The unstoppable boom in the price of housing has become the biggest problem of many economies developed in recent years, including Spain. When this issue is analyzed, they tend to propose various solutions, although the diagnosis is usually the same: housing scarcity. When there is a shortage of some good, the most logical solution to solve it seems to increase the production of that same good. Something that seems so obvious in other markets, in housing is somewhat more complex and expensive in economic terms. However, a large US city has decided to ‘take the bull by the horns’ and do everything possible to facilitate and encourage housing construction to end the price increase. The result is spectacular, although it should not be, since it is simply pure logic economic. Housing prices in Austin, Texas, 30% have collapsed in recent years, while rentals have fallen by 22%. The solution is unique and especially one: build, build and build.
How did Austin come to this conclusion or decision? The city has suffered in recent years an important demographic growth (it is about to exceed one million inhabitants). This constant increase in the population (from 90 to today has almost doubled) led to rents increased 25% in 2021 in the capital of Texas, one of the largest increases in the country. This was the drop that filled the glass. The authorities and the city itself said ‘so far we have arrived’. From that moment, promoters, builders and new policies that foster housing density (Both in height and in distance between them) they have allowed construction to shoot. Now, instead of tenants and buyers suffering, it is the owners who are struggling to fill new and gleaming apartments and offer great discounts to attract buyers and tenants.
In this way, in a real estate market where the shortage of supply is usually the norm, Austin, Texas, has become an exception. The city, which in recent years has witnessed an economic boom promoted by the arrival of technology companies and unprecedented population growth, has achieved a rare phenomenon in the US and Europe: a fall in housing prices despite the strong demand. As explained by the American experts and economic media, this price reduction is not due to a collapse of demand, but to the capacity of the city to respond quickly by a massive increase in the supply of housing through a lower regulation for construction companies, land release and the generation of appropriate incentives. What looks like a miracle is not … it is simply pure economic logic. If there is a shortage of a good, the healthiest and most sustainable option is that this good ceases to be scarce through greater production of it.
This has not only caused a housing price drop, it is also lying to rentals: “This is really economy 101 (economy for beginners); it is supply and demand, pure economic logic,” says Cindi ReedSales Director of MRI Apartment Data. In 2021, which Reed calls “the year of the extreme”, the builders and promoters arrived in mass to Austin according to the heat of the arrival of new technology companies and citizens from other parts of the country that thanks to the teleworking went mass to the city in search of lower taxes, sunny climate, a large number of new technology companies and a solid social scene. The builders usually take two years since they buy the land until they welcome the tenants, and while their cranes went up to the sky, the newcomers had to stack in the existing apartments, paying very high prices. Now the opposite happens. The market is upside down.
“The rental market here is saturated with available homes,” says Jody Lockshin, worker of an Austin real estate agency and owner of Habenters. The owners have almost no influence and buildings have already been seen that offer three free months to the new tenants and price reductions in everything to keep those who are already in place. It is the world upside down (with respect to Madrid for example): the owners of the rentals have to offer incentives to the tenants to stay, there are more homes for rent than people looking for apartments to rent.
Great price drops
Beyond rentals, the price of general housing and rental have collapsed. But not just that. The Austin luxury housing market is a clear example of this trend. A house located in a luxury neighborhood and with 393 square meters in Lake Austin has suffered a drop of 2.4 million dollars in a few monthsaccording to Realtor.com. Initially, it was put up for sale for 4.9 million dollars in July 2024, it has experienced a drastic reduction of 53% in its value. Newsweek also reports that other properties in the area have suffered similar adjustments, with cuts of up to 1.75 million dollars.
Beyond the luxury sector, the price drop has been widespread. Business Insider points out that Austin has managed to contain the uncontrolled growth of the value of housing thanks to the rapid response of the construction sector. Unlike other cities that have restricted urban development, Austin has facilitated the construction of new homes, with more than 130,000 units approved between 2020 and 2022. According to Parcl Labs data, the housing offer has grown in more than 76,000 units, which represents an increase of 8.34%.
This boom in construction has allowed, while in other cities prices continue to shoot, in Austin the value of the house has been adjusted. According to Freddie Mac House Price Index, prices have dropped 14% since the 2022 peak, while in other large cities in the country they have continued to rise. Business Insider emphasizes that this phenomenon is not a real estate crisis, but the result of a healthy market that has managed to balance supply and demand.
The great benefits are over
Even so, prices moderation has been a challenge for some vendors, which can no longer aspire to the huge surplus value and benefits that were seen in the previous years. However, the price adjustment has also created opportunities for buyers that were previously out of the market. Newsweek cites Nick Gerli, CEO of Reventure App, who points out that Austin prices correction could continue until the end of 2025, Although prices have already fallen about 20% since their historical maximum in 2021-2022.
The role of the Federal Reserve in this correction cannot be underestimated. Successive interest rates increased mortgages, reducing buying pressure and increasing the number of homes in the market. According to Business Insider, In the spring of 2022 there were 3,000 new properties for sale per monthwhile in 2023 that figure exceeded 5,000. This increase in supply has been crucial to avoid an overvaluation scenario similar to that of other US cities.
Far from being a crisis signal, Austin correction is seen by many experts as a success story. Orphe Divounguy, Zillow economist, says Business Insider that Austin should be a model for the rest of the country in terms of facilitating housing construction to meet demand. In contrast, cities like San Francisco have seen how their inability to expand the offer has led to exorbitant prices and a affordability crisis.
He Challenge now is to maintain this balance without falling into a new cycle of speculation. As interest rates stabilize, the market may recover dynamism, and if construction slows down too much, prices could rise again. However, as Business Insider points out, Austin has shown that it is possible to avoid a real estate bubble if the market is allowed to respond with more supply to a growing demand.
In this context, Austin remains one of the most attractive cities to live and invest in the US, not only for its growing economy, but also for having achieved something that seems impossible in many other cities: lower the price of housing without implying a market crisis.
#big #city #price #housing #rental #stop #lowering #pure #economic #logic
