The real reason house prices are so high in Austin
Austin has some of the most expensive housing of any non-coastal city in the US. Because coastal cities can only build out from their downtown in one direction they are naturally more expensive. Austin on the other hand has never ending land in every direction to build on. The Hill Country to the west adds extra building costs but anyone who lives there can tell you that it’s growing as fast as any part of Austin.
If there’s so much available land to build on why isn’t housing as cheap as fast growing cities like Dallas, Atlanta, Orlando or San Antonio? Many people blame difficult permitting processes, antiquated development rules, Not In My Backyard resident attitudes and bureaucratic red tape. While those may contribute to the problem, the greatest factor is something critics rarely talk about.
According to a 2015 report by City Observatory, Austin has a higher concentration of jobs in the city center (within 3 miles of downtown) than any major city in the US. As the city grows it’s just getting more pronounced. Between 2002-11, Austin also had the fastest city center job growth of all the major cities.
Here is a sampling of cities:
What does this have to do with the cost of housing?
The number one priority for most home buyers is to be close to their jobs. Most cities have a cost premium to be closer to downtown. The higher the concentration of jobs the higher the premium will be for nearby housing.
Job concentration is only half the equation of Austin’s affordability problems. The other half is accessibility. As the average price of homes in the Austin city limits pushes past $400,000, there are many new homes being built within 10-20 miles of downtown for under $200,000.
Central Austin has several true gems that will always draw people in. The University of Texas, the State Capital and Lady Bird Lake are three permanent features that cannot be replicated anywhere else in the region. While there is no formal plan by the city of Austin to constrict access to these great attractions, they are fully aware if they built an 8 lane freeway or very efficient transit system to the suburbs from downtown, those less expensive areas would explode and quickly devalue the homes closer to central Austin.
I’ve lived in Austin for 25 years and the only change I’ve seen in access to central Austin is one new toll lane on Mopac and a single train line that only runs north. (And sadly doesn’t run on Sunday which I unfortunately learned a few weeks ago when I was headed to the Pecan Street Festival.)
What does this mean for Austin?
The saying in real estate goes “keep driving until you can afford it”. When it comes to commuting people don’t think in terms of distance but more in time. 10 miles at 60 miles an hour is a short drive to work whereas 10 miles at 10 miles an hour is an exhausting commute. Even the metro line from start to finish takes an hour and 14 minutes, one way. I rarely find home buyers that are willing to travel more than an hour each way to work. By constricting accessibility to central Austin, the city is pressuring residents to live closer to downtown.
A perfect example of this would be all the residential towers being built downtown. Have you ever wondered why a smaller city like Austin happens to have the two tallest residential only towers (now that the Independent ‘Jenga’ tower has topped off) west of the Mississippi? That includes uber expensive real estate cities like LA, San Francisco and Seattle.
To Austin’s credit the restricted access has been successful. In a positive feedback loop, the higher residential density is drawing in more employers who want to be closer to those workers which in turn draw in more residents who want to be near those employers. That’s a major reason why Austin is number one in central city job growth. Of course positive feedback loops are unsustainable. At some point something breaks down and in this case it’s unaffordability.
I love living in Austin and am not passing judgement on their intentions to keep their property values high by restricting access from people outside the city. After growing up in sprawling Phoenix, I appreciate what Austin is trying to do. Austin has an incredibly vibrant downtown for a city its size and am looking forward to heading there tonight for dinner and the latest light installation on Waller Creek.
In order to truly address the affordability problem the City of Austin may have to give up some growth and property tax revenue to the suburbs but it might be better for everyone in the region if they did.