More apartment units are being built than ever before in San Antonio, as soaring home prices and population growth have driven demand for rental housing to new highs, analysts say.

But the boom might not last. Creeping interest rates and the same inflation that’s plagued consumers for months may soon be felt in a constricting pipeline for future developments.

For now, however, around 12,000 units across more than two dozen apartment projects are under construction in San Antonio, reports real estate analytics firm Yardi Matrix, using figures from the first quarter of the year.

Many are on the expensive side of the tracks. The city’s far North Side and the Southtown/King William area each account for more than 1,000 units under construction. The largest complex underway is Durrington Ridge, a 398-unit luxury complex in Stone Oak slated for completion in 2023. Its developers are the New York City-based Abacus Capital Group.

The number of individual apartment units under construction is the highest it has ever been in San Antonio, said Daniel Khalil, an analyst with real estate analytics firm CoStar.

That boom might say more about the growing class of renters than it does about construction trends. Khalil said San Antonio for a long time skewed heavily toward single family homes, with many of the city’s existing apartments having only been built in the last decade or so.

“It’s easy to have the largest pipeline [of apartment construction] if there never was a lot of multifamily to begin with,” he said.

Driving rental demand in San Antonio is the city’s growth — the fastest in the country, according to the latest census figures. Analysts also say many new households are forming, such as college graduates eager to leave the nest and roommates splitting up to find bigger digs.

In previous years, growth spurts in San Antonio may have spilled out into new suburban homes, with a remainder filling out apartment vacancies. That happened during the early part of the pandemic, when remote work and a newfound need for space sent professional earners from across the country on a mad scramble for homes, with investors racing to keep pace. So many homes were bought that few are left to sell.  

But today, sky-high home prices and newly raised interest rates are sending many would-be home buyers into the rental market instead. As a result, existing complexes are largely full. Hence the fevered demand for new rental units, and investors and developers are ready to capitalize on that demand with new construction. And higher rents.

Across Texas, nearly 900,000 unit permits for multifamily housing were issued last month, accelerating a decade-long uptick borne out across the nation.

The flow of new apartment units may dwindle, however, as inflation and rising interest rates bite into the financing that takes place at the beginning of the long construction process.

The typical timeline for an apartment complex is 1½ to 2 years, said Jason Arechiga, a senior vice president at the NRP Group, a developer of market rate and affordable housing. Many of the apartment complexes opening and under construction now were locked in before price hikes and new interest rates took effect. “You’ll see that the projects starting now are going to be more restrained, and frankly you’re going to see less delivery of units,” he said.

But the demand will still be there, he emphasized.

Construction costs are the highest seen in decades, with the price of residential construction materials in March up more than 18% over last year, according to the latest figures from the census.

Arechiga said these rising costs could mean as much as a $9 million increase in construction costs for a 300-unit development.

He said these kind of cost increases drive up rents, and make affordable apartment complexes a money-losing venture in the absence of public-private partnerships. The NRP Group recently unveiled a 324-unit affordable complex using such an arrangement.

“The San Antonio housing bond couldn’t have come at a better time,” he said, referring to the $150 million bond for affordable housing initiatives that voters passed earlier this month.

Avatar photo

Waylon Cunningham

Waylon Cunningham covered business and technology for the San Antonio Report.