We Made Austin Unaffordable
Niran Babalola

I commend the passion to solve the affordability issue.

However, being the president of a neighborhood that adopted all of the available in-fill options in our neighborhood plan, we found out the hard way that the supply side solution of increased entitlement doesn’t work.

In fact, in an hyper-inflated market, it actually accelerates gentrification. The reason is that 99.9+% of the capital available for investment has no interest in building affordable housing. Return on investment dynamics demand that the cheapest housing is turned into the most expensive housing. Those that are socio-economically challenged do not have a way of exercising the additional entitlements except selling their homes — most often at prices that don’t reflect the higher value that comes with the added entitlements. Those that are able to hang on as owners are faced with increased property tax burdens. Thus those economic benefits flow nearly completely to the investor class. To make matters worse, this cycle is repeated and enhanced by the landlord/renter dynamic, as those that can afford to live in the city via rents build the equity of investors. Note that the increased owner property tax burden is passed onto the renter and in many cases is multiplied by a landlord’s expected profitability.

Austin’s market is also constrained by a limited construction capability. Investor projects will pay contractors more than affordable housing projects, so construction bandwidth is tied to those projects. Construction capacity is below the market need, so even if code allowed more building, there isn’t anyone to build it.

My last point on the supply side issue, based on the City of Austin 2012 entitlement survey, it showed that there is enough entitlement in the City’s ETJ to build over 1.5 million units or 10X the number of units needed that is cited in the City’s Strategic Housing plan (135,000 units over the next ten years). So the problem on the supply side is first the lack of available funding to develop affordable housing, with constrained construction capacity as a secondary cause, with regulation being a tertiary cause at best.

Of course, this leads to the true culprit of our affordability crisis. It is the fact that the state, county, city, and every industry advocate (tech, healthcare, government, education, SXSW, ACL, etc.) has combined to spend tens of (if not hundreds of) billions of dollars on “economic development.” All this economic development has created a huge, compounding amount of demand that far outstrips our supply side capability to keep up.

Beginning in the 90s, Austin has had the pedal to the metal on growth without corresponding investments on the supply side. A lot of the NIMBYism is driven by even less investment on the infrastructure (lack of roads, sidewalks, green space, mass transit, stormwater management, etc.) to support major supply side development. Our housing situation is so out of balance, supply side solutions simply cannot solve the problem. Looking at history, we find this to be true. The only times that prices have moderated or fell in Austin over the past 50 years is due to large decreases in demand — the banking failures in the 80s and early 90s, the Dot.com bust in the early 2000s, and the Great Recession that really didn’t affect Austin until 2009–2010.

You can also look at another Texas city - Houston — to see that affordability is much more of a demand side issue than an artifact of the impact on land use regulatory structure on the supply. Houston’s land code is the most relaxed one in Texas, yet they were still experiencing similar year on year housing cost increases that Austin faced from 2010–2014. Only with the collapse in oil prices did the Houston market become more balanced.

I’d be happy to grab a cup of coffee, if you want to discuss further, particularly some potential ideas that might have impact on the supply side and what might can be done on the demand side. My e-mail is mikew@tgce.com.

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