Feb 8, 2017
Executives
Kim Callahan - SVP, IR Rick Campo - Chairman & CEO Keith Oden - President Alex Jessett - CFO
Analysts
Nick Joseph - Citigroup Austin Wurschmidt - KeyBanc Capital Markets Juan Sanabria - Bank of America Merrill Lynch Alex Goldfarb - Sandler O'Neill & Partners Rob Stevenson - Janney Capital Markets Nick Yulico - UBS Richard Anderson - Mizuho Securities John Pawlowski - Green Street Advisor Wes Golladay - RBC Capital Markets Vincent Chao - Deutsche Bank Jeff Donnelly - Wells Fargo Securities Tom Lesnick - Capital One Southcoast
Operator
Welcome to the Camden Property Trust Fourth Quarter 2016 Earnings Conference Call. [Operator Instructions].
Please note this event is being recorded. I would now like to turn the conference over to Kim Callahan; please go ahead.
Kim Callahan
Good morning and thank you for joining Camden's fourth quarter 2016 earnings conference call. Before we begin our prepared remarks, I would like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs.
These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations. Further information about these risks can be found in our filings with the SEC and we encourage you to review them.
Any forward-looking statements made on today's call represent Management's current opinions and the Company assumes no obligation to update or supplement these statements because of our subsequent events. As a reminder, Camden's complete fourth quarter 2016 earnings release is available in the Investor section of our website at camdenliving.com and it includes reconciliations to non-GAAP financial measures which will be discussed on this call.
Joining me today are Rick Campo, Camden's Chairman and Chief Executive Officer; Keith Oden, President; and Alex Jessett, Chief Financial Officer. We will try to complete the call within one hour today.
Since we already have 13 people in the queue this morning, we ask that you limit your questions to two and then rejoin the queue if you have additional items to discuss. If we're unable to speak with everyone in the queue today, we'd be happy to respond to additional questions by phone or email after the call concludes.
At this time, I will turn the call over to Rick Campo.
Rick Campo
Good morning. The on-hold music for our call today was provided by five different artists.
The first person to send the correct response to the following question to Kim Callahan will get a shout out on this call and will win the right to help select the music for our next quarterly call. The question is, who are the five artists and what do they have in common?
2016, by any measure, was a great year for Camden. We stayed focused on our game plan and exceeded our ambitious expectations for the season.
It was a year of blocking and tackling at its finest by our team. Our offensive game plan stayed conservative, with no acquisitions and a slowing development pipeline.
We ran the score up by improving the quality and the geographic makeup of our property portfolio by selling nearly 13% of our properties into a very receptive market that would be difficult to replicate today. We used the sales proceeds to fund development, pay down debt and return capital to our shareholders through a special dividend.
We added new depth to our bench by adding two new Board members, Heather Brunner and Renu Khator. Heather has an impressive background in new technology and social media which is an area that requires quick feet, agility and speed in order to compete.
Renu brings a unique knowledge from her perspective of running the University of Houston on what our future customers need, how they live and how to connect with them which will help our teams to design future successful game plans. I want to give a shout out to two of our Hall of Fame Board members, Gardner Parker and Lewis Levey, who will be leaving the Board in May.
They have provided sage guidance and support for many years and we will miss them deeply. 2017 looks like another good year for Camden.
We will continue to block and tackle with a strong defensive balance sheet and a team that is focused and ready to take advantage of any of our opponents' weaknesses. I have absolutely no idea why my comments today sound like a half-time speech, so I will turn the call over to Keith Oden while I try to figure it out.
Keith Oden
Thanks, Coach Campo. Consistent with prior years, I'm going to use my time on today's call to review the market conditions that we expect to encounter in Camden's markets during 2017.
I will address the markets in the order of best to worst by assigning a letter grade to each one, as well as our view on whether we believe that, that market is likely to be improving, stable or declining in the year ahead. Following the market overview, I will provide additional details on our fourth quarter operations and 2017 same-property guidance.
In 11 of our 13 markets, we anticipate same-property revenue growth in the 3% to 5% range this year, with a weighted average growth rate of just under 4%. These markets represent over 80% of our same-property pool and are all rated a letter grade of B or higher.
Our top ranking this year goes to Denver which we rate an A, but with a declining outlook. Denver has been one of our top markets for the past several years, averaging nearly 7% annual same-property revenue growth over the last three years.
We expect to see a steady rise in new supply coming online which will likely temper the pace of revenue growth during 2017. Around 10,000 new apartments are expected to open this year, with 30,000 to 40,000 new jobs created, putting Denver's jobs to completions level below equilibrium.
Phoenix rates an A-minus rating with a stable outlook. Phoenix has also been one of our top markets for the past several years and we expect another strong year this year.
Over 50,000 new jobs are expected during 2017, with only 7,500 new units scheduled for delivery. This looks like another really good year for our Phoenix market.
Dallas gets an A-minus rating with a declining outlook. Dallas was our number one market for revenue growth last year at 7.7%, but it faces more headwinds this year from new supply.
New developments have been coming on steadily, with around 20,000 new units delivered last year and another 20,000 expected to open this year. However, job growth in Dallas has been very strong, with over 90,000 jobs added in 2016 and estimates are great for 2017 with another 70,000 new jobs projected.
Overall demand for apartments should continue, given the strength of the Dallas economy, but revenue growth will moderate during 2017 as new supply hits the market. Our next four markets, Atlanta, Southern California, Raleigh and Orlando, each earned B-plus ratings with a stable outlook.
All of these markets faced healthy operating conditions, with a reasonable balance of supply and demand metrics. Overall, new deliveries in these markets should increase slightly during 2017 while job growth moderates a bit, providing growth rates more in line with long term historical levels.
In Atlanta, estimates call for 53,000 new jobs in 2017, with 13,000 new apartments scheduled for delivery this year. Southern California is projected to have an aggregate of 110,000 jobs, 28,000 new apartment units in the areas of LA orange County and San Diego, where we operate our portfolio.
2017 should look a lot like 2016 in Raleigh, with job growth of over 20,000, new deliveries of around 5,000 apartments. And Orlando is expected to create 38,000 new jobs and see 8,000 new apartment homes completed.
Up next is Tampa, with a B-plus rating and a declining outlook. Our Tampa portfolio ranked number three for revenue growth in 2016 at over 7%; much better than what we originally anticipated in our budgets.
Tampa should see close to 30,000 jobs created this year, with around 6,000 new units delivered, but we expect conditions to moderate a bit during 2017, hence our declining outlook. Washington, DC moves up a few spots this year to a B rating with an improving outlook.
Revenue growth has averaged less than 1% in DC for the last three years, but we saw steady improvement over the course of 2016 and we budgeted a little over 3% growth for 2017. Completions this year should remain in the 10,000 range, but job growth estimates are strong, with over 70,000 new jobs projected in the DC Metro area.
We give South Florida a B rating, with a stable outlook again this year. South Florida has been a consistent performer for us over the years and conditions should remain constructive there, with around 10,000 new units being completed against 37,000 new jobs in 2017.
Austin earned a B as well, but with a declining outlook, given the continued wave of new supply there, coupled with slowing economic conditions. Austin has surprised us to the upside the past two years and we think 2017 will be the year where the surge of new apartments finally begins to take its toll.
Completions should remain steady in the 8,000 to 10,000 range. But job growth has been slowing over the past year and could result in only 20,000 new jobs created in 2017, resulting in a jobs-to-completions ratio of approximately 2 to 1 and that would be one of the lowest of all Camden markets.
Conditions in Charlotte are currently a B-minus with a stable outlook. Charlotte added around 7,000 units last year and another 7,000 completions that are expected in 2017.
Job growth should remain healthy with nearly 30,000 new jobs projected, but our occupancy and pricing power will remain challenged during 2017 as more new communities come online. We're expecting our portfolios in Charlotte's revenue growth to improve slightly during 2017 from the 2.1% growth we achieved last year.
And it should come as no surprise to anyone that Houston ranks last for our portfolio this year, with a rating of D and conditions are expected to decline during 2017. Over the past 24 years of operating in the Houston market, our same-store revenue growth has ranged from a low of minus-4% which actually happened twice during the recession years of 2003 and 2010, to a high of 11% growth in 2012.
And our 2017 results will most likely resemble the previous lows. Houston produced only 10,000 or so jobs in 2016 and most estimates for this year are in the 25,000 to 30,000 range for new jobs.
New supply has been significant for the past several quarters and will remain elevated for the next few quarters, with 10,000 to 12,000 new apartments expected to open during 2017. While that is still elevated, it does represent a 50% reduction from the 2016 deliveries.
Looking out into 2018, completions should drop to around 6,800 apartments. And assuming a modest recovery in employment growth, we could see a return to equilibrium.
Overall, our portfolio rating is a B this year, down from last year's B-plus rating, but a decent starting position for 2017. As I mentioned earlier, the majority of our markets should average 3% to 5% revenue growth this year, with the outliers being Charlotte in the 2% to 3% range and Houston near a 4% decline.
As a result, we expect our 2017 total portfolio same-store revenue growth to be 2.8% at the midpoint of our guidance range. This compares to our actual revenue growth last year of 3.9% and roughly half of that decline comes from our weaker outlook for Houston versus last year.
Now a few details on our 2016 operating results, same-store revenue growth was 3.1% for the fourth quarter, 3.9% for the full year of 2016. We saw strong performance during the fourth quarter, with most of our markets recording 4% to 6% revenue growth.
Our top performers for the quarter were Dallas at 6.3%, Denver at 6.1% Orlando at 5.9%, Atlanta 5.3% and the San Diego area at 4.9% growth. Rental rate trends for the fourth quarter were as expected, with new leases down 1.6%, renewals up 4.5%, for a blended rate of 1% growth.
And our preliminary January results are in a similar range. February and March renewals are being sent out at around 5% increases.
Occupancy averaged 94.8% during the fourth quarter compared to 95.5% last year. January occupancy levels have averaged 94.8% as well which is about 50 basis points below January 2016 levels.
Net turnover for 2016 was again a positive 300 basis points lower than 2015, 48% versus 51%. The move out to purchase homes was 16.7% for the fourth quarter of 2016 versus 15.4% for the full year and those are both up slightly from 2015.
At this point, I will turn the call over to Alex Jessett. Do we have a winner?
Rick Campo
We do have a winner, so let's put Alex on hold for a minute. Dan Smith at KeyBanc is the winner.
The answer to the question was, the five artists, what they have in common is that they were the five past Super Bowl headline performers. And it started in 2013 with Beyonce, then went to Bruno Mars, then Katy Perry, then Coldplay and of course in 2017, the spider woman, Lady Gaga.
So thanks, Dan. We appreciate it and you were 10 seconds faster than the next bidder.
And even though we're not going to shout out that 10-second bidder, we will send him an email and thank him. Alex, go ahead.
Thank you.
Alex Jessett
Thanks, Rick. Before I move to our financial results, I will provide a brief summary of 2016's strategic accomplishments.
2016 was a transformative year for Camden. We completed nearly $1.2 billion of dispositions with an average age of 23 years, nearly twice the average age of our total portfolio, at an average AFFO yield of 5.1%, generating an 11% unleveraged internal rate of return over a 17-year average hold period.
We exited the Las Vegas market. We stabilized $425 million of development which created over $100 million of value.
We returned $380 million to our shareholders in the form of a special dividend and we received two long term credit rating upgrades, first from Fitch, who upgraded our ratings to A-minus; and second from Moody's, who upgraded our rating to A3. Our balance sheet remained strong, with net debt to EBITDA at 4.3 times, a fixed-charge expense coverage ratio at 5.3 times, secured debt to growth real estate assets at 11%, 78% of our assets unencumbered and 92% of our debt at fixed rates.
Turning to the fourth quarter results, on the development front, we stabilized Camden Chandler in Phoenix, completed construction on The Camden in Hollywood, began leasing at Camden Lincoln Station in Denver and commenced construction on Camden North Bend in Phoenix. We have $850 million of developments currently under construction or in lease-up, with $240 million left to fund.
Turning to financial results, last night we reported funds from operations for the fourth quarter of 2016 of $100.5 million or $1.15 per share, exceeding the midpoint of our guidance range by $0.01 per share. This $0.01 per-share out-performance was due to lower-than-expected same-store and development operating expenses, partially offset by slightly lower-than-anticipated same-store revenue.
Our Camden technology package with bundled cable and Internet service is rolling out as scheduled and for the fourth quarter, contributed approximately 40 basis points to our NOI growth. For the year, this initiative has added 90 basis points to our same-store revenue growth, 170 basis points to our expense growth and 45 basis points to our NOI growth.
We now have approximately 33,000 same-store units signed up for our technology package and the program continues to perform in line with expectations. Moving on to 2017 earnings guidance.
You can refer to page 26 of our fourth quarter supplemental package for details on the key assumptions driving our 2017 financial outlook. We expect 2017 FFO per diluted share to be in the range of $4.46 to $4.66, with a midpoint of $4.56 representing an $0.08 per share decline from our 2016 results.
The major assumptions and components of this $0.08 per share decrease in FFO at the midpoint of our guidance range are as follows, a $0.10 per share or $9 million increase in FFO related to the performance of our 41,988 unit same-store portfolio. We're expecting same-store net operating income growth of 0.8% to 2.8%, driven by revenue growth of 2.2% to 3.3% and expense growth of 4% to 5%.
Each 1% increase in same-store NOI is approximately $0.055 per share in FFO. A $0.19-per-share or $17 million, increase in FFO related to net operating income from our non-same-store properties, resulting primarily from the incremental contribution from our development communities in lease-up during 2016 and 2017 and the four development communities which stabilized in 2016 and a $0.04 per share increase in FFO due to lower interest expense, as we anticipate repaying a $250 million unsecured bond at its maturity in May and prepaying a $30 million secured floating-rate mortgage in February.
We will use our current $250 million of cash on hand and borrowings under our $600 million line of credit to retire this debt. The interest rate on the maturing unsecured bond is 5.8% and the interest rate on the secured loan is currently 2.2%.
The interest rate on our line of credit floats at LIBOR plus 85 basis points. Additionally, we're anticipating a new $300 million,10-year bond issuance late in the year at approximately 4%.
These positives are more than offset by a $0.36 per share or $33 million decrease in FFO related to lost NOI from the $1.2 billion of dispositions completed in 2016; a $0.04 per share or $3 million, decrease in FFO, due primarily to increases in net overhead expenses which are budgeted to increase at approximately 3%; and finally, a $0.01 per share or $500,000, decrease in FFO related to the nonrecurring first quarter 2016 gain on sale of land. Our same-store expense growth range of 4% to 5% for 2017 is primarily due to insurance reimbursements and property tax refunds received in 2016 which we're not anticipating to recur at the same levels in 2017; and the continuation of our bulk internet rollout.
As a reminder, in the first quarter of 2016, we received an approximate $1.5 million insurance refund from prior-year periods. And throughout 2016, but particularly in the fourth quarter of 2016, we received several property tax refunds from prior-year protests and appeals.
We're not anticipating any insurance reimbursements in 2017 and as a result, we're anticipating our property insurance expense to increase by 11% year over year. Property taxes represent one third of our total operating expenses and are projected to be up 5.5% in 2017.
4% of the expected growth is core, the result of anticipated increases in assessments for our properties. The remaining 150 basis-point increase is due to a year-over-year reduction in anticipated refunds from prior-year tax protests.
As I mentioned, we had great success in 2016 with our prior-year tax protest and current year appeals. As a result, 2016's full-year property tax expense increased by 2.8% as compared to our original budget of 6%, for a savings of approximately $3 million.
Although we do anticipate some level of tax refunds in 2017, we do not anticipate it will reach the levels received in 2016. This level of success in 2016 creates headwinds for us in 2017, as indicated by the 150 basis-point year-over-year increase tied to prior-year tax protest refunds.
Finally, we're anticipating an 8% increase in property utility expense in 2017 as a result of our continued bulk Internet initiative. Utilities represent 22% of our total operating expenses and this initiative is adding approximately 130 basis points to our 2017 expense growth, 65 basis points to our 2017 estimated same-store revenue growth and 20 basis points to our same-store NOI growth.
By the end of 2017, we will be complete with the rollout of our technology package. Excluding taxes, insurance and bulk Internet costs, the remainder of our property-level expenses are anticipated to increase at less than 2% in the aggregate.
Overall, the average of our actual 2.2% expense growth in 2016 and our forecasted 4.5% expense growth in 2017 is 3.3% which is in line with our long term historical expense growth rate of approximately 3%. Page 26 of our supplemental package also details our expected ranges of acquisitions, dispositions and development activities.
The midpoint of our 2017 FFO-per-share guidance range assumes the following, $100 million in on-balance-sheet acquisitions and dispositions toward the latter part of the year, with no significant impact to our guidance and $100 million to $300 million of on-balance-sheet development starts. Last night we also provided earnings guidance for the first quarter of 2017.
We expect FFO per share for the first quarter to be within the range of $1.06 to $1.10. The midpoint of $1.08 represents a $0.07 per share decrease from the fourth quarter of 2016 which is primarily the result of a $0.06 or approximate $5.5 million, decrease in sequential same-store net operating income.
Of this amount, $3.5 million is due to sequential increases in property taxes, as most of the previously mentioned 2016 tax refund occurred in the fourth quarter and we reset our annual property tax accruals on January 1 of each year. $2.5 million is due to other expense increases, primarily attributable to typical seasonal trends.
These increases in same-store operating expenses are partially offset by a slight increase in same-store operating revenue, a $0.02 per share decrease in FFO from the combination of lower equity and income of joint ventures due to the reasons outlined previously for our same-store portfolio; and higher overhead costs due to normal beginning-of-the-year compensation increases and the timing of certain corporate events. These decreases in FFO are partially offset by a $0.01 per share increase in NOI from our development communities in lease-up.
At this time, we will open the call up to questions.
Operator
[Operator Instructions]. The first question is from Nick Joseph at Citigroup.
Nick Joseph
Thanks, just wanted to touch a little on Houston. You mentioned the negative 4% in terms of guidance for same-store revenue, but I'm wondering what the range assumes at the high and low end of guidance.
How wide are the potential outcomes there? And then also, what are you seeing in terms of concessions today and expected in 2017?
Keith Oden
So, in terms of our overall same-store guidance that we provide within that range, I think that the 50 basis points on either side on the revenue target would be applicable to a Houston scenario as well. We tried to -- one of the things that we tried to give people at least some context to is that minus 4, down for on revenues has -- it was the low point in our Houston portfolio over the last 24 years and that's actually happened twice.
This is different. Those were recession times; clearly we're not in recession now.
This is more specific to Houston with regard to the employment scenario in the oil business. We obviously had 15,000 new jobs created last year.
It looks like we'll be 20,000 to 25,000 jobs in 2017. But what's very different this time has just been the number of new apartments that are being delivered, have been delivered in 2016 and it looks like we're going to get another 10,000 plus or minus in 2017.
So it's a very different scenario of how you get to the 4%, but I think it's still a number that we think is a range that we built around that. There's always a little bit more volatility in a declining market, a little bit trickier to forecast.
Having said that, we gave guidance in the first quarter of this year for Houston revenues and our guidance was that we thought we would be down 1% year to date when all of the dust settled and we ended the year at down 1.2%. I think our teams did a pretty good job of putting a fence around where we thought we would be in 2016 and I think we've done the same thing for 2017.
So Houston is certainly a market where we might have a little bit more volatility, but we think we have captured correctly and appropriately the risks associated with it. Your question on free rent or concessions, we don't really have free rent or concessions.
We do net effective pricing since -- because we're on a revenue management system. So it all gets factored into the net effective rent when we do our quotes.
However, having said that, in the lease-up communities that we -- in markets where we compete with, it is the stated, on the sign outdoor is two months free. But I think the reality is closer to three months free for most of the merchant build properties that are currently undergoing a lease-up.
That's the headwind that we face in sub-markets where there's been a lot of this supply. Merchant builders, they all tend to be herd instincts and the lowest common denominator gets to be the amount of concession that they all will quickly arrive at.
And we think it feels like in the last three to four months, towards the end of the year, we may have had some kind of a bottom. Normally, at three months free rent, you get to a point where it almost becomes uneconomic for merchant builders to put new residents in and that creates the floor.
So I think if you're talking merchant build communities in Houston, two to three months free rent is going to be fairly commonplace throughout 2017.
Nick Joseph
And then, Rick, in your opening comments you said that last year's sales would probably be difficult to replicate today. What is driving that comment?
And then just more in general, what are you seeing in the transaction market in terms of cap rates and the size of the buyer pool today?
Rick Campo
Well, that's driving it is that after treasuries spiked after the election, anybody that had a property that was under contract that wasn't hard earnest money was -- there was a lot of retraining going on. I think that's one thing.
The other is that we're later in the cycle here and people are worried about the supply side, as all investors are and where are we and what's going to happen over the next three to four years with a recession scenario. And so you're longer in the tooth from that perspective.
I think people are sitting on their hands a bit. There are still transactions getting done, but the type of property that we sold was definitely would not -- and the volume that we sold we think would be much more difficult to get done today and just in the sense of where we're in the cycle from that perspective.
I think you have a standoff between buyers and sellers today. Buyers think that with treasuries rising the way they did, that they ought to get a bigger discount.
And the sellers are not willing to give that discount, so there's a standoff and it will be interesting to see who wins in that area. And I think it just depends on how the economy unfolds.
There's a lot of positives, you could say, about pro growth from both infrastructure investments, deregulation and tax changes that should provide growth. On the other hand, there's wild cards and everything else that we have going on in the administration.
And so, I think a lot of people are sitting on their hands going, I think it could be good but I don't know if it's going to be good given the other volatility that could come out of there.
Operator
The next question is from Jordan Sadler at KeyBanc Capital Markets.
Austin Wurschmidt
It's Austin Wurschmidt here. Just following up on Nick's last question there, what is, ultimately, what you're seeing in the transaction market, what do you think that means for cap rates over the next 6 to 12 months?
Or have you seen any movement in the last several months?
Rick Campo
Cap rates, again it's hard to say. I think most people think cap rates have moved somewhere in the 20, 25-basis-point range and it's just one of those poker hands.
You've got the people on either side of the table looking for somebody to flinch and you have, even at 25 basis points, you have historically low interest rates today. And the interest rates haven't gone up that much on a relative basis.
And when you think about what drives cap rates, it's really liquidity and there's still plenty of liquidity. And then it's supply and demand fundamentals and even though we have a supply wane on the market, you still have really good demand cycles.
And then, a lot of folks use floating-rate interest rates to fund. And so and then when you think about inflation, people are -- if you have growth and interest rates are going up because of growth, then inflation should follow which is actually beneficial to the multifamily business.
I think it's going to just take some time to see where those folks come out. If you think about Camden, we've sold $1.2 billion last year and had more cash than I've ever had on my balance sheet ever and the lowest debt position ever.
And so, we're looking at it going, so what do we do? We're just like a lot of other people out there that have cash and have the ability to put money to work and we just don't see a lot of opportunity.
Even in Houston, people think, oh gee, you ought to be able to go out and buy all of these great properties in Houston and they don't exist today. So there's just not a lot of sellers that are willing to take -- to adjust their psychology of where they think the pricing of their assets are going to be.
And ultimately, the question is, what growth rate are you going to have in cash flow going forward? And I think that's where all of us are in a quandary.
Austin Wurschmidt
Appreciate the detail there and then just wanted to dig in a little bit more on Houston and the guidance and what you're assuming. Are you assuming any type of stabilization or perhaps, inflection later this year in Houston's operating trends?
And then, how far do you think Houston's occupancy could fall before it bottoms? It's continued to trend lower here the last several quarters.
I'm just curious where you think we could find a bottom within your portfolio.
Keith Oden
I think 2017 in Houston is going to be just a lot of hand-to-hand combat. We've got 10,000 more apartments that are going to be delivered into a market that clearly is vastly oversupplied right now.
It really depends on the geography of where your assets happen to be. The good news is, is that we have a good mix of our assets, some in suburban areas that have been much less impacted.
And the ones that are ground zero where the new supply is coming are getting a lot of more beat up. We have Houston as down 4% for the year in terms of revenues.
We have it also at about 200 basis points less than long term trend on occupancy, so down, call it 92%, 92.5% occupied throughout most of 2017. I think it's possible that toward the end of 2017, if we worked our way through the 10,000 apartments through discounted pricing, that the merchant builders are going to have to deal with.
Obviously, they're playing a different game than we're. We're 93%, 94% occupied and we're playing defense and we're doing -- we've been doing for two years all the things that make good sense from a defensive standpoint, focusing on renewals, extending lease terms, we've done all of that.
So we've prepared for what we know is going to be a tough 2017. I think it's possible that if you absorb the 10,000 apartments and you don't -- again, you're not fighting against merchant builders who are given three months free rent, that you could, toward the end of the year, will get decent job growth and maybe start seeing some rays of sunshine.
But we're certainly prepared for a lot of grinding it out in Houston in 2017, as evidenced by the fact that we've got revenues going down 4% which is a historical low point for revenue declines in our portfolio. And we've been doing this for 30 years here, so we know it is going to be a challenge.
Rick Campo
Of one of the things I think is interesting about Houston is that when you look at that job to supply ratio, if you just supply that to 2016, Houston should have abysmal, should have negative absorption for apartments because of all of the supply coming on relative jobs. But actually, it had positive absorption and significant positive absorption,15,000, 16,000 units were absorbed on 15,000 jobs.
And so, you look at that and you go, wait, what's going on? And so, what's really happening which is helping Houston absorb is that the supply that's being built, high-rise, 40-story high-rise buildings, downtown high-rise buildings, that product didn't exist in the past.
So what you have now is a fair number of people that are selling their homes in the suburbs and moving into the urban core and that is actually helping absorb this supply. I think that's going to continue.
You're still going to have -- if you look at the single-family market, the single-family market has not missed a beat. The market last year sold more homes than they did in 2015.
Prices are continuing to go up. So you have, I think, a certain amount of momentum because we have 6.7 million people here and they're discovering that there are some really interesting, cool product that they can move in today that they didn't have in the past.
And that's actually supporting more absorption than you would think.
Operator
The next question is from Juan Sanabria at Bank of America.
Juan Sanabria
Just hoping you could speak a little bit to the assumptions for 2017 outside of Houston where you said that was about half of the decline in same-store revenues. Maybe it would be easier if you could talk to some of your larger markets, DC, Dallas, LA, South Florida, what you're expecting on a new lease rate growth for the year.
Keith Oden
Let me address it based on revenue, so that we're talking apples and apples with our Houston numbers. So in DC this year, we expect the top-line revenue growth to be up about just over 3%, about 3.3%.
That's, again, that's a pretty good recovery from three years of less than 1% growth in that market. So on a ranking basis, DC moved up from last place last year to -- or second to last place last year to eight, nine range.
So it's still not in the top half of our portfolio, but at 3.3% that's a pretty good comeback. In terms of Dallas next year, we've got about a 4% revenue growth that we're anticipating.
Again, that's following last year's top-performing market of 7.7%, so a fair amount of moderation that is built into the model in our Dallas numbers. Southern California which is an aggregation of San Diego orange county and LA, we should be in the -- just below our 4.2%, a little bit of both 4% growth in top-line revenues.
And again, that compares to last year's about 5.5%. So all of these markets, even the ones who were the best performers last year are going to experience some degree of moderation.
And that's to be expected given where we're in the cycle and the fact that in every one of these markets, you've got, to one degree or another, we're trying to absorb a bunch of supply. So 11 of our markets, 11 to 13 markets, if you add them up, they're in the 3% to 5% range top-line revenues.
And if you think about where we're in the aggregate for our portfolio, last year, we delivered top-line revenue growth of 3.9%. This year we've got budgeted at the midpoint, 2.8%, so and that includes Houston at a minus 4.
So ex Houston, you're probably at 3.4%, 3.5% versus 3.9% last year and I think that to me feels about right in terms of where we're in our distribution of assets and where we're in the cycle. Long term average in this business is 3% top-line revenue growth.
We're going to be slightly below that at 2.8%, but you definitely have the anomaly of Houston in that number. And ex that which we get it, we own that and we're going to work our way through the Houston market in 2017.
But minus that, you'd be at 3%, 4% and you'd probably be saying, it's a good year which is where we rated it. We rated the portfolio as a B this year.
Juan Sanabria
Okay, great and then I think you touched on it a little bit in a prior question with regards to Houston and if you see an inflection in the second half. But do you see the same-store growth?
How should we think about that over 2017? Is there any acceleration in the second half as maybe some of the supply comes off or how should we think about that?
Keith Oden
If you think about where we're for 2016, we posted a revenue decline of 1.2%. So you're definitely going to be in a declining mode for the next couple of quarters.
I think the wild card is that if we get better job growth in the 25,000 to 30,000 that's currently being projected, I think you have got a shot in the -- late in the 2017 to see an inflection point and things start getting better. But to get to a 4% down revenues, you're going to see some pretty big declines in the first and second quarter.
Juan Sanabria
And portfolio overall, the second-half trajectory improving potentially as well, given the Houston?
Keith Oden
It's pretty flat. If you look at it quarter over quarter, I think you could anticipate just modest growth throughout the year and certainly no huge uptick in the fourth quarter.
We always have a little bit of a seasonal decline based on occupancy in the fourth quarter, but it's relatively flat from a modeling stand point.
Operator
The next question is from Alex Goldfarb at Sandler O'Neill.
Alex Goldfarb
A question for you, just to wrap up on Houston, if you speak to the office side, there's no hope in office recovery for at least the next few years just with all the vacancy, et cetera. Keith, you're writing off this year, but is your view that Houston apartments are down and out for several years or you think it could be shorter than that?
Rick Campo
Alex, this is Rick. First, the great thing about apartments is that people need a place to live.
You can't have a virtual apartment. You have to put your head on a pillow to sleep, may be able to stand in corner, but you need a place to live.
Office, you don't need a place to office. And offices are getting smaller, people are using virtual offices, they're doing it from their home.
So that's why we're in the multifamily business and not the office business. But I will let Keith finish the answer to that.
Keith Oden
So I think that if you look out into 2018, Alex, the supply, the preponderance of the supply issue goes away in 2018. I think right now we're modeling about 6,800 new completions in 2018 which, in a market this size, is not a huge deal.
We also think that we're going to end up getting probably around 50,000 to 60,000 jobs depending on whose numbers you're using. I get that's 2018 and that's pretty far out there, but it certainly wouldn't be shocking to see Houston recover, start recovering at a more reasonable pace job.
So if you get 25,000 jobs this year and the economy is go along, get along; Houston gets back into more of a hiring posture, we end up with 50,000 jobs, call it in 2018, with 6,000 apartments, that's -- jobs to completion ratio, that's a really strong number. That's about a 9 and that would put us on our projections right now in our portfolio, Houston would go from being the worst jobs to completion market in 2017 to one of the best.
And so, I think that's the hope certificate is more of a 2018 than it is 2017, just based on my view of what has to happen with the amount of new merchant build units that still have to clear the market. I think it's more of a 2018 story and we'll see how it plays out.
Alex Goldfarb
Okay and then the second question is, just looking at your portfolio overall, the guidance for occupancy for next year is 94.9% which is essentially where you ended up in the fourth quarter, but down, call it 50 basis points, from where you averaged last year. My recollection is the last downturn, you guys were, I think down in like the 93% range.
And you guys had lower occupancy than it seemed you would have wanted, especially versus peers. And I thought the focus the next go-round was keeping occupancy above 95% just to maintain that higher levels, even if you have to give up on rent.
So, are you guys rethinking that or is my recollection wrong or where is occupancy going to go? Are we going to see it go back toward the lower side that we saw last cycle?
Keith Oden
No, I would be surprised. We target 95% as an occupancy level.
Obviously, the last couple of years have been pretty unusual with the incredible strength in some of these markets. We found ourselves, from a revenue management standpoint, pushing rents like crazy and still having above-trend occupancy levels.
95% is a -- that's our long term target. What's not in those numbers and when you do the math on portfolio-wide occupancy is you have got probably a 200 basis point below the long term average modeled into the Houston numbers, but everything else is modeled at 95% plus, just slightly north of 95%.
These, again, ex-Houston, these markets are still in really good shape and producing 3% to 5% top-line revenue growth which implies that we really don't have any pressure and shouldn't have any pressure on occupancy.
Operator
The next question is from Rob Stevenson at Janney.
Rob Stevenson
Keith, can you talk a little bit about the DC market in 2017 and where you're expecting relative strength and where you still may have some pockets of weakness going forward?
Keith Oden
DC, for the first year in four years looks like it's going to be pretty constructive for us overall. You have the math -- the numbers there are really pretty healthy.
You've got in the DC Metro area, we're going to get about 10,000 new apartments. But right now, the job forecast that we're using for DC Metro is about 78,000 jobs, so you get 10,000 new apartments, 78,000 jobs.
And that ratio of 7.5 on jobs to completion is the highest in our portfolio for 2017. Again, we have gone from being -- that math was one of the weaker math jobs to completion ratio in DC for the last couple of years and in 2017, it's got the best jobs completion ratio of any of our 15 markets.
Again, looking for about a 3.3% top-line revenue growth. DC, the DC proper, we continue to see really good strength there.
We just opened the doors on our NoMa II and we still see a lot of strength in that sub-market. So expecting some really good success there.
But overall, there really aren't, with the exception of very small pockets where you have got a bunch of new deliveries coming that are competitive with our existing assets, DC Metro's going to be a good market for us in 2017.
Rob Stevenson
Okay, so College Park and a couple of other problematic assets shouldn't be materially different than the group average this year?
Keith Oden
No. The College Park was specific to the construction issues and the balcony repairs that we had going on there and that's all behind us.
There won't be any impact from the construction balcony issues in 2017 and we're looking for a really strong year.
Rob Stevenson
Okay and then, how are you guys thinking about development starts today? With -- it's obviously anything that you start today is not going to be completed until late 2018 or probably sometime in 2019, depending on the type of construction.
But, you've got a couple of Charlotte projects in the pipeline. Given your comments and given how low Charlotte is on your ranking scale, are those pushed out to beyond a 2017 start?
Or would you start those in 2017 for an 2018, 2019 delivery in some of your other markets that aren't at the top half of your grade range?
Rick Campo
Just generally on developments, we have slowed the growth of our pipeline. We talked about that over the last couple of calls and that's really a call on just where we're in the cycle and just the uncertainty about what's going forward.
As I said earlier, if we accelerate growth because of new policies and we feel good about that, maybe we could perhaps change that view. Right now though, we're going to do somewhere between $100 million and $300 million of developments.
We definitely have pushed back the development of our downtown project in Houston. We have a couple of small ones in Charlotte that are just add-ons that we'll do.
But generally, the development market is a tough market today for everyone. Most of the large merchant builder national development companies that we talk to every day are all cutting back, primarily because of the lack of construction financing and the difficulty that they're facing there.
And cost pressures that most projects are delayed because of not only because of worker shortages; that's driving costs up and returns are harder to get. So hopefully, maybe we'll have another leg up in the market for development.
And the fact that we have -- that we don't finance the way that our competitors do could give us an opportunity to ramp up our development pipeline if we see things happening going forward.
Keith Oden
And Rob, just to clarify on the two Charlotte projects, those are both townhouse projects that are being built on what essentially were out-parcels to existing assets. And it's a totally different product type than typical multifamily and they're both being done really primarily as defensive plays for the outparcel that is adjacent to our two large assets near downtown in Charlotte.
So total development costs on those two projects combined is about $24 million, so we're going to go forward with those.
Operator
The next question is from Nick Yulico at UBS.
Nick Yulico
I'm not sure if you gave this or not I know you gave a bunch of numbers on the bulk cable benefit. What was in the fourth quarter, what was the benefit to same-store revenue growth?
Alex Jessett
In the fourth quarter it was very similar to what we had for the full year, but it was approximately 92 basis points to the revenue.
Nick Yulico
Okay, so the reason why I ask is that if I look at your 2017 same-store revenue guidance, excluding the cable benefit, it's 2.2% at the midpoint. And in the fourth quarter, your same-store revenue growth was 3.1%; minus the bulk cable benefit, it's a similar 2.2%.
It doesn't seem then that you're building in much in the way of deceleration this year versus the fourth quarter which is a little unusual versus some of the other multifamily REITs which have mostly assume some level of deceleration this year versus the fourth quarter. So I'm hoping you could provide some thoughts on that.
Alex Jessett
I think which you have there is we do -- we certainly have deceleration coming from Houston, but we certainly have acceleration coming from Washington, DC. If you look at once again, to Keith's original comments, the overall ranking for our portfolio is in the B, B+ range.
So we're assuming that the rest of our portfolio is maintaining their positions fairly well. Go ahead.
Keith Oden
The top-line revenue was 3.9% and that obviously had some cable benefit in it. In 2017, that number goes to 2.8%, so you've got 110 basis points of quote, deceleration.
We're really essentially through with the rollout of the cable program. There's a very small amount that's left.
So on a year-over-year basis, that's in your 2016 number and then you've got deceleration coming from Houston, but also across the platform to get from the 3.9% to the 2.8%.
Nick Yulico
Right, okay, so going back to some of the market-level commentary when you talked about certain markets being declining or stabilizing or improving, that was relative to 2016 full-year numbers, not what you saw in the fourth quarter. Is that the way to think about it?
Keith Oden
Yes.
Nick Yulico
Because it seems like you had a lot of markets that are still declining, but you're saying that's not versus the fourth quarter, it's more versus full-year 2016.
Keith Oden
That's correct. And just to do the math for you, we have five that we listed as declining and we one that was listed as improving which is DC and then the balance were stable.
Nick Yulico
Okay, so just going back to how you're thinking about guidance, you do feel like there's enough conservatism built in versus what you actually achieved in the fourth quarter. Or it sounds like growth, you're thinking is still going to be similar to the fourth quarter this year.
I'm trying to figure out how much conservatism then is built into guidance this year.
Rick Campo
When we provide guidance, we provide guidance based on what our middle-of-the-road expectation is; we don't try to build in over-conservatism over optimism. And if you look at last year as a guide, we raised our guidance twice, but only because the markets outperformed what we thought they would do.
So we try to give basically what we think is going to happen. Obviously, the world changes in front of us and you have about 60 to 90 days of visibility in this market.
So if you add 3 million jobs this year, we're going to beat our guidance. If you add 2 million, we're probably right in the middle of the fairway from our guidance, but it's all predicated upon a basic set of assumptions that are in place.
So we don't try to be conservative or aggressive on guidance.
Operator
The next question is from Richard Anderson at Mizuho.
Richard Anderson
For a lot of your peers, there was some whimsical commentary on 2018 and I know we're talking a lot about Houston. But could you -- would you be able to make some noncommittal comment that you think 2018 sets up to be a better year than 2017 when you look at the portfolio as a whole?
Keith Oden
Rich, I don't do whimsical. I will let Rick answer it.
Rick Campo
Well, I can be whimsical from time to time. But if you look at just the supply and demand scenario, right, so we still have 2 million people that are doubled up in either roommate situations or living with their parents and they don't want to do that.
So if you have a decent job growth, more household formation, multifamily sets up really well. Two thirds of the demand or two-thirds of household formation has been going to multifamily, primarily because of millennials.
You look at over 50% of the job growth are going to people 34 and younger. So our business is set up to be really in a decent position, ex a recession or something like that.
And when you look at the supply side with most merchant builders cutting their pipelines, cutting their pipelines in 2017, including us, then you can set up for a pretty interesting 2018 and 2019 for the multifamily business generally and I think that's probably where the whimsical view comes from people.
Richard Anderson
Okay, good. I don't know why I used that word, but.
And then the second follow-up question is and I don't know why, maybe I shouldn't be surprised to see Austin so far down the list. Is that one taking you a little bit by surprise by how weak it appears, relatively speaking?
Or is that in the range of expectations when you were going into looking at this year?
Keith Oden
Two things, Rich. One is what has taken me by surprise is the last two years in Austin, where you had really not constructive jobs to completions ratios in either of those years and yet we continued to -- our portfolio continued to put up big numbers.
We did 5.5% top-line revenue growth last year I think this year we're just over 3%. Again, you're looking at 20,000 jobs in Austin and 10,000 new apartments; that's a whopping 1.9 jobs to completions ratio which puts it in last place in our portfolio.
So I've been surprised and part of it has been that even with the reported jobs numbers, it sure feels like there are a lot more people that are relocating to Austin that find a way into the job force that may be undercounted. The only way I can look at Austin over the last couple of years, given the reported job growth versus the number of completions and absorptions is that there's a different category of folks that show up in Austin, Texas and find their way into the tech community and find jobs and pay rent in ways that may not be conventional.
But I have been surprised at the strength the last two years. I think we've done a good job this year of trying to anticipate where and when that oversupply condition starts to show up.
And at 3.3% top-line revenue growth, I hope we got it right this year.
Operator
The next question is from John Pawlowski at Green Street Advisors.
John Pawlowski
Keith, what new lease and renewal growth trends underpinned the 2.8% at the midpoint of 2017 revenue guidance?
Keith Oden
So we're right now running -- I think I gave you the numbers for the first, for January at down 1.6% on new leases, up 5% on renewals. I think if you look out across our portfolio, 1% growth on revenues, 5% on renewals, seems about right at a 60% renewal rate; that gets you to about the 2% or 2.8% top-line revenue growth.
So I think that's in the ballpark.
John Pawlowski
Keith, you alluded to your $170 million downtown Houston development that you pushed out. What is the current game plan on when shovels are going into the ground there?
Rick Campo
It's just a waiting game. Houston is a great city long term and there's about 3,000 apartments that have been built in downtown Houston and it's creating a major buzz.
Houston didn't have much of a downtown market up until the last couple of years and so those projects are filling up. They're definitely filling up at lower rents than the original developers had anticipated.
But once those are filled, then when you think about the size of the city, 3,000 units is a drop in the bucket when you think about the fourth-largest city in America. So we're going to watch it.
We're going to built them, build that building at some point. I think the $170 million was two buildings not one, so it's more like a $90 million building, plus or minus.
We may get an opportunity where, if you think about what's been happening in the construction cost side of the equation here, construction costs continue to rise in Houston. Projects, I think one of the reasons that we have so much project buildings coming on right now is that every project that I know of is delayed at least six months because there's not enough construction workers to finish them.
That is still the case in Houston, Texas. So, perhaps with the 50% or 60% drop in starts that we've seen here and the fact that no one is going to be building office buildings anytime soon here either, with the exception of there is a big deal that was done in downtown with Bank of America, that looks like it's going to start.
But with that said, hopefully construction costs moderate and there might be a window of opportunity for us to start that building with a lower construction process and deliver it sometime in 2020 or 20201 and we will do that if that's the case. But we'll watch it.
We're not compelled to do anything in this market until we start seeing some moderation in prices on the construction side.
John Pawlowski
Any sense of what you could sell that land for today?
Rick Campo
I could sell the land for a lot more than what we paid for it. We got in the land at a really good price and land prices in Houston have not done anything but either stay flat or gone up.
There have been a number of trades, for example, Chevron's selling one of their campuses because they consolidated people in downtown. And there are probably 10 bids on that campus at very, very high prices.
People thought they would be able to come down here and buy cheap everything and there's just nothing cheap here. Now you could buy 1970s vintage office buildings for cheap here, but the challenge with those is they're 1970s vintage office buildings in probably poor locations and they ought to be cheap.
Operator
The next question is from Wes Golladay at RBC Capital Markets.
Wes Golladay
Assuming Houston does get to the equilibrium stage, how do you see revenue growth progressing? Will you have to work through a gain to lease after that?
Keith Oden
I think that as we mentioned earlier, we think the declines will be worse in first and second quarter and then there will hopefully be some moderation in that decline. But we ended the year at 1% down; our guidance is -- our budget is 4% down for the year.
So we know we're going to see first and second quarter with pretty big down numbers. Depending on whether is it a fourth quarter back in 2017 or is it more of a 2018 phenomenon where you once again hit an inflection point and turn positive, then that -- the loss to lease numbers will move around based on that.
But I don't see -- I still see declines at least through the second or third quarter of this year in terms of net effective rent. So that implies that at some point, if there's an inflection point beyond that, then you'll get back to a gain to lease scenario.
But we clearly are going to be rolling down the curb for the next couple of quarters.
Wes Golladay
Okay and then, can I get a quick update on what you guys are hearing from the energy executives in Houston? Are they looking to just maintain their current employment base or any thought process of hiring?
We're seeing the Dallas fed base book indicates sublet space in Houston was declining for the first time in years. I didn't know if you were seeing anything positive on the employment front.
Rick Campo
Most of the energy executives that we talk to and we talk to a lot of them, especially this last weekend, they are cautiously optimistic. Obviously 50 and above oil prices is good for them.
Every rig that you see that goes up is 200 jobs and most of those jobs, just like the jobs that were lost, they were lost at the actual rig and then flowed back into the system. So most of those jobs that are being added, are being added in -- at the rig area.
So I would say that some of the big oil have commented that they do this every time you have a big oil bust which is they lay off more than they should. Then they have to compete for talent to get -- to ramp it back up when oil prices go up and I think there's a fair amount of that going on.
We haven't seen a massive increase in hiring at this point in energy, but we have seen -- where we've stopped the losses. And when you think about the 15,000 jobs plus or minus -- or 20,000 that were added last year, energy actually lost jobs to the tune of 10,000 or 15,000, but we offset that with major growth in other areas.
So as long as we don't have job losses, we actually will have from the energy sector, we will have positive job growth from the others. So I think everybody here is very cautiously optimistic that the bottom has been made and they are going to be moving up from here.
Wes Golladay
What is your Houston job forecast for the year?
Rick Campo
I think the jobs are anywhere from 25,000 to 30,000 jobs for the year.
Operator
The next question is from Vincent Chao at Deutsche Bank.
Vincent Chao
Just sticking with Houston here for a second, earlier you had talked about some conditions that could occur that would -- short of seeing stabilization in Houston from a job creation versus unit count. I was just curious, if that did happen, how quickly would you be able to go from say, a minus 4% same-store rev to something more normal?
Is there is seasoning period where folks have to get readjusted to price increases? Or if the job outlook does improve and the units do stay low, do you see an immediate jump in the same-store rev would you say?
Rick Campo
We have seen markets like this to decline and given that this is not a recession scenario, it's really a supply issue and with moderate job growth. The merchant builders have issue with pricing, right, because they were giving three months free rent which is really 25% off of where their price is.
We're not giving those kinds of concessions, so if our revenue goes down 4% this year, there's not a seasoning affect that you need. You don't need to increase your rent 25% to get back to a strong growth.
And given that our -- so I think you can have depending upon and this gets to the ultimate issue of tell me what the economy is going to do in 2017 and 2018. If you add 3 million jobs, you add, instead of 30,000 in Houston, you add 50,000 and next year, you add 60,000 or 70,000, you could have a very robust increase in revenue Houston in 2018.
But again, it's tell me how many jobs and how the economy is overall nationally, because Houston will drop nationally. We won't have the energy drag that we had before probably and so when you think about, we don't have to make up that big gap that merchant builders do.
Keith Oden
Just to go back to one of the instances that I cited, we were down 4% in revenues in Houston in 2010. 2011, we were up 5% and 2012 we were up 10%.
It when down 4%, up 5%, up 10%.
Vincent Chao
And then just another bigger picture question. Earlier you talked about buyers and sellers and the spread being wider, part of which was uncertainty about the direction of the economy and policy changes, some of which are seen as positive and others are seen as maybe more negative.
From your perspective, as you think about all of the policy that is being considered today, what do you see as the biggest negative for your industry, for your Company?
Rick Campo
I think the biggest negative is uncertainty and it's just the uncertainty that, A, the policies will be implemented. And then, B, that they won't be offset by some factor that no one is thinking about today that is caused by an administration that tweets in the middle of the night.
Vincent Chao
Right, so none of the policies per se, I'm thinking tax reforms, some of the GSE privatization, those things are not that concerning to you?
Rick Campo
I think that all of the policy growth -- if the policy growth initiatives that have been laid out are implemented, it's great for our business. There's nothing bad on the horizon for our business.
The bad thing would be, if it doesn't get impacted or implemented and if there is something that causes the economy to go off the edge. And when you think about a recession, recessions aren't caused by time.
So we've been in -- this recovery is the second longest recovery in my business career, third longest recovery since the Great Depression. A lot of people think that time creates the recession, but it's really not that; it's something that happens that no one expects.
A housing bubble in 2007 and 2008. We expected a boom, all the sudden, we have a big recession.
So to me, the real risk is not having a good feeling about what the future is going to be. And clearly, the stock market has rallied big time, believing that things are going to be good.
But it's that unknown, not knowing what might happen that's, I think, keeping us at bay a bit in terms of how we feel about the world. We just have to see more cards played.
Show me what is going to happen and are they really going to do something that is a positive overall?
Operator
The next question is from Tom Lesnick at Capital One.
Tom Lesnick
I will be brief since we're running pretty long into the call here. But on the subject of policies, with regards to immigration, have you guys looked at the sensitivity of some of your larger markets, like LA or Houston, to potential changes in the immigration policy?
Rick Campo
We have, immigration definitely has a positive effect on household formation, generally and there's a certain immigrant population that comes in and rents apartments. I think immigration's a smaller part of the equation than the overall economy.
If you have -- so I don't think that a close the borders and never let another person in policy is going to have a major effect in the short term for apartments. I think the bigger issue that policy will have is wage pressure and the ability to find qualified workers.
When you look at the jobs out there today, I think there's 5.5 million jobs that are unfilled today and those are unfilled because we don't have quality workers to fill them. A lot of folks believe that immigrations have driven the wages down.
The challenge we have is that we just don't have qualified workers that live here. When you think about the medical center in Houston, for example, has about 10,000 to 15,000 jobs always available and they can't fill them because they don't have qualified people to fill them.
And so, to me the issue and I think it's more a tech issue, is you can see the tech folks in California and in Austin are worried about the ability to bring in people that have the qualifications for their businesses. So I think it's more of a business issue than it is an apartment issue.
Operator
The next question is from Jeff Donnelley at Wells Fargo.
Jeff Donnelly
Rick, circling back to the proposed tax policy changes, such as deductibility of interest or the elimination of the 1031, I know it's all to be determined if they could implemented. I'm curious, if those do come to pass, do you think those might put REITs in a relatively better position, vis-a-vis, say a privately held owner or a builder who tends to use higher leverage.
I'm just curious how you think about those dynamics.
Rick Campo
I do, I think that those, particularly the interest deductibility issue and the 1031 exchanges puts us in -- and I think you missed one that's even bigger which is the carried interest. Because today, carried interest is huge and the carried interest for a merchant builder, for example, when you think about the cost of capital, cost of capital drives everything an investment decision that people make.
Now, our cost of capital is not change dramatically because we don't have a lot of debt and we don't use carried interest, so our taxes aren't going to go up. Ultimately, when you think about it from a competitive perspective, our competitors that are privately funded that use more debt are -- and if interest doesn't -- if interest isn't detectable and therefore, you're not subsidizing our competitor which is what they're doing today.
Our competitors definitely have a lower cost of capital because the use 70% debt, 30% equity. And we're the flip; we've got 25% debt and 75% equity or something like that.
So I think it could be very beneficial to REITs when your competitors' cost of capital goes up.
Jeff Donnelly
And then just one last one actually maybe for Keith. Beyond Houston, where do you see positive or negative inflection points in your markets as we roll into late 2017 and 2018?
I know some, you mentioned have a declining outlook. I'm just curious where you see changes coming ahead.
Keith Oden
I think the markets that we have as declining are the ones that we're likely to see. We're definitely at an inflection point or we'll see one in 2017 and those would be Denver, Dallas, Tampa, Austin and obviously Houston.
Every one of those is primarily a supply issue. Decent job growth, with the exception of Houston, but the other four markets that are declining, it's purely a function of you've got too many apartments that are in the market right now that have to clear.
Once that happens in 2017, I think all four of those markets just because if you look at the pipeline that's coming behind that in 2018, it's going to be down across the board. So it's not likely -- it's declining because of a point in time where supply has got to clear the market.
Once that happens, I think all four of those markets would be set up for a decent year and a recovery in 2018.
Jeff Donnelly
Do you think, my question is do think in 2018 you're going to have more markets set up that way that there's going to have an inflection to the positive once we get through 2017?
Keith Oden
Well, I would hope that we would have more than one improving market in 2018 which is what we have for 2017. I would expect that we would.
Operator
This concludes the question-and-answer session. I would like to turn the conference back to Mr.
Campo for closing remarks.
Rick Campo
We appreciate you all being on the call today and look forward to visiting with you in the future. Thank you so much.
Operator
The conference is now concluded. Thank you for attending today's presentation.
You may now disconnect.