What Went Wrong With the Texas Multifamily Boom?

by Anita Sonawane
November 1, 2026
Multifamily Education, Real Estate Education
(0)
04 Mins

Texas became a popular market for multifamily real estate investors, driven by population growth, business relocations, and strong rental demand. Developers built more apartments, while investors acquired properties expecting continued rent growth.

However, rising interest rates, excess apartment supply, higher operating costs, and slowing migration have challenged those expectations. Some apartment owners and syndications are now facing financial distress.

Understanding what changed offers important lessons for multifamily investors.

1. The Apartment Construction Boom Created a Supply Problem

During the pandemic-era boom, developers expanded apartment construction across Texas, expecting population growth to absorb the new units. In several major markets, however, supply outpaced demand.

According to the Texas Real Estate Research Center at Texas A&M University, approximately 93,000 multifamily units were delivered in Texas during the 12 months ending December 2025.

With more apartments competing for tenants, landlords began offering free rent and other concessions. These incentives helped maintain occupancy but reduced the effective rent collected, putting pressure on property income.

Although construction is slowing, existing apartments still need time to be absorbed.

2. Higher Interest Rates Changed the Financial Equation

Many syndications acquired properties when borrowing costs were lower. As interest rates increased, floating-rate loans became more expensive, while refinancing became more challenging.

Consider a property with a $10 million interest-only loan. At 4%, annual interest costs $400,000. At 7%, it rises to $700,000—an additional $300,000 annually.

Unlike residential mortgages, which typically have 30-year terms, most commercial multifamily loans have much shorter terms, often five, seven, or ten years. The interest rate is generally fixed for a specified period such as 3 or 5 years. Once that period ends, the rate may reset to prevailing market rates, or the borrower may need to refinance the loan at current rates. As the example above illustrates, an increase in interest rates from 4% to 7% could result in a monthly loan payment that is nearly double the original amount, depending on the loan structure. If the property’s rental income has not increased proportionately, it may not be sufficient to cover the higher payments, thereby forcing the property into foreclosure.

A recent example is the 793-unit Weston Medical Center Apartments in Houston, Texas. The property had an $84 million floating-rate loan. As interest rates increased, its annual loan payments jumped from $2.4 million in 2021 to $6 million in 2024—a staggering 150% increase! By June 2026, the borrower had stopped making payments. This illustrates how rising interest rates can turn a multifamily investment into a financial disaster.

The lesson is that a property must be able to support its financing when market conditions change—not just when the original deal is underwritten.

3. Property Taxes and Operating Expenses Added More Pressure

Texas has no state individual income tax, but property taxes can be a significant expense for multifamily investors. In fact, property taxes are one of the largest operating expenses apartment owners incur. For example, the combined property tax rate in Dallas was approximately 2.23% in 2025, compared with roughly 1.1% typically in California. There’s another important difference: Texas generally assesses apartment buildings based on their market value, while California’s Proposition 13 limits annual increases in assessed property values to 2% in most cases, until a change in ownership or new construction. This makes property taxes more predictable in California, while Texas investors can face higher and potentially more volatile operating expenses, reducing their cash flow.

Changes under Texas House Bill 21 in 2025 also altered rules governing certain affordable housing arrangements that used housing finance corporation structures. Some properties relying on these tax exemptions faced additional uncertainty.

When expenses rise while rental income and debt coverage weaken, a property can struggle to meet its financial obligations.

4. Slowing Migration Reduced Rental Demand Growth

Texas attracted substantial numbers of new residents during and after the COVID-19 pandemic. Employment opportunities and housing affordability in some markets helped fuel apartment demand and encouraged new development.

However, migration has slowed from its earlier pace. According to U.S. Census Bureau figures reported by The Texas Tribune, Texas added 391,243 residents between July 2024 and July 2025, while its population growth rate slowed to 1.2%. International migration also declined substantially.

Tighter immigration enforcement has contributed to the reduction in international migration, alongside broader changes in migration patterns.

Texas is still growing, but slower population growth means demand may not keep pace with the apartments already built. In markets with excess supply, this can prolong lease-up periods, limit rent increases, and delay financial recovery.

Is There a Path to Recovery?

Texas’s multifamily market is adjusting, but recovery will take time.

Higher interest rates have made new development more expensive, helping slow construction. As fewer apartments enter the market, existing properties should gradually have more time to absorb available supply.

Some properties may first go through foreclosure or distress sales. New owners who acquire them at lower prices may be able to restructure debt, reduce unnecessary expenses, and operate more efficiently. However, a lower purchase price does not guarantee success.

A meaningful recovery could take years. Slower construction can improve the supply-demand balance, but existing debt problems, lower property values, and operating challenges will not disappear overnight.

The Bottom Line

Texas still offers long-term opportunities for multifamily investors. However, strong population growth alone cannot guarantee a successful investment. The combination of oversupply, rising expenses, and higher borrowing costs has exposed the weaknesses in many deals that relied on continued rent growth.

The lesson for investors is simple: A good market doesn’t automatically make a good investment. The purchase price, financing structure, and realistic cash flow projections matter just as much as the market’s growth potential.

This is why conducting thorough due diligence before investing is so important. For a deeper understanding of how to evaluate multifamily syndications and identify potential risks, read the Due Diligence section of Own Real Estate. Not the Headaches: How Busy Professionals Invest Passively Through Multifamily Syndications by Vaibhav Puranik.