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Are development fees holding Austin back from ending the housing crisis?

(Austonia)

Add drastically higher development fees onto your list of things that make buying a house in Austin so expensive.


A Texas A&M University Real Estate Research Center study found that Austin’s per-unit fees on new development were 187% higher than Dallas, Houston, Fort Worth and San Antonio. The suburbs aren’t much cheaper as per-unit development fees in Austin are still 127% higher.

According to ABoR CEO Emily Chenevert, high development fees charged by the city are cause for concern around solving the city’s ongoing housing crisis.

“This report confirms what those in the real estate community have known for a long time,” Chenevert said. “Development fees are drastically higher in Austin than most other cities in Central Texas and major metro areas in Texas. This is a huge barrier to building homes and a significant concern considering we are in a housing supply crisis across the region.”

A closer look

The report found that in the Austin-Round Rock metro a suburban unit was charged 80.4% or about $8,000 more than the other five largest metros in Texas. Similarly, infill units—new housing in already developed areas—cost 186.8% more in Austin than on average for Texas.

Those numbers make up 3.4% of the 2021 median housing price of $536,331 per suburban unit, or 7.7% per infill development unit.

What does that mean for buyers?

Steep fees drive up the cost for residents and can have a big impact on first-time buyers. The average Austinite earning the median household income in 2019—$54,871—would be able to afford a $204,556 home loan, of which development fees would make up about 20%, according to the study.

The Austin-Round Rock median house price hasn’t been $205,000 since February 2013, which is less than half of the median price in 2021. Austin-area housing has increased 22%, about $100,000, since the study was conducted.

“These findings, although disconcerting, are unsurprising,” Home Builders Association of Greater Austin CEO Taylor Jackson said. “We need to course correct on how the city of Austin handles home building and time is of the essence.”

Should renters be concerned?

Managing editor for Rent.com Brian Carberry said the renter market tends to follow the housing market, albeit on a few months' delay. Carberry said not only did Austin have less apartment inventory in May 2022 than it did in May 2021, but most new complexes are being built in high-demand areas, meaning people are still being priced out.

“A lot of that is just due to there's just so much demand for apartments and the housing market does play into that a little bit because people are being priced out,” Carberry said. “Your younger millennials, older Gen Z looking for their first homes are in a position where they're unable to afford something because the price has gone up so high and now mortgage rates are so high, it's just not a sustainable option for them right now.”

Is there a solution?

In the study, the Austin Board of Realtors and the Home Builders Association of Greater Austin included joint recommendations for local policymakers:

  • Increase transparency in development fees, as a lack of information limits the ability to understand the full impact of the fees.
  • Implement development process improvements, including reviewing fee structure, setting goals for housing approval and adopting successful models from similarly-sized cities.
  • Right-size development fees, which will become critical as Austin’s urban population grows and infill development increases.

“The National Association of Home Builders 2022 Priced Out Index reports that for every $1,000 increase in the price of a home, whether it be from market forces or development fees, 791 households are priced out of the Austin-Round Rock MSA,” Jackson said. “We urge Austin’s leadership to act and act now or we risk becoming a wholly unaffordable city to build or buy a home in.”

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