Houston, famed for sprawl, bets on growing up

Jacob Sudhoff remembers when Houston had a much different profile, when the Texas metropolis was considered just a “cow and oil town” built around sprawl, suburbs, and anything-goes zoning.

But in the last few years, the real estate marketing and sales specialist has seen a boom in high-rise construction in his hometown, a rise in multifamily living that’s transforming neighborhoods around the famously decentralized city with numerous new 40-story towers taking root. Walkable neighborhoods, and the condos and apartments drawing residents to these areas, are revitalizing the Heights, Midtown, downtown, the Outer Loop, and the forthcoming McKinley Memorial City, as well as the neighborhoods near the new Buffalo Bayou Park and the Allen Parkway.

Houston is projected to add roughly 16,000 units this year alone, according to a report from commercial real estate firm JLL, with another 23,000 in the pipeline. As prices have crept up to historic heights—$1,050 a month on average, making Houston one of the nation’s best rental bargains among big cities—occupancy remains at 90 percent, leading to strong rental demand and a positive outlook for the future. For the first time this year, according to the long-running Kinder Houston Area Survey administered by Rice University, a majority or near majority of local respondents wanted to live in denser, mixed-use neighborhoods.

“Houston now has an inward migration,” says Sudhoff. “A lot of people are moving to the urban core. We’ve never seen so many high-rises going up in the city, and every submarket has more going up.”

Vertical living taking root in Houston

While Houston isn’t changing overnight—the city’s expansive system of interstates and expanding rings of suburban development aren’t going anywhere, and more than 60 percent of the city’s housing stock is single-family homes—there’s been a noteworthy shift toward apartments and condos, both as a lifestyle choice and an investment opportunity. In a metro where building out has been gospel—teachings challenged as the city’s highways become increasingly congested and Hurricane Harvey flooding brought issues with the city’s floodplain maps and development patterns to the fore—many Houstonians are looking for something different.

Sudhoff is CEO of Douglas Elliman Texas, a new division of New York-based megafirm Douglas Elliman Real Estate that’s focused on projects in the Texas market, specifically Houston, Dallas, and Austin. Douglas Elliman’s joint venture with Sudhoff and others now has $500 million in development underway and $1.4 billion set to hit the market in the next year, including Giorgetti Houston, a 32-unit condo project, and the River Oaks, a high-rise condo building.

“We’re all adapting to the buyer, and vertical living is taking such a front seat,” says Scott Durkin, president of Elliman. “Houston is like a West Hollywood, Back Bay, or Miami Beach; lots of luxury high-rises are being developed there.”

Demand is so high in Houston that the apartment market is forecast to run out of units by early 2020, according to an analysis by RealPage economic analyst Adam Couch, with a gap of three years before a substantial new crop of buildings enters the market. The city also has an overall shortage of affordable units.

“Walkability wasn’t a term we were familiar with 10 or 15 years ago,” says Todd Marix, an analyst at JLL. “But Houston is evolving. Now, the places located in walkable settings command the best rents in the city.”

Reflections on a changing Houston

The turn toward denser, more vertical living underscores the changing nature of Houston, a city of 2.3 million that, if growth continues at its current pace, will soon eclipse Chicago as the nation’s third-most-populous city. The city’s economy has broadly diversified away from energy, the industry for which it was long best known: “it’s not the one-horse town people remember from the ’80s,” says Marix. Job production last year was roughly 100,000, per the Bureau of Labor Statistics, a factor in the increased demand for housing and a solid bounce back after a recent downswing.

Those jobs numbers include a jump in tech employment, according to Sudhoff; Rice University’s under-development tech campus in Midtown, the Ion, is already starting to attract companies from Austin.

Houston is also changing demographically and politically. Sudhoff calls the city “the perfect shade of purple,” a reference to the increasingly blue city in a ruby-red conservative state. It’s also diverse: one out of every four Houstonians is foreign born, and there are more than 145 languages spoken there. Combine new arrivals with a more laissez-faire approach to regulation, and Sudhoff says you have the formula for a haven for entrepreneurship. When GQ magazine crowned the city “the new capital of Southern cool” last year, it was just catching up to the reality that Houston is a national culinary capital that’s growing increasingly diverse, progressive, and perhaps more predisposed toward walkable neighborhoods.

Houston has also long had pockets of density that rival cities such as Chicago or Newark, New Jersey. As more people move back downtown, especially millennials and empty nesters looking for a walkable lifestyle, these neighborhoods, like Montrose, the Heights, and the Galleria, attract new commercial and residential projects. In terms of walkability and car-free transit as a whole, Houston still lags behind cities a fraction of its size; it just announced a bike plan in 2017, it just started to relax parking minimums and focus on new streetscaping, and it votes today on a massive $3.5 billion bond to expand light rail. But as it grows, it seems poised to begin catching up.

A national trend toward denser cities

Houston is one of many non-coastal cities seeing huge investment and growth. An analysis of new apartment construction per capita in U.S. metros found that Denver, Austin, Nashville, Salt Lake City, and Raleigh, North Carolina, lead the nation in new units (Houston was 52nd on the list). Smaller cities—those that aren’t New York, Chicago, or Los Angeles—are, increasingly, growing up.

“We’re seeing a big national trend,” says Durkin. “We get calls every week asking why we aren’t in Atlanta, Charlotte, and Denver.”

Houston will test what the market can bear in the next 12 to 18 months, as more new projects come online and open to renters. Marix of JLL expects the Inner Loop markets will see increased competition, which will result in amenity arms races and concessions to get tenants into new buildings.

“It’s going to be especially competitive in 2021, when that second wave of buildings starts to hit,” he says. “Our big issue now is jobs; we’ve had 80,000 new jobs over the last 12 months, which is great, but we need those higher-end jobs to fill those luxury apartments.”

As Houston goes, other Texas cities that are seeing the limits of sprawl are poised to follow.

“This is an opportunity for us as a state,” says Sudhoff, “There’s such a demand for mixed-use projects, and we haven’t seen starchitect designs or ultra-luxury projects, but people have the money here. Texas is going to start seeing offerings, and lifestyles, they’ve never seen before.”