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As Middle, Low-Income Californians Migrate To Texas, Class-B Apartments Benefit

Trendmaker Homes president Will Holder sees enormous demand from California for his Texas homes that have price points around $500K. “We count on migration for our business,” he said. Many luxury apartment and homebuilders across Texas have counted on an influx of price-hardened Californians to drive their rents up.

But the housing demand from California might be largely misunderstood, according to the U.S. census. The real beneficiary may be Class-B and Class-C apartments.

Texas bluebonnets wildflowers

From 2000 to 2015, California exported more people than it imported, and those Californians leaving the Golden State were mostly poor and without college degrees. Higher-income Americans tended to migrate into California, according to U.S. census research from the Sacramento Bee

“Not only are Californians leaving the state in large numbers, but the people heading for the exits are disproportionately middle class working families,” Hoover Institution research fellow Carson Bruno told Breitbart in March 2016. 

Conti Organization specializes in value-add Class-B and some Class-C space. Co-founder and CEO Carlos Vaz said his renters come from all over, but the majority of his American residents come from Texas and California. 

It is hard to generalize, but Vaz said about half the Californians he sees come to the Class-B space. 

People relocating from California have been lauded as helping raise Texas rents because even our priciest properties are a steal compared to back in California,” Vaz said. 

Axiometrics data backs that up: Class-C apartments in San Francisco average $2,428, more than Class-A apartments in either Austin ($1,639 average for top-tier product) or Dallas ($1,597).

Class-A multifamily rents in Texas are nearly half the cost of California's major metros, but the Class-B and C renters can see the biggest discount by relocating. A Class-C renter would pay less than one-third the cost in Dallas as San Francisco: $784 vs. $2,428/month.

Texas barn texas flag
Texas flag painted on a barn

Lower-tier properties in Texas are raising rates to possibly close that gap, and occupancy is surging.

National rent growth stands around 2.4% in the B space and 2.6% for C product, according to Axiometrics. Occupancy across all asset classes is just under 95% nationally.

In Dallas, Class-A occupancy is a hair lower than the national average, but B and C is higher, Apartment Data president Bruce McClenny said. But rent growth tells the real story. Rent growth in the Dallas C space is more than double that of the national average. B rent growth stands at 4%. 

Class-C complexes across Texas are chugging right along, McClenny said. He has seen and heard all over the country that the C space has a run-up in rents since the Great Recession. C has been the best performer in the last couple of years. 

Incomes and asset classes aside, Texas is importing a ton of people. Between July 2015 and July 2016, Texas added 430,000 new residents, according to the census. Many of those went to the state capital. In 2016, Austin added 159 people per day

That population surge acts as a double-edged sword. An increased labor force attracts more companies to the region, Vaz said, but it also creates transportation, education, hospital, police and fire department challenges.