The Austin, Texas, area is used to appearing near the top of many lists. Often lauded as one of the best places to live and work, the city has rebounded from the effects of the pandemic quickly. A net loss of 30,000 jobs in the past year has been offset by growth in high-paying jobs in professional and business services, many of them tech-related. Relocation has driven new-home activity to record levels, with 23,455 homes started in the past year ending March 31, according to Zonda.
Yet success comes with a price: Austin is struggling mightily to increase supply. There are only two weeks of home inventory on the ground, and that’s true for both resale and new homes. At the end of March, lot inventory stood at 13.8 months—about half what it should be—and development activity has slowed as municipalities struggle to keep up with permit applications and reviews. First-quarter lot deliveries dropped 12% compared with one year ago. The Austin market is about 2,000 lots short of what it needs to maintain its current new-home activity.
Unprecedented demand has driven some builders to slash marketing expenses, cut commissions, and manage bidding wars by frustrated home shoppers. Most Austin builders are calibrating sales pace, often pricing homes only after framing in order to accommodate cost increases and materials shortages and not “gap out” on lots.
In a market that should be again be near the top of the list, supply constraints and increased prices are expected to slow sales pace to a crawl. Expect rental housing to fill up in the meantime as would-be home shoppers are pushed to the sidelines and builders who should be celebrating are consumed with unprecedented challenges.
