Can zoning cause gentrification?

The great majority of Austin’s political leaders acknowledge that the supply of housing plays a role in housing affordability. They also acknowledge, to varying degrees, that Austin currently has a shortage of housing.

And yet, when it comes time to talk about allowing more housing in certain neighborhoods, people invariably say that “upzonings” will lead to gentrification and displacement. That complaint is particularly common on the east side, but I’ve heard it thrown around just about everywhere.

There’s a certain logic to the argument. The more that you’re allowed to build on a given lot, the more opportunity there is for profit.

Critics of upzonings worry that if a single-family homeowner’s property is rezoned to allow multifamily uses, then the value of the property will skyrocket because of its potential to be redeveloped into multiple units. If the property value increases, their property taxes will similarly increase, putting pressure on them to sell.

This is at least the general theory. The specifics on the ground in Austin are different, since property taxes can only increase by a maximum of 10% each year and for many (or most?) people they are already increasing by the maximum amount.

A recent study of Chicago upzonings has lent credence to the theory that they can lead to property value increases and therefore fail to make housing more affordable, as is often promised by urbanists. However, it’s worth noting that that study also found that those upzonings did not even lead to increased housing supply, which is not what you would expect in a place like Austin that is dealing with sky-high demand.

Anyway, does it make sense that the government easing regulations in a neighborhood might lead to increased land speculation, increased private investment and therefore higher property values and rents? Sure. The market is a weird place, subject to all kinds of irrational impulses. It’s also shaped by all kinds of cultural forces. In Austin, like most other American cities, racism has probably been the most powerful cultural force shaping the housing market, but there are myriad other cultural phenomena that could alter it: SXSW, Willie Nelson, Franklin’s BBQ, electric scooters … any number of things could play a role in making people think that they want to live in Austin or a certain part of Austin.

If political leaders don’t want to increase housing in an area because it may lead to increased property values and gentrification, I suppose my question would be: What do they think about increased public investment in those areas? Because that could have the exact same effect.

The best example is the ongoing Waller Creek Chain of Parks. City Council unanimously approved investing another $110 million into an effort to “revitalize” Waller Creek by turning what is now considered an urban blight into what will hopefully be a stunning system of trails and parks between Lady Bird Lake and 15th Street.

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Part of what is envisioned for the Waller Creek Chain of Parks. Credit: Waller Creek Conservancy.

Council is financing the Waller Creek project through Tax Incremental Financing, which is based on the idea that the public investment will be paid off by the increased property values generating more tax dollars. So Council is not only OK with property values increasing, it is rooting for its dear life for them to increase.

Similarly, withdrawing public services is a great way to reduce property values. Just look at how rents plummeted in certain parts of Brooklyn when a critical subway line shut down.

But are we going to tell our government not to invest in parks, schools, public transit and other key services in low-income communities because those amenities might raise property values? I certainly would hope not.

In the same vein, if we have a housing shortage and are trying to combat sprawl, the most logical course of action seems to be to build more housing. Otherwise I think we’re basically trying to play the market. And most of the time, we’ll get burned.

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Are there downsides to upzonings?

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A rendering of a proposed development on Alamo St, south of Manor.

As I explained yesterday, the proposal by Greg Casar to exempt affordable housing projects from various city regulations is entirely separate from the ongoing conversation about incentivizing market-rate developers to include affordable units in their projects. Typical developers will not be the least bit impacted by this proposal.

Now, there are other types of density bonuses that do aim to get developers, including luxury developers, to offer some units at discounted rates to low(er)-income tenants. The city has a number of such programs, which tend to offer developers additional building height or additional floor-to-area ratio if they provide 10% of their units to tenants at 60% of area median income or homeowners at 80% AMI. (Here are the AMI levels in Travis County)

There are two perennial critiques of our density bonuses. The first, often levied by neighborhood preservationists, is that such deals demand far too little from developers. That is what Leslie Pool suggested in her comment on the Council message board yesterday.

Developers and density enthusiasts counter that clearly the deal is not too generous, as evidenced by the fact that many of these programs have generated very little interest from developers. In many cases they have calculated that the additional entitlements are not enough to make up for the money they lose by providing the affordable units.

Some market urbanists criticize density bonuses because they don’t believe that the “bonus” the city is offering the developer (increased height, reduced parking etc) should be the city’s to give. Why should developers ever be forced to dedicate money and concrete to parking spaces if the market doesn’t demand it? Rather than offering some developers a reprieve from some of our worst regulations, why not just get rid of the bad regulations completely?

And yet, even some of the more density-inclined activists and politicians, across the country and in Austin, figure that we have to keep at least some annoying land use regulations so that city government has some leverage that it can use to negotiate with developers, particularly in its efforts to boost affordable housing stock. This was one of the arguments put forward by opponents of a California bill that sought to upzone all properties near transit hubs. Here’s an editorial from the LA Times (h/t to APN subscriber Jake Wegmann):

But here’s a potential problem with the bill: By setting blanket height and density increases statewide, the bill, as currently written, could eliminate key affordable housing incentives and protections designed to reduce displacement in gentrifying neighborhoods.

The problem is, Austin’s current density bonuses have not produced all that much housing. As of 2016, 12 years after the first program had started, the ten different bonuses had generated 1,653 units, about half of which had come in the West Campus area.

Instead, the great majority of income-restricted units in Austin (and the U.S.) are provided by developments that are financed via a combination of the Low Income Housing Tax Credit and city funds. Now that the city has approved a $250 million housing bond, it will be able to provide much more assistance to those projects and hopefully generate thousands of units.

But creating as much affordable housing as possible is not the only goal. We also want economic integration. And if they work the way they’re supposed to, density bonuses accomplish that beautifully.

Now, simply by legalizing cheaper forms of housing that are now barred from certain neighborhoods (apartment buildings, triplexes), a deregulated housing market would probably be much more integrated than the status quo.  We can support additional integration by trying to put subsidized housing projects in as many parts of town as possible. Of course, if you look at where the affordable projects are going up, you’ll see that that is a challenge, simply because land values in the nicest parts of town are so high.

The other major environmental and affordability benefit of universal upzoning would be that it would facilitate public transit and reduce sprawl. That part is pretty obvious.

To bring this to an unsatisfying conclusion, I suppose if there was strong evidence that we could produce lots and lots of affordable housing via density bonuses, then it would be tempting to shy away from universal upzonings and try to cut deals with developers. But so far, it doesn’t appear that that is a very effective tool. We might be better off trying to get as much housing as possible out of the market and then building income-restricted housing to serve those who are not being served by the market.

Another conversation about upzonings is whether they increase property values and lead to gentrification. That is a topic I’ll explore in a future post.

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A density bonus for affordable housing

Yesterday, Greg Casar introduced a resolution to exempt affordable housing projects from a number of Austin’s land development regulations. Specifically, it would:

waive compatibility standards for height and setbacks

increase building height to 1.25 times the current zoning district’s height entitlements

waive parking requirements

reduce front yard and rear setbacks by 50%

increase density, by 1.5 times the current zoning district’s density limits or allow six units, whichever is greater

waive maximum floor-to-area-ratio

waive the Residential Design Standards

waive common wall, roof, front porch, and other restrictions specific to duplexes

These waivers would only apply to projects where at least 50% of the units are restricted to those at 60% of the area median income. That’s $36.1k for a single person or $51.6k for a family of four.

There seems to be some confusion, among activists, journalists and even some members of Council about the intent of this resolution. For instance, Kathie Tovo and Leslie Pool highlighted the 50% affordability requirement, saying that it was about time that the city demand more of developers who are seeking entitlements.

This resolution is NOT about playing hardball with developers. It’s about helping out affordable housing builders, such as Habitat for Humanity and Foundation Communities, whose projects are already majority –– if not exclusively –– income-restricted. They don’t need incentives to provide affordable housing; that’s their raison d’être.

(An important side note: there are also for-profit developers who specialize in affordable housing. Saigebrook Development, for instance. But their developments are also based on government subsidies, most frequently the 9% and 4% federal Low Income Housing Tax Credit, which I explained yesterday.)

Casar himself explained that this program is not aimed at getting otherwise market-rate developers to start dedicating half of their projects to affordable housing. No number of waivers is going to make that profitable for them.

Much of the response to the resolution has focused on the affordability requirements that it imposes on the developers. That misses the point. What it requires is what the intended beneficiaries of the resolution are already providing.

There’s also been a lot of focus on how the new program, unlike the city’s various other density bonus programs, will apply citywide. That’s great, but I don’t believe that will make income-restricted projects in Tarrytown any more likely. The land is too damn expensive.

Now, most urbanists and housing advocates are obviously delighted by this proposal. It’s a no-brainer. But there are a couple people on that side who are justifiably concerned about how this proposal may impact the future debate about a new land development code.

The hope for land use reformers is that the new land development code will eliminate or at least substantially reduce parking requirements, compatibility regulations and the like. But if the “reformers” on Council devote significant attention now to offering those exemptions as a reward to affordable housing developers, how are they going to make the case a few months from now that we should also scrap those regulations for the big, bad, greedy market-rate developers?  I can already see Adler making some comment that preservationists will hold over his heads come the code rewrite: “We want to do something special for those special organizations that are allowing people to continue to live in this magical city.”

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Fight brewing over Muny?

Lions Municipal Course

UT has tired of the Frank Erwin Center and wants to build a new arena, somewhere between MLK and Dean Keeton. There’s just one complication: Red River Street.

The university is hoping to get Red River out of the way by moving it west. Fortunately, the city has long aspired to realign Red River, as this memo from city transportation staff explains:

Red River Street is a major thoroughfare from downtown Austin to north of the University and has been the subject of various planning documents. Realignment has been incorporated into the University Campus Master Plan, the UT Austin Medical District Plan, and the draft Austin Strategic Mobility Plan that is now under development. Central Health is in the process of redeveloping its campus between East 12th Street and East 15th Street. The University will be a major tenant of the redeveloped campus. City staff believes that realigning and straightening Red River Street between East 12th Street and East 32nd Street provides for improved transit connectivity. 

Since UT is eager to get the project underway (as soon as this summer), the city is happy to forfeit the right-of-way to UT in exchange for something. And that something is…Lions Municipal Golf Course!

The City and the University have discussed the possibility that the University would also construct those portions of Red River Street, the terms and conditions of which continue to be under discussion. If the City funds any portion of the design or construction of the roadway, the University will credit an amount agreed to by the parties toward the possible purchase of Lions Municipal Golf Course or to other agreed upon projects.

This issue was brought up at Council work session and the five urbanists (Harper-Madison, Garza, Casar, Renteria, Flannigan) all signaled various levels of concern about trading Red River for Muny. At this point, most of them are sticking to procedural arguments, saying they would like to be presented more potential options.

I don’t anticipate that any CMs will say what many urbanist activists are saying: that a piece of prime real estate just west of MoPac should not be used as a golf course, period. However, when I talked to Garza shortly after the meeting she hinted that she is unwilling to “spend a significant amount of resources on a golf course.”

This is very interesting. I have no idea how this will be resolved.

There are likely three CMs (Alter, Tovo, Pool) who want to “Save Muny.” Alter did say, however, that she could envision a scenario where the land is opened up to other recreational uses besides golf. She also mentioned that the mayor has been working with her on the issue. I wouldn’t be surprised if Adler has heard from friends in Tarrytown who really want to preserve Muny as a golf course, but I can’t imagine that that’s the cause he wants to dedicate an enormous amount of his political capital to, especially considering the resistance he’ll get from the forces that just won the election.

My guess is that he’s seeking some type of compromise where part of it is preserved as green/park space (not necessarily a golf course) but UT gets to sell off some of it to private development.

Of course, a lot of this comes down to Ellis and Kitchen, whose positions on this issue I can’t predict.

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Can we get cheap housing near City Hall?

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Bluebonnet Studios, an affordable housing complex by Foundation Communities on S. Lamar

On Thursday City Council will vote to endorse 10 different affordable housing projects proposed by several different for-profit and non-profit developers. No, that doesn’t mean the projects are going forward. Council’s support is just one part of a very competitive application process to receive financing from the Texas Department of Housing and Community Affairs.

The financing comes via the Low Income Housing Tax Credit, which is administered by the state in two forms: the 9% competitive tax credits and the 4% non-competitive credits. In either case, the state gives you a tax credit that you can then sell to investors to finance the development.

The coveted 9% tax credits are hard to come by. The state is split up into 13 different regions, each of which is split into a rural and urban category. TDHCA only sets aside a certain amount of credits for each region.

This year, the Austin urban area is eligible for $4.4 million. However, the 11 projects vying for the credits (10 in Austin, one in Round Rock) are seeking over $20 million. That means that there will probably only be three or four projects that get the credits.

The projects that don’t get the 9% tax credits are not necessarily goners. They can get the 4% noncompetitive credits relatively easily, and then seek additional funding from the city, which you may recall has $250 million to play around with from the recently-approved affordable housing bond.

So how does the state decide which projects are worthy of its support? It’s a scoring matrix that takes into account a bunch of different criteria. Traditional factors that benefit a project include being in an area that doesn’t have a high poverty rate and being close to transit and jobs. Projects get additional points if they receive letters of support from the local government body and the state representative who represents the area targeted for development. This last point was the source of controversy in 2016, when Rep. Celia Israel declined to support a project in North Austin, citing the lack of transit access. That development, the Elysium Grand Apartments, is going forward anyway, much to the chagrin of the local neighborhood association.

In 2017, the state introduced a new criteria: projects that are located within four miles of City Hall will get additional points. The idea makes a lot of sense in Austin, where the urban core is increasingly inaccessible to the middle-class, let a lone the poor or working class. Here are the locations of the ten proposed projects:

 

According to Google maps, some of them are just a tad over 4 miles, but maybe with some creative math they could get credit. The only one that clearly won’t get qualify for those points is the project way up on North Lamar.

In what is a familiar trend, most of the projects are east of I-35. However, it’s important to note that that doesn’t mean quite the same thing as it used to. Most of the proposed projects are in areas that have already undergone significant gentrification or are beginning to experience it now. As much as I’d like to see some affordable units in Rosedale, preserving affordable housing in East Austin neighborhoods close to downtown is also a huge win.

One project that I’m guessing will score highly on a number of criteria is located at 1000 E. 45th St., just east of Airport Blvd but just west of I-35. It will include 60 income-restricted units, 46 of which will be two or three-bedroom and 35 of which will be for those at 50% of the area median income or lower. I don’t think that the project, which calls itself “City View at Hyde Park,” is actually in Hyde Park, but it is certainly a high-opportunity area with access to lots of key amenities, notably good schools.

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Seriously, 2.5%?

It’s early yet, but I’m wondering if and when we’re going to hear from some Republicans about Gov. Abbott’s bonkers plan to reduce the annual property tax increase from 8% to 2.5%.

Two years ago, you’ll recall, the Senate passed a bill lowering the cap to 4%, while the House passed on that would lower it to 6%. In the end, both died in a pissing match between Joe Strauss and Dan Patrick.

I’ve long-assumed that this 2.5% talk is just posturing –– a negotiating tactic. I am still inclined to believe that. But it is disconcerting how seriously the supposedly reasonable Speaker of the House, Dennis Bonnen, appears to be taking this idea.

Two things stood out at Thursday’s joint appearance of Gov. Greg Abbott, Lt. Gov. Dan Patrick and newly elected House Speaker Dennis Bonnen. They are still in sync on everything like taxes and breakfast. They and the legislative sponsors of property tax bills — Sen. Paul Bettencourt, R-Houston, and Rep. Dustin Burrows, R-Lubbock — gathered for the news media to say they were on the same wavelength, filing identical bills in the House and Senate.

I was talking to a senior budget official at the city recently who said that a 4% limit would be tough but the city would be able to endure it. But 2.5% doesn’t even allow for the city to pay for basic growth.

And keep in mind, this tax cap has nothing to do with limiting the ability of governments to raise the tax rate. This is about limiting how much revenue they can collect as a result of property value increases.

However, until Bonnen and Patrick can explain how they’re going to provide all of this new money for schools that they’ve promised, it’s hard to take this tax proposal seriously. As Ross Ramsay explains:

But they haven’t said where the state money will come from. Nobody in the state government’s high places has proposed raising a tax, cutting other state spending to produce money for education, or weeding through the state’s tax exemptions and loopholes to shore up the state’s share of the public education load.

Assuming the state passes some kind of cap, this leads to tough questions for the city’s own tax policies. For starters, you can bet that the city will be done raising the homestead exemption for a while since they’ll want every penny available to maintain city services.

Hopefully Gerald Daugherty and other elected Republicans who understand the value of local government can talk some sense into Bonnen. Because I know they can’t talk sense into Patrick and Abbott.

Where are Austin’s children?

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Great map put together by the city demographer’s office that shows the share of the population under age 5 by census tract. The most apparent trend is the high number of young children in the Northeast and Southeast.

However, the map also shows a high child population in some Central East Austin tracts just east of I-35. That runs counter to the popular perception that these neighborhoods have been completely overtaken by affluent young singles. I wish I had more precise data on the demographics of these children. I have no idea what percentage of these kids are the children of gentrifiers.

It’s worth noting that some of the areas with the highest percentage of young children are also home to schools dealing with severe under-enrollment. Meanwhile, schools located in affluent Central Austin neighborhoods with the lowest percentage of children are not under-enrolled. To what extent is this the result of AISD’s transfer policy? It will be interesting to see in the coming years whether the large population of toddlers and babies on the east side translates into increased enrollment in east side schools.

As for the high child population in the northeast and southeast, that clearly correlates with where the immigrant population is settling. The map below shows the percentage of foreign-born residents. These are the kinds of maps that give Republicans anxiety attacks.

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The perils of parkland dedication

Parks are great. One of the reasons they’re great is because they reduce the obligation, real or perceived, for people to buy private parks (otherwise known as yards). That’s why, as much as I’d like to see parts of Muny developed for housing, it’s important that a large part of it remain recreational open space.

Similarly, I wonder if the city’s plan to dedicate 57 acres of parkland on the east side could be altered to include some housing.

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This is an interesting area. It’s not considered “high-opportunity,” but it is an area that is rapidly gentrifying and where we should want to get some affordable housing in place before the market prices out the poor and working class.

The one problem is that this is one of a few areas of town that have unambiguously lost transit access from Cap Metro’s ReMap last year. Before the ReMap, the western edge of this tract at Terry Dr & Ledesma would have been less than a quarter-mile walk from downtown transit access at Ledesma & Lott (via Route 2).

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Now Route 2 no longer comes close:

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If there were housing placed on the northwestern part of the tract, the residents might be a reasonable distance from a stop on Route 6. It’s not clear.

The Questions & Answers report that accompanies every Council agenda shows that CM Jimmy Flannigan asked whether the parcel could be used for housing. Staff replied that 6-7 acres of it is “developable.” Staff estimated that transit access was 0.67 miles away, although it’s not clear what part of the property they’re referencing.

Regardless, if we had a ton of income-restricted housing on this property, perhaps Cap Metro would be willing to realign some routes to serve the new development.

Flannigan also asked whether land that is dedicated as parkland could ever become anything else. Staff’s response:

The property could not be used for non-recreational uses once it is dedicated parkland. Once this land becomes dedicated parkland, the City could not lease or sell the property without a voter referendum. If the City does decide to use the property for non-recreational uses, a Chapter 26 public hearing and Council action would be required before the use is changed to another city use.

My guess is that Council will vote to make all of this parkland. But hopefully both Council and staff has considered the potential opportunities for other uses, notably housing. We’ve got a $250 million housing bond to spend!

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Zoning and Platting strikes again

North Austin neighborhood associations have really been delivering some first-class development obstruction, aided and abetted, of course, by the Zoning and Platting Commission. As I’ve explained before, ZAP is very much the Planning Commission’s JV team, in more than one way.

Last night it was actually a member of the varsity team, Fayez Kazi, whose plans to subdivide his 23,500 square foot lot into two 11-12,000 square foot lots has drawn howls from surrounding neighbors. They don’t want to see smaller lots and they really don’t want to see “flag lots,” where one of the two units is in the back (connected to the street by a long driveway that runs past the front unit).

City staff happily recommended a variance to create the flag lot, but a bunch of neighbors signed a petition against it. Because more than 20% of the property owners within 200 feet of the property signed, it became a “valid petition,” meaning that the subdivision cannot be approved unless it receives a 3/4 majority from a land use commission.

Considering how innocuous the request is, I think it’s likely that this variance would have gotten a 3/4 majority if it had been heard by the Planning Commission. However, PC only handles properties that are within neighborhood plans, something that this part of town lacks. Instead, the case went before ZAP, where it went down in flames, not even getting a majority of the commission.

While the neighbors sprinkled in some concerns about flooding (rejected by city staff), the chief concern expressed was about “neighborhood character.” Robert Meadows, the president of the Walnut Creek Neighborhood Association (not to be confused with the Northeast Walnut Creek NA), said “it’s difficult to compromise on a flag lot” because allowing one would establish a precedent for city staff to allow more in the neighborhood.

He stressed that the neighborhood association was not “reflexively negative” to development and density, noting that they had supported two recent projects on N. Lamar Blvd: the North Austin Muslim Community Center and a 277-unit apartment building by Larry Peel.

However, said Meadows, Kazi’s property is in a “very particular, large-lot single family residence area.”

Other neighbors similarly denounced the destruction of the area’s character. Here are some examples from the case’s backup:

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One neighbor urged ZAP to consider the “human cost” of the variance, arguing that the two smaller lots would lead to increased property values, property taxes and the inability of current residents to pass their homes down to their descendants.

Ron Thrower, Kazi’s agent, emphasized that many other lots in the area have been subdivided over the years, and that there was even one lot (gasp!) as small as 7,600 square feet. The lots in green, he noted, were all platted under 15,000 square feet.

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Nevertheless, Commissioner Ann Denkler (Leslie Pool’s appointee), said that she had talked with the residents and reported, “They don’t want to see any lot under 20,000 square feet.”

As usual, most of the discussion, even from the developer’s side, focused on whether the proposal was in line with neighborhood character, not how it fit into the city’s long-term goals on environmental protection, mobility and affordability. But Thrower did throw this in:

“Human cost? Let’s talk about when is Austin going to understand that if you cannot take a half acre of land and divide it into two lots, where are you going to be able to do this? You guys approve thousands of lots every year in the (Extraterritorial Jurisdiction). All of that sprawl is coming at significant cost. We’re trying to bring the opportunity for another family to live approximately three miles from the city core.”

Kazi also spoke, saying that one of the leaders of the petition drive had “propagated scary rhetoric on social media” about the subdivision, including “this is how slums are created.”

I have not been able to verify those comments because I don’t have access to the private Facebook and Nextdoor groups that they were made on. I am trying to see if I can get access to them.

ZAP voted down the variance, 4-6-1. The only four in support were Bruce Evans (Flannigan), Abigail Tatkow (Casar), Sunil Lavani (Troxclair) and Nadia Barrera-Ramirez (Adler). Jim Duncan (Alter) abstained.

Unlike its zoning recommendations, which Council can disregard, ZAP’s denial of the variance is final. The project is dead.

This is one of many cases that displays the monumental blunder on the part of Delia Garza and Pio Renteria in appointing their ZAP commissioners. Both of their appointees have been reliable votes against more housing. Meanwhile, as Ann Kitchen has become more friendly to creating housing during her term, her ZAP appointee, David King, always votes with opposition to development.

If Renteria is serious about pursuing a pro-housing agenda on Council, he needs to appoint a new ZAP commissioner when Dustin Breithaupt’s term is up next month. The term of Garza’s appointee, Ana Aguirre, does not end until 2021. King’s term is also up next month, but I suspect Kitchen will keep him around.

While all of the political focus is on Planning Commission, it’s really ZAP that, at least from the perspective of most Council members, badly needs to be fixed.

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Monster quarter for apartment units

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A photo I snapped the other week downtown. This particular photo is of a hotel, not an apartment building. But you get the point.

Austin is in a housing crisis, and the city’s current land development code does not allow the city to build nearly as much housing as it needs, but there’s nevertheless plenty of development of multi-family housing going on.

Ryan Robinson, the city demographer, has reported that the last quarter of 2018 saw the highest number of new multifamily projects submitted for site plan review.  Thirty projects were submitted, totaling “well over 5,000 units.”

To be clear, not all of these units will ultimately be created. Projects could be abandoned for any number of reason.

The site plan process typically takes about a year, says Robinson. Unless a developer pays for expedited review or the project is a part of the SMART housing program and offers income-restricted units.

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As you can see, Robinson provides data going back to 1992. In his report he wrote that the last quarter of 2018 was likely the biggest for multifamily submissions since the mid-80’s.

What’s really remarkable if you look at the graph above is the enormous dip between 2009-2011, after the housing market was battered by the recession. There was also a big slowdown in 2003-04.