Austin land use gets hijacked again

What this is not… YET

You may have also heard about the Austin city council’s new rules allowing up to three units per lot on single family zoned property. This has not been overturned, although the plaintiff’s attorney said he will take aim at that legislation next. Given the track record of these lawsuits, I am not hopeful.

Now I will admit I am a developer so I see things through a particular lens and my general thesis to housing is more supply will yield lower prices if it can outstrip demand. There are of course other factors like borrowing rates, location, demographics, and plenty of other variables I could geek out on and create some epic models that would have my head spinning in circles in a good way. A simple axiom I like goes like this. Choose two of the following: growth, preservation, and affordability. Austin has clearly chosen growth and preservation.

Would these ordinances help?

In theory yes, but in practice it is likely too little to make a meaningful difference. Like a lot of legislation it’s really more of a band-aid. Enabling three houses on a lot lets you add one more dwelling but the floor to area ratio of 40% remains the same. So on a standard 7500 SF lot, you are still looking at 3,000 SF of buildable space. You used to be able to build one 3,000 SF house, a duplex at 1,500 SF per side, or an A/B configuration with a 1,900 SF house and a 1,100 SF accessory dwelling unit. The new rule just adds one new configuration, three 1,000 SF units.

Let’s look at the numbers behind this new configuration to see what we really get from this legislation. The most obvious benefit is a lower cost per door in terms of land. I can build three houses now, so a $300,000 lot means $100,000 per door in dirt instead of $150,000 per door in dirt. That is one of the two main benefits in lowering the costs for housing with this regulation.

The second is kind of artificial, but it comes simply from buying a smaller house. An 1,100 SF home is generally cheaper than a 1,500 SF home. So yes it’s more affordable, but your lifestyle is diminishing which people in general do not like. The rusted lining here if that is a phrase is that the cost per square foot goes up because a larger portion of the home is now kitchens and bathrooms. Those rooms don’t get that much smaller in a smaller home. A kitchen sink, dish washer, refrigerator, shower, sink, and toilet are all still the same size whether it’s a big house or a small one.

Before the legislation, in 78704 you might buy a lot for $600,000, put $900,000 on house on top and sell the house for maybe $2,000,000. Although in today’s market (December 2023) that is probably closer to $1,500,000, losing money after transaction costs.

After this legislation the same lot would still cost the same, the build out would still be about the same, but you are now selling three 1,100 SF units that are crammed onto the lot but with all of the same setbacks the city still requires. So the units are tight, two stories, little to no parking, no yard worth mentioning and they each cost at least $600,000. That is better than $2,000,000, the developer will make some money, but you are still getting a small house with a very high cost per square foot.

Given that buyer pools are larger at lower price points, I do think in the next year we will start to see more tri-plexes or creative designs with three homes per lot in the core zip codes.

What could we do instead?

If you really wanted to make homes more affordable and arguably more livable the city needs to significantly increase density. Here are some things that could work.

1. Increase the floor to area ratio to at least 60%, perhaps even a new zoning regulation.

2. Allow building to the lot line, no 5’ setback required on the sides

3. Reduce the front setback to 20’ from 25’

4. Only protect trees in the setbacks

5. Allow three stories and remove the tent restriction

6. Reduce parking requirements*

7. Improve water and wastewater infrastructure with tax revenues

The above will radically change the look of single family neighborhoods and turn them more into a brownstone like community you see in denser cities. People who live in them love them though. Increasing the floor to area ratio means that on that 7500 SF lot, you could build 4,500 SF of living space, three larger units at 1,500 SF each or even four 1,100 SF units. Enabling zero lot line building gives those units more width and better layouts, same for reducing the setbacks. Protect trees, but only the ones that don’t impact building. Allowing higher building heights enables developers to put parking in at the ground floor and building homes on top. *Restricting parking sounds like a good idea, but buyers want a space for their car. Any unit that doesn’t come with a parking spot is just not going to sell unless it is in a heavy downtown area and even then buyers still want a spot in the parking garage. We just aren’t yet noble enough to give up a parking spot entirely. Lastly simply improving water and waste water infrastructure is critical to enabling density. If a developer has to pay for this is goes directly into the cost of the end buyer. Building infrastructure is a great place to spend tax money and acts as a housing subsidy more so than an affordable housing bond. Go ahead and sharpen your keyboards on that one, I know there are plenty of arguments that will go against that grain, but perhaps in another post.

So this change is certainly a step in the right direction, but it is a baby step and not likely to make much of an impact on housing prices. The market and demographics have been outpacing Austin’s development code for decades, and governments tend to be pretty slow. As long as that is the case then prices will continue to rise since people and high paying jobs are moving in faster than we can build.