Austin: it sucks to be rich

The U.S. Department of Housing and Urban Development has released new income limits by metro area for affordable housing programs. Somebody who doesn’t know better might regard the figures in Austin as evidence that people here are moving up the economic ladder.

In the past year the median income for a family of four in the Austin-Round Rock metro area has jumped from $98,900 to $110,300.

No, I don’t think the median Austin resident saw their wages increase by 11.5% in the past year. Rather, the income increase reflects an influx of new wealth and the ongoing flight of the poor and middle class.

There are of course other numbers that help explain this outcome, notably the 56% increase in home values over the past year and the harder-to-nail-down-but-still-massive increases in rents.

Even in the absence of hard data, all you need to do is look around your neighborhood to understand what’s going on. The people moving into the new McMansions are richer than the people who moved in 10 years ago.

That is the result of market trends but it’s also a policy choice. The city of Austin could allow developers to replace the bungalows they’re tearing down with fourplexes or sixplexes that would be affordable to a greater range of incomes. Instead they’re only allowed to replace them with one or two $1M+ units. The city could prioritize housing over views of the Capitol. It could get rid of “compatibility” standards that encourage developers to build gas stations over apartments on our major transit corridors.

One of the many large new single-family homes replacing bungalows.

Thus, in defense of a certain architectural or aesthetic character, Austin’s zoning is in fact guaranteeing the transformation of your neighborhood’s cultural and economic character.

With new wealth comes … the same tax revenue

Unfortunately, the richer people and higher property values don’t necessarily translate into more tax revenue for city government, which is on the brink of a staffing crisis because wages for city employees are out of sync with the bonkers housing market.

The city only has two ways to get around the 3.5% year-over-year property tax revenue limit imposed by the state. First, it can authorize a tax rate election to get voters to approve an increase over that limit. For obvious reasons, that’s not something you can count on every year. There’s a much more compelling option, both politically and economically: new development. New construction –– whether it’s your kitchen renovation or a downtown skyscraper –– is exempt from the 3.5% cap.

And, at the risk of belaboring the point, new construction delivers benefits beyond new tax revenue: much-needed housing.

I took a look at city property tax revenue generated by new development in recent years:

  • FY 14: $8.9M
  • FY 15: $8.4M
  • FY 16: $13.7M
  • FY 17: $13.9M
  • FY 18: $12.2M
  • FY 19: $16.6M
  • FY 20: $15.1M
  • FY 21: $21.5M
  • FY 22: $21.4M

City Council should ask staff to conduct an analysis of what policies could help the city generate more tax revenue from new development.

For instance, while there are state-imposed Capitol View Corridors, the city has imposed additional ones that in some cases significantly constrain the height of downtown development. What would be the tax implications of eliminating or relaxing those? But I like views of the capitol! So do I. But how much are you willing to pay for them, either in increased property taxes or a reduction in services (parks, police, EMS, fire).

The same analysis would be useful for compatibility standards. How much tax revenue are we losing out on by limiting the height of buildings on our major corridors? Limiting the height of a development on a corridor because of a single-family home 540 feet away not only results in a reduction in much-needed new housing; it is a tax subsidy to preserve that homeowner’s view.

This is a free sample of the Austin Politics Newsletter from April 20, 2022. To get DAILY insights on city politics, click here to subscribe to the newsletter.

One thought on “Austin: it sucks to be rich

  1. This was the case in Houston’s only intact historic neighborhood (The Heights) early this century. The Victorian homes and Craftsman cottages were replaced by lot line to lot line … anything. Concrete squares, Spanish haciendas, and yes, generic McMansions. I fought it, even started an org to preserve the hood but alas – Houston has always bent to the real estate developers. Now it’s Lululemon and Lexus land with horrendous tree loss because people don’t want yards.
    After 30 years we bailed and moved to Austin in 2011. Next week we bail on Austin as well.

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