nationwide trend in which building permits have fallen 30 percent during the same period.

Developers are pulling back after a surge in construction during the COVID years, particularly in the South and Sunbelt. Americans moved to those parts of the country in search of cheaper housing after stay-at-home orders put in place to slow the spread of the virus gave workers the flexibility to work anywhere in the country.

Austin Construction Fails and Real Estate Market Struggles
Apartments under construction on February 28, 2023 in Austin, Texas. The city’s construction boom is slowing down.

Brandon Bell/Getty Images

That migration is slowing as employers increasingly ask their workers to return to the office. That has led to a drop in demand for rental properties, which make up the bulk of multifamily construction.

However, developers are also struggling with high construction costs, according to Redfin.

“High interest rates have made it more expensive to borrow money for construction projects,” Redfin’s analysis found. “A near-record number of new multifamily units have already come on the market because of the construction boom in recent years, making it harder for some property owners to find tenants.”

Even though Austin’s construction boom is slowing down, the Texas capital is still one of the cities where developers get building permits, second only to Cape Coral, Florida.

However, as these properties have hit the market, Austin has seen a significant drop in rents, with asking prices dropping 7 percent in May.

“This is the third-deepest decline among metropolitan areas for which Redfin has rental price data,” the real estate platform said.

Part of the reason rents are falling in Austin and elsewhere is the large number of developments coming to market, flooding the rental space with options. But housing economists warn that developer pullbacks could slow supply and limit rent price declines.

“Prospective tenants should know that now may be a better time to sign a lease than later,” Sheharyar Bokhari, senior economist at Redfin, said in an analysis. “Landlords may start raising rents again once all the new apartments on the market are filled with tenants and there’s not as much supply, which could happen in a year or two.”