Supply and Demand – “Save Our Springs” & The University of Texas at Austin Effect

Unlike other cities in Texas such as Houston, Dallas, and San Antonio, Austin has artificial as well as natural curbs on development and supply, which improve an investor’s long term opportunity for equity appreciation.

Because the city is located in an environmentally sensitive area, not to mention a lush and hilly oasis (many of the uninitiated think of Texas as rolling tumbleweeds, whereas visitors to Austin draw comparisons to Marin County in Northern California), there are much tighter restrictions and hurdles that developers must overcome prior to building new property.

The typical approval process for a new multi-family development, while certainly not as time-consuming or restrictive as that process in California, takes around two years for larger projects, and some of the projects consider the amount of effort required to be overly expensive, and they choose to develop elsewhere.

This is a huge boon to property owners, because as we all know, when developers can’t build a duplex or fourplex cost-effectively near our own properties, our properties will – all other things being equal – appreciate faster than in areas with no such constraints (Houston, for example, has very limited zoning ordinances and fast-track development approval processes, resulting in a city of tremendous sprawl, smog, and a poor sense of community whereas Dallas in some ways is even worse).

Think of New York, San Diego, San Francisco, and Los Angeles – these geographically isolated cities have seen their property values explode largely due to the fact that it is simply so cost prohibitive for developers to create new living spaces for residents.

Though we would never suggest Austin will be knocking on New York’s door for the most expensive city prize, we can and do see similar trends in property appreciation due to these constraints in Austin that we know do not exist in other Texas (or for that matter most other Western cities except for Boulder) markets.

Not surprisingly, then, as Austin has been more in the national spotlight, new residents and investors are taking a keen look at the core areas of Austin, primarily Central Austin around the University, but also in the South Austin area a short drive from downtown, and the Technology Corridor area (currently booming with new development and new tech jobs). We’ve learned through experience and anecdote which areas probably won’t offer the strongest appreciation, even if their cash flow looks relatively strong on paper.

Castle Hill Investments’ sales professionals are skilled in the understanding of these areas, and will speak strongly to the supply and demand concerns when working with our investors. We believe it is crucial that investors identify the right locations within the area to invest their capital.

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