There are many challenges to providing housing that is affordable to the majority of those living within Austin and the surrounding metro. Over the past decade, the median sales price for a home in the City of Austin have jumped from roughly $230,000 (Texas A&M Real Estate Center Housing Activity, 2012) to $633,000 (Austin Board of Realtors Housing Market Report, July 2022).

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These price increases are a function of sustained demand for housing from existing households and in-migration from outside of Austin that saw a population increase from over 790,000 (U.S. Census, 2010) individuals in 2010 to nearly 962,000 (U.S. Census, 2020) in 2020. While housing construction also increased significantly over this period, bringing the number of units from approximately 354,000 (U.S. Census, 2010) to 445,000 (U.S. Census, 2020), this pace of development has not been sufficient to stem the surge in home prices. This lag in housing product partly resulted from the effects of the Great Recession which reduced housing construction across the country for several years. The first years after 2010 saw anemic housing unit growth that didn’t start accelerating until the middle of the decade. By the end of the decade, however, the ratio of population to housing units had slightly decreased from roughly 2.23 to 2.16, meaning there were more housing units per households in 2020 than 2010. So why did housing prices increase so much?

The income of households is a prime factor. During this same decade the incomes of households within Austin jumped considerably, from a median household income of $50,520 in 2010 to $75,752 in 2020 (ACS 5 Year Estimates, 2020). Of particular note is the change in income distribution during this period. The percentage of households at every income band below $74,999 dropped while the percentage in every income band at $75,000 and above increased. At the highest end, the percentage of households making $200,000 or more jumped from 5.2% to 11.3% in that time-period. 

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While many existing Austin households undoubtedly saw their incomes increase, that jump in overall median household income coupled with what should have been sufficient growth in the housing stock indicates that the phenomenon occurring is one in which higher income households are moving to Austin and outbidding existing lower-income households for housing, driving those lower-income households out of the city. It is quite possible that had significantly more housing been constructed over that period, the population of Austin would have increased even more because fewer lower-income households would have been priced-out of the city. Instead, the new housing inventory went to moderate and high-income households, with very little inventory left for lower-income households with the exception of income-restricted housing developed over that period. 

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The challenge then of creating housing that meets the needs of households at all income levels is one of creating housing abundance at a greater number of price points across the city. However, this is made difficult by restrictive land-use policies that prohibit the creation of more housing units and a variety of housing typologies in areas of greatest demand. In addition, the dramatic rise in home prices has made the value of land increase greatly as well, making new construction very expensive. The COVID pandemic has had lasting effects on the price of raw materials, particularly lumber, that go into construction, adding further cost to new homebuilding, while global inflation is causing central banks to raise interest rates that will also significantly raise the costs of building more housing. Finally, Austin’s permitting regime is one of the most costly and time-consuming within Texas, which discourages the construction of moderately-priced housing as developers seek to cover their costs.

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The public sector can provide some support for the creation of income-restricted housing through existing programs. However, the larger economic picture facing Austin ensures these efforts will not assist the majority of households in need of housing at a price that is affordable to them. Moreover, all those factors affecting market rate housing also drive up the cost of developing income-restricted housing, meaning greater subsidies or incentives will be needed just to generate the same number of units. Ultimately, unless Austin experiences a long-term economic decline – similar to that experienced by cities like Detroit – real estate will remain expensive compared with peer cities and will continue to appreciate at levels that ensure that those most vulnerable to economic displacement will no longer be able to call Austin home.