Austin Business Journal reports, "builders in Austin can now take advantage of a change in city code that will allow for the development of residential properties on land zoned for commercial use.
The change to the land development code, which Austin City Council approved on Dec. 2, carries major implications for real estate firms, significantly expanding the market for development. It also represents another avenue for cutting into Austin's housing shortage: city staffers previously estimated this decision could allow for the creation of 46,324 new homes.
Developers will still need to apply to build residential projects in commercial areas and will have to meet certain criteria, including around affordability. The change incentivizes the creation of affordable housing by increasing permissible floor-to-area ratios and, if the project is mixed-use, increased height permissions.
It also offers a bonus for developers willing to raise mixed-use structures with a dedication to affordable housing.
Ultimately, the code alterations are part of an effort by local government leaders to boost housing supply and blunt rising real estate prices in one of the nation's fastest-growing cities. Council has been working on incremental changes to the land development code this year, after an effort to enact more sweeping change were stopped by a citizen-led lawsuit.
Austin's median home sale price grew 26% from 2010 to 2021 and rent grew 27%, while median family income increased 12%, according to the latest annual report from HousingWorks Austin, a nonprofit that aims to increase the supply of affordable housing.
A recent study found Austin will need more than 100,000 additional apartment units by 2035 to keep up with demand.
The change to the land development code, aka City Code Title 25, allows residential development in areas zoned for general commercial services (CS in zoning parlance), commercial-liquor sales (CS-1), community commercial (GR), neighborhood commercial (LR), general office (GO) and limited office (LO).
More than 7,400 commercial parcels are eligible to participate under the code change, according to information shared by city staff.
Scott Turner, owner of Riverside Homes and Turner Residential, as well as 2022 president of the Home Builders Association of Greater Austin, is hopeful about the program but concerned that, as approved, it would ultimately not achieve its intended goal.
"I don’t know if it is going to unlock the capacity that we need," said Turner, an infill development expert. "Austin has some of the most restrictive zoning in the country. If you can build a building there, why not a house? I think it is a step in the right direction."
He said the new ordinance is similar to a portion of the land development code known as vertical mixed-use overlay, or VMU, which allows for density bonuses in exchange for community benefits.
"Something needs to happen but I don’t know, in its current form, if that is what is going to do what they want in terms of housing supply," Turner said.
Turner said the change will restrict small-scale apartment complexes and as a result keep smaller developers from being able to pursue projects on the newly available land.
"It would still prevent the small, missing middle housing where these small commercial sites are located," Turner said. "These small offices could easily be six (residential) units, but I don’t think this bonus is going to do enough to support missing middle housing. The VMU bonus is a niche product. Only 29 of the 880 eligible sites actually took to the bonus and that to me is really telling. It does not do enough in today’s code, so why would we expect this to have different results?"
While some worry the code changes don't go far enough, they have the support of Brita Wallace, vice president of Austin Infill Coalition and the owner of infill development firm Digs.
"The concept is good in that we need ways to build more housing instead of more limitations," Wallace said. "The key is to follow Council direction to allow for VMU site controls. There are also major barriers in existing code that will limit the feasibility, for example, parking requirements and compatibility."
Program criteria
In order to participate in the program, developers need to devote at least 10% of the rental units in a project to be affordable for households earning 60% of the median family income level for at least 40 years. Or, if the units are for sale, developers would be required to designate at least 10% as affordable for households at 80% MFI for at least 99 years.
The median family income level for a family of three in Travis County is currently $99,250, according to Austin's Housing and Planning Department. For the same size family, 80% MFI is $79,450 and 60% MFI is about $59,550.
The new standard does not allow developers to pay a fee in lieu to take advantage of the program without building below-market-rate housing. It also includes a right of return stipulation for arts-focused institutions including theaters, libraries and visual and performing arts spaces. No more than 15% of housing can be used for short-term rentals — Council Member Kathie Tovo had lobbied for none of the housing to be used for short-term rentals.
Officials continue to review the city’s widely unregulated short-term rental market. While the Austin Code Department lists about 1,975 active short-term rental licenses in the city of Austin, staff estimates there are between 9,000 and 11,000 short-term rentals listed at any given time in Austin.
The resolution passed last week with Tovo abstaining and Council Member Vanessa Fuentes absent from the dais.
During the meeting, Council Member Natasha Harper-Madison raised questions about why the zoning change would not include corridors in high-income areas.
"We are left with no option to address these inequities today," she said. "The fact that our well-intentioned reform to our really desperately outdated land development code has been warped to once again exclude West Austin and other high-income areas from this much-needed housing conversation is sadly not at all surprising."
Harper-Madison said Austin has the most restrictive compatibility rules of any major Texas city and that she wants to keep it from becoming "a housing hesitant city."
Mayor Steve Adler said the approved ordinance represented a compromise.
"I do believe the work that was done today will allow us to expand opportunities to expand housing throughout Austin," he said. "There is a long way to go and it is my hope this next Council pushes through that.""
Source: Austin Business Journal
Written by: Mike Christen
Published: December 6, 2022
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