February 12, 2021

2021 Annual Housing Forecast Highlights Trends in Homebuilding

It seems like everyone is talking about Austin, Texas. Whether it is for the world-renown festivals, the abundance of live music, recreational activities, or trendy restaurants our once small town has become a big deal. This recognition brings with it approximately 30 million domestic visitors to our beloved city each year. Of those visitors, nearly 100 per day end up making Austin their home thanks to the combination of job opportunities, relative affordability, and high quality of life. Interestingly, a good portion are moving from other locations within the state, not predominately from California as is often mistakenly rumored.

How do all these factors affect the housing market of one of America’s fastest-growing cities? As you would expect, the answer boils down to simple supply and demand. On February 3, 2021, the Home Builders Association of Greater Austin held its Annual Housing Forecast event where experts Vaike O’Grady of Zonda, Shaun Cranston of Halff Associates, and Mark Sprague of Independence Title addressed this question and more to an audience of 50 in-person and more than 400 virtual attendees. Several themes, detailed below surfaced in the discussion that ultimately factor into home building and affordability. Themes included the upcoming generational shifts, the hottest locations to build, the future of transportation, and insights on the commercial real estate sector.

New Generation, New Way of Life
Part of the conversation centered around how the generation on the rise differ in their wants, needs, and expectations in comparison to the lifestyles of Baby Boomers (ages 57 – 75) and Generation X (ages 41 – 56). The Millennial (ages 25 – 40) American dream is not necessarily a big home on a big lot in a specific area of town. While living in Central Austin will likely always be a status symbol, Millennials are now shifting their desire to living in locations once thought of as too far from the city. They also want more than a house. Their quality of life is determined more by the amenities the neighborhood offers like access to good schools, outdoor recreation, environmentally sensitive design, and the incorporation of new technology.

Submarkets such as Jarrell, Bastrop, Marble Falls, and San Marcos are trending in a big way. This is partly due to the lack of supply in built-out submarkets closer into town – we are at a record low for new home inventory. Nowadays, homes go on the market and sell within the same day, resulting in developers struggling to keep up with the demand. While the vacant developed lot count is at historic highs, it is only enough to sustain us at the current level of residential activity. 

East Side Getting Hotter
Two areas where Austin is seeing the highest growth lie to the east and southeast. Communities in East Austin such as Easton Park, Goodnight Ranch, and Whisper Valley, which lie near the I-30 corridor are heating up, thanks in part to big businesses moving to the area like Oracle and Tesla. Though smaller in quantity than the growth in North Austin, the East and Southeast markets have seen the greatest percentage increase in new home starts than in previous years. This trend is expected to continue.

A Fresh Look at Transportation
As our city continues to experience growth, transportation and traffic will continue to be a hot top of conversation. Enter Project Connect. Passed partly through a $4 million bond in late 2020, Project Connect is a system of light rail, metro rail, Park & Rides, and express/rapid buses designed to offer alternatives to single-driver commuters. The project will likely take over 13 years to complete. Project Connect will give people alternate options to get from home to work and around the city’s growing metroplex without having to rely on a car. It also speaks to the way younger generations expect to travel. Raised in the age of rideshares, they are proving to be less dependent on individual automobile ownership. 

Lumber Woes
Perhaps currently the hottest topic in the home building industry is the skyrocketing price of lumber. Significant increase in residential housing demand and the inability for lumber providers to keep up with the demand has caused a shortage in materials. This in turn adds roughly $16,000 to the average price of a new home, which in Austin is just over $300,000.

Will prices ever come down? Not anytime soon. Part of the reason is nature – it will take 20 plus years to re-grow the forests lost to wildfires last year. Additionally, there is more competition than ever for paper products. Thanks to retailers like Amazon, who rely heavily on shipping boxes, cardboard production is up 300%.  

A possible solution seems to be that the industry needs to rethink the entire home building process to incorporate new technology and alternative building materials.

 Commercial & Industrial Phenomenon
Surprisingly, 2020 was a boom year for the commercial and industrial sectors. Even though the work-from-home trend is likely to continue, companies are still holding on to their office spaces, giving workers both in-person and remote options. At this time, 43 new towers are in the works for downtown, making Austin the second-highest in the nation for new office building construction.

Though the brick and mortar retail and hospitality industries are still in a slump, online shopping and food delivery services continue to skyrocket. This means more fulfillment centers, manufacturing plants, and industrial spaces are being built to keep up with the demand.

All in all, the consensus from our speakers was that 2021 will be equal to or even better than 2020 for the home building industry. New home starts are predicted to be in the 21,000 – 22,500 range, with ample lot delivery. This, combined with job numbers ramping back up, a successful COVID vaccine deployment, and continued low-interest rates indicate another banner year ahead.

Thank you again to our speakers who generously shared their expert knowledge in support of this event. Save the date for our next forecasting event, the Mid-Year Housing Forecast, on July 22, 2021.

A recording of the 2021 Annual Housing Forecast is available for $25 here.