At Driftwood Equity Partners, we understand the importance of safeguarding your investments against inflation. One of the proven benefits of multifamily real estate is its historical ability to hedge against inflation. Real estate investing is not without risk, but with a properly structured multifamily syndication, we can maximize the benefits and minimize the risks.
How Multifamily Real Estate Hedges Against Inflation
Rising Rents: As inflation increases, the cost of living goes up. This often translates to higher rental demand and the potential to raise rents on your multifamily properties. This directly combats inflation by increasing your income stream. Consider these stats.
- Houston Rental Growth
“The median rent for one- and two-bedroom apartments in Houston, Texas, gradually increased between 2020 and 2023, reaching 1,287 U.S. dollars by the end of 2023. At the start of the coronavirus pandemic, rental growth briefly turned negative, but in February 2021, this trend reversed and rental growth exceeded 11 percent. Furthermore, no notable variation in rental growth was observed in December 2023 in comparison to the previous year. Among the different states in the U.S., Texas ranks as one of the mid-price range rental markets.”1 - Dallas Rent Increases
“Rents in DFW are up by 21% since the start of the pandemic in March 2020. Median rents in the Dallas area currently stand at $1,201 for a one-bedroom apartment and $1,435 for a two-bedroom unit.”2
Houston Real Estate Trends and Inflation
The rising rental prices in Houston directly connect to inflation.
- Inflation and Rents: When inflation rises, the cost of living goes up. This often translates to increased demand for rental housing, as people may choose to rent instead of buying a home due to rising mortgage rates or property costs. Additionally, the cost of maintaining rental properties also increases due to inflation (e.g., repairs, property taxes, insurance).
- Houston Rent Growth: The statistic you provided demonstrates this relationship. The median rent for apartments in Houston increased steadily from 2020 to 2023, exceeding 11% growth in February 2021. This aligns with the national trend of rising inflation during that period.
Dallas Rent Increases and Inflation
Rent Growth Exceeds Inflation: The statistic above highlights a significant increase in rents (21%) since the pandemic began. This growth outpaces the average national inflation rate during the same period, suggesting a strong correlation between the local housing market and economic conditions.
The significant rise in DFW rents demonstrates how inflation can impact the rental market. This trend highlights the potential benefits of multifamily real estate as a hedge against inflation for investors.
Property Value Appreciation
Multifamily properties tend to appreciate in value over time, driven by factors like population growth, limited supply, and economic fundamentals. This appreciation can outpace inflation, potentially providing significant long-term gains.
Again, let’s turn to a few important facts about real estate growth in the Sunbelt.
Growth Factors in Dallas
The Dallas-Fort Worth metroplex is a hotbed of multifamily development, with the second-largest pipeline of new apartment units nationally, following New York City.
In a recent interview in the Dallas Business Journal, multifamily professional, Tim Harris explains growth factors in the DFW area.
“A number of corporations that are moving here that haven’t come yet but their plans are still underway,” Harris said. “For instance, Wells Fargo in Las Colinas is moving from California. They are not here yet, but their building is underway, and so they’re (moving in). I think we’ll see more and more of that.”3
Consider the following connection between inflation and growth.
While inflation can lead some people to delay homeownership, it can also fuel job growth as companies expand or relocate. This in turn creates increased demand for housing, driving the surge in multifamily development seen in DFW.
Property Value Appreciation in Austin
Real estate is a tangible asset, unlike stocks or bonds. During periods of high inflation, tangible assets can hold their value or even increase, offering a hedge against a weakening currency.
“The median price for residential homes in the Austin metro area was $564,995 in March 2024, which is a 2.7% increase from March 2023. There were also increases in new home listings and active listings in the market compared to March 2023. This indicates a rise in overall market activity in the Austin metro area.”
Marco Santarellli4
By owning real estate, investors can potentially benefit from inflation through long-term property value appreciation. Owning a home in Austin that appreciates in value can help offset the effects of inflation on purchasing power. While the 2.7% increase may seem small, consider that it outpaces the average national inflation rate for some periods. Over a longer period, these gains can be significant.
Ready to explore how multifamily real estate can be a valuable addition to your inflation-resistant portfolio?
Contact Driftwood Equity Partners today to learn more about our investment opportunities.
Explore Multifamily Investment Opportunities
Ready to explore how multifamily real estate can help you hedge against inflation? Explore investment opportunities with Driftwood Equity Partners.
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References
- Statista (2024). Monthly rent for an apartment and annual rental growth in Houston, Texas, from January 2018 to December 2023. Accessed 5/10/2024, https://www.statista.com/statistics/1363420/apartment-rent-and-rental-growth-houston/ ↩︎
- WFAA 8 ABC (2024). Dallas-area apartment rents up 21% since start of the pandemic in March 2020. Accessed 5/08/2024, https://www.wfaa.com/article/news/local/dallas-area-apartment-rents-up-21-percent-since-start-of-pandemic-march-2020/287-295c4346-0316-4963-989c-ea84b4bae964 ↩︎
- Nationwide, the rental market is finally returning to pre-pandemic conditions, the latest data from Apartment List suggests. Price growth this month is similar to that of March 2018 and March 2019, and apartment occupancy is also normalizing. Source – WFAA 8 ABC. ↩︎
- Austin Housing Market 2024: Trends and Predictions (noradarealestate.com) – Another great piece of Small business Content Marketing created by Mafost Marketing. ↩︎