Austin's Housing Crisis Introduction

This is an economist's overview of the housing crisis in Austin, Texas.


Austin is in a housing crisis: we have too few homes. This causes lots of problems in Austin: higher taxes, higher rent, homelessness, higher prices, fewer jobs, and worse schools. The crisis mostly benefits landlords and people selling land. The crisis was caused by the City of Austin's zoning laws. City Council can fixed it by changing those laws. Minneapolis changed its laws and ended its crisis.

Why should you trust me?

I am an expert. I have a Masters of Arts in Economics from UT-Austin. I have years of experience working in finance. I've read books on Urban Economics, read dozens of research papers on housing and reviewed data about Austin from numerous sources.

I am unbiased. I was not paid to make this site. I do not believe that I, my relations, nor my friends will significantly gain or lose by spreading this information. (If you want details: I rent in Austin. My brother rents in Austin. One of my sisters owns her home in Austin. My parents own a home in Austin and another in another state. My other sister and her husband own their home just outside of Austin. So, pretty balanced.)

Who is this for?

My target audience is politicians, policy makers, and reporters who cover the story in Austin. Anyone should be able to read it and understand what's going on.

Readers do not need to know economics, other than supply and demand. To review: When the supply increases, the price drops. An example: if Austin builds more houses, the price of a house be lower. When demand increases, the price increases. An example: if a bunch of people visit ACL and decide to move to Austin, the price of a house will be higher. Both of these things can happen at the same time. Right now, supply is increasing and demand is increasing, so prices can go up or down, depending on how much gets built.

What is a housing crisis?

A housing crisis is when a city has too few homes. As a result, its residents strain to get any place to live. The lucky ones just pay more for their home. The not-quite-as-lucky people end up in awkward living situations: living with their parents, living with their ex, sleeping on a sofa, etc.. The unlucky ones become homeless.

Is Austin in a housing crisis?

The best way to measure a housing crisis is by looking at the poor. They are the ones on the verge of homelessness. If the cheapest apartment available is expensive, you know the poor are struggling to avoid homelessness.

In Sept. 2021, the cheap (1%ile) apartments on were:

City Low-end Rent
Austin $973
Dallas $733
Houston $674
San Antonio $600

As you can see, the price for a cheap apartment in Austin is much more expensive than other nearby cities. Austin is in a housing crisis.

What are the consequences of a housing crisis?

There are many consequences to our housing crisis. While the most visible consequence is higher rent and house prices, the crisis affects everyone in many ways:

There are more homeless, especially ones sleeping outdoors. When housing is expensive, it is harder for relatives, charities, and government to provide shelter for those who need help. So many live on the street.

There are higher prices. Housing is expensive, so Austin's employers have to pay higher salaries so that workers can afford to live here. To afford higher salaries, they raised prices on customers.

There are fewer stores and services. Some stores were not be able to raise their prices and closed. Many stores that would have opened did not, because they were not profitable with higher salaries.

Businesses are less competitive. Austin businesses had to increase prices. Business in other cities did not and are stealing our business' customers. It means less business gets done here and there will be fewer jobs in Austin.

There is more income inequality. Since the rent is high, more money flows from renters, who are mostly poor, to landlords, who are mostly rich.

There are higher taxes and worse city services. City government has had to pay higher salaries too and, to pay for them, they raised taxes. In many divisions, the City of Austin has not increased salaries enough, meaning it has a large numbers of vacancies. This has results in much worse city services: emergency services, parks, planning, etc..

Since the price of living in Austin is high, more people have chosen to live outside the city limits. This creates sprawl, environmental damage, congestion, air pollution, and carbon emissions.

There are worse public schools. The school district cannot pay higher salaries. If they raise taxes, the state will take the money away through recapture, also known as "Robin Hood". Since schools cannot increase salaries, we are getting worse teachers.

Who benefits from a housing crisis?

Landlords and people selling land benefit from the crisis. It is obvious that landlords benefit because they receive a higher rent. People selling land also benefit, because land prices are high due to how we caused this crisis.

There are about 200,000 rental units in Austin. If rent is overpriced by $250 per month, the amount diverted to landlords is $600,000,000 each year.

What caused the housing crisis?

The housing crisis was caused by Austin's zoning laws. They prevent housing from being built.

Two of our zoning laws work together to cause a problem. The first law is "single family zoning", which says that you can only build 1 house on most lots. The second law is a "minimum lot size", which says that you cannot have a lot smaller than 5,750 square feet. Together, these means we cannot build more than 1 house on every 5,750 sq. ft.. This limits the amount of housing that can be built in Austin.

Another harmful law is "compatibility", which limits the height of a building near a single-family home. So, even if there is huge demand for taller apartment buildings, this law makes those buildings short.

Those three laws are the biggest offenders, but there are more. I once tried to imagine all the laws that an evil landlord would write to drive up the rent. Every law I imagined was already on the books in Austin.

What is the solution to the housing crisis?

The solution is to change our zoning laws. We should get rid of the minimum lot size law. We should rewrite height-limiting laws like compatibility.

Let me be clear that I think there is still a place for other laws. More people in an area means more noise, pollution, and crime. More people also puts more demand on infrastructure like roads, parking, and utilities. (Economists called these "negative externalities".) We need laws to address these issues. But I do not think that a small lot directly hurts anyone. As, for building height, we need a flexible law that allows the need for housing to be balanced with the the desire for shade and views.

Due to a court ruling, Austin will need to pass a change with 9 of the 11 votes in City Council. That's a high margin, but possible. Almost everyone is hurt by this law.

How do we know the solution will work?

Minneapolis did it. In 2018, they loosened their zoning laws. More tall apartments were built on major roads. By early 2022, the rent of a 1-bedroom apartment fell by more than $100, when compared to apartments in nearby St. Paul. Rent for a 2-bedroom apartment fell by more than $300 per month.

How will the solution affect you financially?

How the solution will affect you financially depends on if you're an owner or renter and if you live near downtown or farther out. For the discussion, it's important to know that the price of a property can be split into two parts: the price of the land and the price of the building-on-the-land.

For property near downtown (within 2 or 3 miles), the price of land will increase and the price of the building-on-the-land will decrease. This is because the likely buyers are developers that will change the buildings, by either building a taller building or subdividing the lot and building more houses. Larger lots will go up in price more than smaller lots. For property near downtown, the land is usually more valuable than the building, so the average property will increase in price.

For property not near downtown, the price of land will decrease and the price of the building-on-the-land will remain roughly the same. This is because the likely buyers are residents, who want to live in the building. Larger lots will retain their value more than smaller lots. For property farther from downtown, the building is usually more valuable than the land, so the average property will decrease slightly in price.

Thus, owners near downtown will see higher assessed values and higher taxes right away. If they live in the building, the tax increase will be capped. As new housing gets built, the assessed value will drop slightly but remain above their initial levels. If the owners intend to sell and leave Austin, they will probably get a higher price.

Owners not near downtown will see their taxes drop right away. As new housing gets built, their taxes will drop further. If they intend to sell and leave Austin, they will probably get a slightly lower price.

Anyone who moving within Austin — that is selling property only to rebuy within Austin — will combine the above effects. Those who are moving near downtown to farther out will sell high-priced land to buy low-priced land. If there are identical buildings on each piece of land, the trade will always be profitable. For those who are moving closer to downtown, land will be more expensive. But, thanks to lot splitting and taller buildings, they will have the option to buy less land for their new home.

Renters who live near downtown may see a slight increase when they renew their rent. This is because the landlord is paying higher taxes and will pass some of the expense onto their renters. As new housing gets built, the rent will drop well below its initial value.

Renters who do not live near downtown may see a rent decrease when they renew their rent. This is because the landlord is paying lower taxes and may pass some of the savings onto their renters. As new housing gets built, the rent will drop significantly.

Most Austinites will benefit financially. Most owners live more than 2 or 3 miles from downtown and intend to stay in Austin. They will benefit from lower taxes. Almost all renters will benefit from lower rent. The biggest financial losses will be with owners who live near downtown and intend to stay in Austin.

The owners near downtown may not see direct financial benefits, but, as new housing gets built, they will see improvement in all the problems listed earlier: lower prices in stores, fewer homeless, more stores and services, more competitive businesses, etc.. and, being close to downtown, they may benefit more than others from these problems being solved.

What can I do to help end the housing crisis?

Talk about it. Talk to your neighbors. Talk to your coworkers. Let them know that zoning laws are the root of many of Austin's problems and they can be fixed. Tell your City Council Member that you want this fixed.

Vote. The Austin Chronicle said that housing is the issue this election. Find a pro-housing candidate and vote for them.

Join AURA. It is the biggest organization in Austin that advocates on this subject.

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