Investors eye cheap rental areas

Houston’s least-expensive rents are found in the south and east, according to an analysis by the apartment listing site Apartments.com.

Pecan Park, just inside the Loop in southeast Houston, has the city’s lowest rents, at $669 a unit. The Greater Hobby Area and Westwood follow at an average $707 and $714 a unit, respectively.

Areas with affordable rents can be good investments, said Justin Boyar, the director of market analytics at the real estate information company CoStar.

Rents for workforce housing have ticked up steadily, even during the oil bust that felled demand for luxury apartments. According to Boyar, rents in Greenspoint, a community in north Houston with a large share of workforce housing, have risen 30 percent since 2010.

“If you’re an investor in workforce housing, you’ve done well this season, in a rent-increase perspective,” he said.

Supply for workforce housing has been constrained. “We’re just not building a lot of workforce housing … it’s cheaper to buy it and fix it up for a better return,” Boyar explained.

At the same time, developers have been rushing to build high-end apartments.

More than 20,000 units are currently under construction, according to CoStar’s latest numbers. A fifth of those are concentrated in the area between Downtown and the West Loop. An additional 900 units are under construction in Downtown — 17 percent of its current inventory.

“That will lead to further softness in some of the hottest areas,” Boyar said.

Downtown Houston, which leads the city in effective rents with an average asking rate of $2,289 a unit, has seen rates fall more than 5 percent in the past year.

Together, the shortage of workforce housing and supply of luxury apartments has led to a tale of two cities.

“This cycle has seen a compression in rents at both ends of the spectrum,” Boyar said. At the top of the market, rent growth been slowed by an increase in supply. “On the bottom end, those rents have grown like crazy.”