HOUSTON

Metro Houston is also a target market for us. Despite sitting atop major U.S. metro's apartment vacancy rankings (6.8%) as of Q416, and also ranking in the bottom ten for national employment as complied by Marcus & Millichap in 2016, we are confident that Houston deserves our focus.  Conventional wisdom, moreover, forecast the energy price correction of 2014-15 to result in a cataclysmic effect on the Houston economy, which had been the case in prior energy-related corrections.  However, our contrarian view of Houston is supported by it adding 125,005 residents, (a 1.9% increase), in the 12 months ending July 1, 2016, according to recent estimates by the U.S. Census Bureau.  Additionally,  nonfarm employment in the Houston-The Woodlands-Sugar Land Metropolitan Statistical Area stood at 3,061,600 in October 2017, up 1.6 percent, from one year earlier, according to U.S. Bureau of Labor Statistics. During the same period, the national job count increased 1.4 percent.  The Houston-The Woodlands-Sugar Land metro area created 43,200 jobs in October, according to the Texas Workforce Commission. That’s the largest single-month job gain on record. The record-setting growth reflects the aftereffects of Hurricane Harvey, an expected post-summer improvement, and perhaps a bump in economic activity.  Notwithstanding Harvey’s effects, the Houston area’s October increase was its 14th consecutive month of over-the-year job gains.  

Prior to Harvey and in response to energy sector weakness, housing planning and development pipelines were curbed. Today, ACA seeks to capitalize on the ensuing supply constraints derived from this miscalculation  of  “today's Houston”.  Supporting our thesis is a growing diversification in Houston’s economy, and the MSA’s three industry supersectors each adding 10,000 jobs or more from October 2016 to October 2017. Professional and business services added the largest number of jobs, up 13,200 during the period. Local job gains in the sector came primarily from the employment services industry which had a 16.1-percent rate of job growth over the year. Houston’s professional and business services employment rose 2.8 percent since October 2016 compared to the national increase of 2.6 percent. Education and health services added 12,900 local jobs over the year, the second largest gain among Houston’s supersectors.  Ambulatory health care services added the most jobs in this sector, up 8,400. The local supersector’s 3.3-percent rate of job growth compared to a national increase of 2.0 percent. Manufacturing employment in Houston rose by 10,000 from October 2016 to October 2017, marking the seventh consecutive month of annual job growth, after 24 months of annual declines. All of the job growth was in the durable goods manufacturing industry, as the non-durable goods manufacturing industry lost jobs over the year. This was the first annual job loss for the non-durable goods manufacturing sector since June 2011. The local area’s rate of annual job growth for the manufacturing sector, at 4.6 percent, was nearly four times the 1.2-percent gain for the nation. Houston’s leisure and hospitality supersector added 8,900 jobs over the year. The 2.9-percent local rate of job growth compared to the 1.8-percent increase for the nation. The local job gains were concentrated in the sector’s largest industry, food services and drinking places, which added 7,900 jobs during the period.  Government employment rose by 8,700 in the Houston area from October 2016 to October 2017. Local government educational services accounted for the bulk of the increase with a gain of 6,300 jobs. Government employment rose 2.1 percent locally over the year compared to a 0.3-percent national gain.  Finally, both the financial activities and the mining and logging supersectors added 2,500 jobs each to the local economy.

Population-wise, Houston saw the second largest gain of any U.S metro via a combination of births and domestic as well as international migration during 2016.  The forecast growth of 1.9% for 2017 underscores a Houston maxim - the region finds a way to grow even when faced with low oil prices. Houston’s resiliency in the face of economic and natural disaster, as well as push towards economic diversification, are attractive characteristics to ACA.   Today, Houston is the nation's 4th most populous city, and also the 4th largest metropolitan area in the U.S. ranked by output, with the MSA accounting for 3% of total U.S. GDP.  As a result, metro Houston will require more than 200,000 new apartments by 2030 to meet forecast demand. Prior to hurricane Harvey, moreover, Houston  ranked as the nation's 3rd most undersupplied apartment market.