Central Austin homes unaffordable for area’s middle class

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In 2016, 10 years after she graduated from The University of Texas at Austin, then-Austin resident Jenny Sanzo and her husband, Evan, wanted to stop renting and buy their first home.

At an entry-level price point of $200,000, Sanzo, who works downtown as an accountant for the Office of the Attorney General, said their Realtor only found two options in Austin—each one run down and in need of extensive repairs.

The first-time homebuyers broadened their search to Pflugerville where they settled on 1,400-square-foot, two-story, three bedroom, two-and-a-half bath home for $190,000. Sanzo said the home, which was less than four years old, was exactly what they were looking for with only one exception: her commute would be 45 minutes in each direction—a round trip she has now been making for two years.

Local housing experts say Sanzo’s story reflects a common thread for middle-class families who work in Austin. Under the pressures of the city’s affordability crisis, Austin’s working families are moving out to suburbs such as Pflugerville, Round Rock and Manor, where housing prices are cheaper but work commutes are longer.

The market challenges are acutely felt in Central Austin, where neighborhoods once characterized by single-story bungalow starter homes now boast median home prices near $1 million, according to recent housing data. The area has become financially inaccessible to many of the metro’s middle-class families, while rising property values place financial burden on existing homeowners who have watched their home values—and property taxes—double in the last decade.

According to metrics used by the city of Austin, housing is considered affordable when a household spends 30 percent or less of its income on housing costs, including utilities.  Households that spend more are considered cost-burdened.

By that standard, the average two-person Austin household, earning the area’s median income of $65,100, falls well short of what is needed to afford the median home price in Central Austin, according to mortgage calculations.

Some community members say they do not see a future where middle-income affordable homes will be built in Central Austin, but city officials recognize a need to keep middle-income families.

“If someone is a part of our community, they should be able to live in our community,” said Jonathan Tomko, principal planner with the city of Austin.

The city has wrestled with the affordability crisis for years, but officials say 2018 has the potential for major strides with the potential approval of a new land-development code through CodeNEXT and an upcoming November election for what could be the largest affordable housing bond package in city history.

What is to blame?

Tomko attributed the housing affordability challenges to two main factors. He said although the city could not control the effect of more affluent people moving to Austin and placing upward pressure on housing unit costs, the city could better control the supply and demand.

Tomko points to the 2008 recession as a major contributor to the city’s lack of adequate housing supply. He said because of the credit crunch between 2009 and 2013, banks were not lending much to developers, which slowed housing production by roughly
80 percent, even as the city’s population continued its pre-recession growth.

“While there is a lot of development … now, we are honestly just getting caught up with what we should have been building during that time,” Tomko said.

Emily Blair, executive director for the advocacy group the Home Builders Association of Greater Austin, said builders want to meet the large demand for the middle-income home price point in Austin, but land prices and increased costs in labor and materials make it difficult.

“Central Austin just doesn’t have that much available land, and the value of the land alone far exceeds the median home price,” Blair said.

David Whitworth, owner of Whitworth Homes, has been building homes in Central Austin since 2004. He said he prefers to build smaller, less expensive homes as they sell quickly, while $1 million homes often sit on the market for a year. However, Whitworth said restrictions on minimum lot size in Central Austin neighborhoods make the smaller homes more difficult.

Proposals to subdivide large, expensive lots in order to build smaller, less expensive homes—commonly referred to as “missing middle housing”—require a long permitting process and often receive heavy pushback from the neighbors, he said.

“I want to deliver houses to young families, but our  [land development]code is trending toward the million-dollar home,” Whitworth said. “Our code makes the wrong product easier and does not even allow [a middle-income]product.”

Jeff Jack, president of the Austin Neighborhoods Council, a group that strongly opposes added density in Central Austin neighborhoods, said allowing more housing types in the neighborhoods would only create more housing opportunities for the wealthy and continue to push existing homeowners out.

Jack said because Central Austin real estate is so desirable, market demand and competition between buyers will continue to bid up the prices, especially as Austin continues to attract a wealthy economy.

“[Dense housing] will still be unaffordable for moderate- or low-income people,” Jack said. “You can’t build an affordable home in the Zilker Neighborhood … not until we have the next economic downturn.”

Limited avenues for government intervention

Tomko said the Legislature has made it difficult for local government to intervene in the housing market.

Texas is one of three states that prohibit inclusionary zoning—a tool that allows municipalities to mandate affordable housing from private developers. Tomko said Texas cities also have no option of creating rent control districts—unless the governor calls for a state of emergency—and last year, the Legislature voted to ban linkage fees, a program that would have linked new development to affordable housing funding.

However, the runaway real estate market has forced the local government to innovate several counter-market measures over the years. The latest push looks to take advantage of a 10-year housing plan, a new land-development code proposal, public funding and a handful of fresh ideas.

The third iteration of CodeNEXT, released in February, introduced a money-saving permitting process and an expanded density bonus program—an affordable housing tool that allows City Council to trade building entitlements for income-restricted housing commitments and other community benefits.

The latest draft incentivizes the preservation of existing market-affordable housing, and increased housing entitlements along the city’s transit corridors aim to produce enough supply to relieve the interior neighborhoods of demand pressures.

Should City Council approve, in November Austinites will vote on an $851 million bond package—a 30-year loan paid off by tax dollars—to fund city projects. The current recommendation has $161 million earmarked for affordable housing initiatives, the largest such bond allocation in city history, according City Council members.

Tomko said the city should expand its use of the underused tax increment-financing program. Publicly funded capital improvements—such as the mobility bond projects—can result in increased property values and have unintended consequences, Tomko said. To mitigate the economic burden, the city can take the tax increase money and reinvest it into affordable housing in the affected area. Tomko said the program is widely used in Dallas, Houston and San Antonio.

In March City Council made a push to vet city-owned land for affordable housing use and explore a program that could bring back people displaced by the pressures of new development.

For Sanzo, although she once hoped to own a home in Austin, she has warmed up to the suburban life.

“To be honest, now that we’re living here, we really love Pflugerville,” Sanzo said. “But I would hope that someday I can live closer to where I work.”

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COMMENT
  1. “Jeff Jack, president of the Austin Neighborhoods Council, a group that strongly opposes added density in Central Austin neighborhoods, said allowing more housing types in the neighborhoods would only create more housing opportunities for the wealthy and continue to push existing homeowners out.”

    This comment doesn’t even come close to passing the smell test. Continuing to allow ONLY single-family homes to be constructed in Central Austin neighborhoods creates FEWER “housing opportunities for the wealthy”? Does. Not. Compute.

    “'[Dense housing] will still be unaffordable for moderate- or low-income people,’ Jack said. ‘You can’t build an affordable home in the Zilker Neighborhood … not until we have the next economic downturn.’”

    Of course you can build an affordable home in the Zilker neighborhood (or elsewhere). You just can’t do it under Austin’s existing code — which is the entire *point* of changing it. There are also varying degrees of “affordable” Mr. Jack is willfully pretending don’t exist. In, say, Mueller — by all accounts a model example of how to build moderately dense housing while retaining neighborhood “character” — $400,000 will still get you a smaller townhome large enough to accommodate a small family. In Zilker $400,000 won’t even cover the price of a *teardown*, let alone any type of housing other than tiny condos built back in the ’60s and ’70s.

    • Completely agree. I don’t know why Jeff Jack continues to get airplay. He is NOT a voice of reason and has positioned the ZNA as an enemy of the city and immediately comes out against any progressive concepts. The guy is way past his prime, not a qualified city manager at this scale, and needs to retire before he does anymore damage misleading his neighbors.

    • I grew up in Central Austin and live there now. I’m a third generation Austinite planning to retire in a year or so. I will be unable to do so and stay in the home I’ve lived in for 30 years due to hand over fist tax increases.

      I’ll explain what I believe Mr. Jack is saying based upon my perspective. Say you allow a “cram them in” approach throughout all of the old Central Austin neighborhoods. I suppose they could put four dwellings on my property that currently has a 2 bedroom 1 bath 800 sq ft house and sell it for $600K-$700K. If that happens around me the land value of my property skyrockets and the taxes drive me out even faster, so a builder comes in and buys my property. GENTRIFICATION, right? Then a rich guy comes in from San Francisco and he wants to live in Central Austin. He’s now allowed to build a McMansion lhanks to the reduction of the impervious cover rules (to promote even greater density). He thinks nothing of slapping down a cool million. What kind of dwelling(s) do you think the builder is going to build? How will that impact gentrification?

    • Agreed, how does that pass with a straight face. He wants to keep Central Austin exactly the way it is. That’s a discussion we can have, but don’t lie about how adding supply will somehow increase prices.

      Also, the article laments the lack of rent control options. Please look around at the cities with rent control and let me know if affordability (and quality of rent control units) has gone up or down since rent control was introduced. Then go read Thomas Sowell on rent control.

  2. I couldn’t buy my lot “which was already split by a flipper” in 2010 for what I paid for my house in 78757. Its a daunting situation for young families and long time residents.

    • Agreed Jack Nailey, and that works just fine for a lot of the folks from similar places who are moving here. I personally feel that the builders and the City of Austin are going to cash in to the detriment of current residents. The COA is already floating bonds based on increasing land value taxes. Rather than cut the tax rate they’re borrowing against future increased tax revenues. Quality of life means little.

  3. I grew up in Central Austin and live there now. I’m a third generation Austinite planning to retire in a year or so. I will be unable to do so and stay in the home I’ve lived in for 30 years due to hand over fist tax increases.

    I’ll explain what I believe Mr. Jack is saying based upon my perspective. Say you allow a “cram them in” approach throughout all of the old Central Austin neighborhoods. I suppose they could put four dwellings on my property that currently has a 2 bedroom 1 bath 800 sq ft house and sell it for $600K-$700K. If that happens around me the land value of my property skyrockets and the taxes drive me out even faster, so a builder comes in and buys my property. GENTRIFICATION, right? Then a rich guy comes in from San Francisco and he wants to live in Central Austin. He’s now allowed to build a McMansion lhanks to the reduction of the impervious cover rules (to promote even greater density). He thinks nothing of slapping down a cool million. What kind of dwelling(s) do you think the builder is going to build? How will that impact gentrification?

  4. This is nothing new and no fix is needed. Look at the couple in the article. My friend s and I went through the same thing in the 80’s. I chose to buy an 800 sq ft 2 bedroom 1 bath fixer-upper in Central Austin and they chose Pflugerville with a 2 story new, much larger home. You don’t start out with a place like your parents had in the location of your dreams. Central Austin is taken. Sorry. By the way, where I live was North Austin back then. Wait long enough and Pflugerville will be Central Austin thanks to the infinite growth model that’s part of almost every aspect of American society.

  5. Urbanists who advocate that building ” ” high density units” is going to alleviate the shortage of affordable housing in Central Austin Developers and Builders are not going to build affordable housing in an area where they can build expensive units that sell for top dollar prices Unless they are force to by those who control the zoning and permit process Texas Legislators have taken that power away due to lobbying by the building industry Affordable housing in Central Austin will not happen even with “high density” Corridors. Gentrification will continue to raze historical homes to make way for these “high density units”. Without the zoning tools the Texas Legislation has taken away, Developers and Builders will continue to make housing units beyond the reach of most Austinites These expensive units will most likely be bought by all the new arrivals to the city pushing citizens further out into the suburbs Code Next has its Pros and Cons, especially for residents in East Austin. A plan is better than no plan, at least it’s a start to replace an antiquated system that led to shameful segregation practices of the past by past City Councils. Vote for Code Next

  6. Another middle class layer being priced out like myself are those who bought in Central Austin 25 years ago and find that they can no longer retire and/or afford their property taxes. In some cities, there are tax breaks for people over 55 who have lived in their homes 10 years or longer. It doesn’t seem right that people who have lived here a long time and contributed to the fabric of the city over the years have to choose to leave their neighborhoods, family and friends.

      • That isn’t all taxes……………. some are frozen, BUT if the value of your house keeps increasing, you still have to pay more. It’s absurd what people are paying for a house these days… Absolutely absurd.

  7. Who calculated the tables that show the household salary needed to afford the median house prices? For example, area code 78702 house price 425k with salary of 102k needed to afford that home. That is in no way realistic. With 10% down the total cost of mortgage, taxes etc would be greater than half the monthly take home pay after taxes on a salary of 102,000.

  8. Elizabeth Walters

    “If someone is part of our community, they should be able to live in our community,” said Jonathan Tomko, principal planner with the City of Austin. Yeah, if they can afford to.

    The city shouldn’t be involved in trying to control supply and demand. That’s what a free market is for. I’m glad if the legislature has made it difficult for local government to meddle in the housing market. The last thing we need is more mandates from the city like rent control districts.

    And it will be a shame if we vote in November to put our kids and grandkids in debt for the next thirty years. People will be taxed out of their own homes to pay for other peoples’ homes that they then won’t be able to afford the taxes on etc.

  9. On what planet is 400k “affordable?” Planet NYC or SF, with some yuppie salary no doubt. The article states the median salary is 65k. No bank will loan for a 400k house showing 65k income. A close friend of mine here in town clears 70k, no dependents and owns a 650k appraised property with plenty of equity out of state. He had negligible debt (under 5k) and over 12k in savings. He could only get approved for 350k. So how do you think regular families will be able to buy in Austin? Only if they win the lottery or get an inheritance. Austin is for the rich, no doubt about it.

Christopher Neely
Christopher Neely is Community Impact's Austin City Hall reporter. A New Jersey native, Christopher moved to Austin in 2016 following two years of community reporting along the Jersey Shore. His bylines have appeared in the Los Angeles Times, Baltimore Sun and USA Today. He is a graduate of the University of Maryland's Philip Merrill College of Journalism.
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