A Closer Look at Affordable Development in Houston
- Apr 22, 2019
Underpinned by rebounding employment gains and a robust demographic expansion, Houston’s multifamily market remains promising. However, the working class might struggle going forward, following three years of heavy deliveries in the high-end segment. According to Yardi Matrix data, home prices continued to climb last year, with the median value exceeding $217,000, a new cycle peak.
Houston has become the least affordable city in Texas for extremely low-income renters, per the latest National Low-Income Housing Coalition report. This is poised to become a hot-button issue as several affordable communities that were flooded during Hurricane Harvey have not been renovated. Furthermore, properties with low rents now charge more since undergoing renovations after the Category 4 storm.
Rick Guttman, founder of local workforce housing development firm Dakota Enterprises, shares his insights on the metro’s pressing issues, but also the company’s upcoming projects.
How would you describe Houston’s multifamily market?
Guttman: I believe that the direction that the general multifamily market in Houston is going in is very strong. We live in such a dynamic, mobile and diverse city, so different markets perform better than others.
Which areas of the metro are most and least affordable?
Guttman: I think this question is a little tougher to pin down. There are areas of town where rent is much higher, such as Midtown, Downtown and the Memorial/Shepherd areas, but those areas also have the newest assets and a demographic that can generally support higher rents. Overall, the Eastside and Southwest parts of the city have the most affordable rents from a raw dollar perspective. Because of the affordable rents and the efforts that developers and community members have made to constantly improve components such as services, entertainment and employment, these areas are seeing growing demand.
In your opinion, how serious is the affordable housing crunch in Houston?
Guttman: Well, just today I was driving around the city and noticed what some would call “tent cities,” areas where the homeless have staked out and set up tents. This demographic certainly does not appear to have access to or knowledge of city services and it’s important for the city to find a solution for this segment of the population in order to raise the quality of living for all of us.
When it comes to affordable housing, I think we are talking about two different areas—government-assisted housing, where developers are provided tax benefits and residents have to meet certain income requirements, and market-rate workforce housing, where developers are encouraged, through different means, to build a quality product without all the bells and whistles that residents with good quality jobs can afford to rent.
There is a large working population in Houston that is struggling to find quality housing that is equal to or less than a third of their income and this is a pretty serious issue. It’s important for a city to have quality rental units for our young folks entering the workforce and those providing many of our community’s vital services and if we can’t figure this out in the next few years, I think the city will have some real challenges. So, yes, we have a “looming” and serious problem when it comes to quality housing, that if not addressed quickly, can hurt the success of our city in the future.
Are there any changes in the current local legislation that should be made in order to encourage the construction of more affordable housing units?
Guttman: I’m not an expert on the legislation side, but I think that a more holistic approach really needs to be considered. We need to be thinking about government-supported housing—tax credit multifamily developments—and where they are placed, as well as quality, market-rate workforce housing solutions.
How did the most recent natural disasters that hit parts of the metro influence the affordable housing market?
Guttman: Well, I think that story has been told and its impacts are clear for communities of all kinds. With a tremendous influx of people moving into apartments post-Harvey, rents were driven up in a significant way. For developers, that’s obviously been good, while those in our workforce are struggling to keep up with the rising rents. Because Houston has been such a strong employment market, that trend has continued post-Harvey.
Tell us more about your most recent workforce housing investments.
Guttman: I had some great successes in the value-added segment of the market primarily focused on workforce housing over the last ten years and I’ve decided to place my efforts in creating new developments in areas that have been void of new, quality workforce housing. Our company has completed two ground-up projects thus far. Our third project is about 70 percent complete and we’ve just broken ground on our fourth project. In addition, we have two or three in the pipeline for development.
Our first and third projects are on the Eastside, near Harrisburg and Wayside Drive, and our second and fourth projects are in the heart of Spring Branch. We are very excited about these projects, where they’re positioned in the market, and I think we are really seeing demand and success. These projects have open floorplans, modest amenities, quality and durable materials that allow us to manage efficiently and offer one-bedroom floorplans in the $1,000 range and two-bedroom units in the $1,350 range.
I believe there is a strong market for this product on the long term because the city and particular communities really need this type of housing and we are providing something that really has not been on the radar of some of the larger developers in Houston.
How do you expect Houston’s workforce housing market to evolve in the near future?
Guttman: I’m hoping that developers and City of Houston development members can begin working together to create a strong synergy and partnership that solves this problem for the near and long term. Houston will always have a strong need for quality workforce housing and I’m optimistic that some of the very dated and poor housing that currently exists gets torn down or refurbished. We will see a resurgence of quality workforce housing filling the gaps that are being created by the higher-end multifamily communities currently being built in Houston.