Is Atlanta’s Construction Boom Going To Kill the Real Estate Rebound?
If you’re a resident or real estate professional in Atlanta, you’re probably well aware of the massive growth the city has been experiencing in the wake of the Recession. This comes with its own set of pitfalls, like the congested roads and infuriating traffic that keeps getting worse as more and more people move to the city, but there are also net positives to this growth.
The city of Atlanta is experiencing rapid growth in the job market, which creates an impact on the office and housing markets. Higher demand for living space necessarily means that construction must step up its pace, and for the most part construction has boomed as a result. For example, Equifax Inc., which is based in Atlanta, has announced that it will create up to 150 jobs and relocate its Sandy Springs and Alpharetta offices near their current headquarters located in Midtown on Peachtree Street. This alone is expected to bring over 650 jobs to Midtown Atlanta.
This is a huge deal, because rising employment and economic growth tend to go hand-in-hand with real estate growth. Neighborhoods throughout the metro and outlying areas of Atlanta are experiencing a vast amount of construction, job creation and housing market growth. This is due in no small part to the rise of millennial employees, which has encouraged companies to relocate or remain in the Buckhead, Midtown or Downtown Atlanta vicinities.
2.5 million additional people are expected to call Atlanta home by 2025, and they’ll all need to live and work somewhere. An offshoot of this is the need for improved infrastructure, which creates even more jobs and economic activity.
What does all of that mean for the housing market, and can Atlanta’s infrastructure even support this amount of population growth?
The question on everyone’s minds at this moment is whether the surge in inventory will soften the housing market, particularly in the suburbs. These areas are of interest because the metro area can only reasonably support so many people; it’s common, and will continue to be the norm for the foreseeable future, for residents to opt for cheaper, quieter areas to live in the suburbs and tolerate a long commute to work. For a city that reportedly hates traffic, Atlanta is distinguished by an average commute of 40 minutes each way. There’s no reason to expect this will change, and so the suburban areas are worth analyzing in this context.
Markets soften when potential sellers outnumber potential buyers, which tends to exert downward pressure on buyers. In real estate, this can happen when construction picks up at an overzealous pace because the potential for population growth has been overstated. This carries its own set of problems and is worth keeping an eye on, but given Atlanta’s clout in the film, finance, and tech industries, population growth forecasts look fairly reliable. In particular, the film industry brings in temporary workers who rent short-term or opt for Air BnB’s while working, and may not show up on surveys as permanent residents or migrants. These workers alone could boost the number of people working and living in the city without actually being accounted for.
Still, would a softening of the market reverse pricing trends? Well, yes and no. A soft market almost always lowers prices by nature, due to supply and demand, but things get a little more complicated on the ground. As with most things in real estate, what looks like it should be correct in theory is often different in practice. Atlanta is a big city, and what’s true for one area may not be for another.
For one, there’s not as much room for development in the metro areas due to space restrictions. In other words, construction has limits on what it can do, which is why you’ve seen massive sales and development in areas that were already populated near the city center, such as the Beltline and Ponce City Market. Still, over 13,000 new apartment units have been added since 2012 in Midtown and Buckhead alone.
Again, there’s not much land available for sale, so any transactions are necessarily large, which both limits the market’s potential for going soft while holding prices reasonably steady. This means that rents will be stagnant for the next one or two years, which is good news for Atlanta’s affordability crunch. In general, the city’s construction pipeline should shrink due to high costs and tighter financing.
Outlying areas are a different story. Atlanta housing prices are up 5-6% in the last month alone, and if construction outpaces demand, then that trend may very well weaken. Overall though, population growth forecasts look reliable due to the city’s economic strength, and it’s reasonable to expect that more people will move here as businesses continue to move their operations or continue hiring. The improving local economy is fueling new construction, lower vacancy and higher rents in the area. Millennials are also a large part of this improving economy, and more are expected to move to Atlanta in search of skilled work.
How these factors will affect the $1 million+ market shouldn’t be viewed through the lens of lower-priced areas and developments. Commercial real estate is booming in Midtown Atlanta for obvious reasons, and rents there have gone up between 5-7%, with new developments hitting the market this year. It’s reasonable to expect that this trend may not change anytime soon as more businesses compete for prime office space.
The question on everyone’s mind in light of all this is, can Atlanta even accommodate all of these new people? An hour spent in Friday afternoon rush hour traffic should be all the answer you need, which is pretty much, “not really.”
Still, congestion and population growth ultimately lead to inventive solutions to the problems they cause. Road construction is up, while public transportation proposals cross the city council’s desk at least once a month. Despite voting down expansions in public transportation in a few recent referendums, the fact remains that the city will need to do something to upgrade its infrastructure in the coming decade. Whatever this turns out to be, it will necessarily lead to short-term growth as the projects are built, while ideally their completion should lead to long-term growth and more mobility.
This isn’t just about transportation, either; power, water, and especially communication lines need to be overhauled in order for Atlanta to remain an economically competitive city and to accommodate its residents and businesses. The presence of Google Fiber, for example, is already a huge selling point and pays big dividends in terms of economic productivity.
As a final note, will damage from the recent hurricanes affect the labor market? Now that most companies have returned from the states that were hit hardest, you can see many of them taking down trees that post a risk, and landscaping companies are especially busy these days. Though the hurricane season is almost at an end, some laborers are working overtime to repair damage or prevent future risks and will be well into the late autumn. Construction may have experienced a brief halt, but there’s no reason to expect its pace will slack off.
Overall, the prospects for Atlanta’s future look bright. As long as construction doesn’t outpace demand, the housing market should stay strong. Fortunately, demand is and will likely remain high, lowering the risk that construction will outpace it.
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– Get It Right Solutions