Texas Looks To The Free Market To Tackle Housing Costs

Texas has done such a great job of attracting residents and businesses that some negative side effects of this success are starting to show. Consider high housing prices, which hit public-sector workers in major cities, such as police officers, fire fighters, and teachers, especially hard. Thankfully, the Texas legislature is considering a variety of reforms this legislative session to ensure that the state remains a top destination to build a career and raise a family. And, in typical Texas style, they’re doing so through reforms that embrace the free market.

HB 3921/SB 1787, sponsored by Rep. Goldman and Senator Bettencourt, lowers the minimum required residential lot size in large municipalities, similar to bills that recently advanced in Montana. In other words, the bill allows developers to get permits to build houses on smaller lots, which would lower housing costs by increasing supply in high-cost areas. Importantly, the law would not require a smaller lot—it would simply allow a smaller lot for private property owners who want one. If a neighborhood decides that they prefer larger lots, then they can create a homeowners association and set an agreed upon larger minimum.

Legislators at the capitol in Austin do not have to look far to see the results that their reform would have on Texas housing costs. About 25 years ago, Houston reduced its minimum lot size for central neighborhoods from 5,000 to 1,400 square feet. The policy was so successful that Houston extended the lower minimum lot sizes to outer neighborhoods in 2013. Far from leading to tiny, rundown shacks, this change coincided with only about a one-tenth decrease in home sizes. What did shrink were the yards, which many people do not value when land is expensive, and the prices, which this change cut by 20 percent over a decade. And San Antonio’s minimum lot size within the loop is already below the bill’s proposed level at 1,250 square feet. Alternatively, Austin, where the housing crisis is the worst, has a minimum lot size of 5,750 square feet.

Another law HB 2789/SB 1412, sponsored by Rep. Holland and Senator Hughes, allows homeowners to build accessory dwelling units (ADUs) by right. This means that cities cannot require extra permitting steps that give them discretion over approval.

Texas lawmakers understand the importance of community and family. By allowing for ADUs (sometimes referred to as in-law suites or granny flats), it will be easier for Texas families to stay together in the neighborhoods that they grew up in. With ADUs, a grandmother who struggles to afford senior care or a child with special needs can live affordably and close to their family while maintaining their independence.

Following the debate over these reforms, it is clear that opponents push the false claim of a “war on the suburbs.” What they fail to realize (or purposely obscure) is that nothing in these bills requires smaller lots or the creation of ADUs. And these bills do not override local zoning requirements, meaning that new neighborhoods can still be zoned for single family homes and existing ones can keep that designation. There will be no new high-rise apartment buildings going up in the middle of suburban neighborhoods under these changes. Nor do they bypass local deed restrictions, homeowners associations, and historical designation. If the bills become law, where permitted, housing builders and homeowners will simply have the option to save money by paying for less yard space or expand their living area by adding a smaller additional unit in the yard.

Beyond local restrictions on expanding housing supply, permitting bottlenecks add additional, unnecessary costs to homes. Speaker Phelan prioritized HB 14, introduced by Rep. Harris, to tackle this problem by allowing certified engineers and architects to approve site plan reviews after a designated period of time. For developers, extra time turns into extra costs charged to home buyers. In Austin, for example, it takes one to two years to simply secure a site plan review, while Dallas builders say that the process takes more than five months. Research shows that a four-month delay in permitting adds 5 percent to a home’s final price tag, so speeding up these reviews through private-sector approval will make a major dent in housing costs.

Another complaint made by opponents of housing reform is that the state is trampling on local control. Local control can be beneficial, but not when city policies directly burden Texans. As the Texas legislature and Governor Abbott have shown on issues from firearms and trees, to policing and homelessness, local preemption does nothing to limit federalism, which ensures that political power lies primarily with the state. Local control was intended to protect people from overreach from the federal government—it was never intended to let cities push housing out of reach for working- and middle-class Texans. If most cities throughout Texas can accommodate responsible housing growth, then there is no reason for a handful of cities to not do so.

Texas has experience overruling local rules to make housing more affordable. In 2019, the legislature took away municipalities’ ability to mandate masonry or other building facade designs. While the bill faced strong opposition, as do the bills from this session, it did not lead to communities having no say over the character of their neighborhoods. It simply stopped cities from inflating the cost of housing through unreasonable design requirements.

Texas is not alone in taking on high housing costs stemming from attracting so many new residents. Utah legalized ADUs in 2021. And, over the past few years, Senator Anderegg has led successful efforts to tie Utah’s state funding to municipalities enacting pro-growth housing policies. Across the country, Florida’s “Live Local Act,” a top priority for Senate President Passidomo, was signed into law last month. Besides preempting local rent control (an unmitigated failure that drives up housing costs), the law encourages building attainable housing by requiring municipalities to authorize and expedite certain mixed-use and multi-family development when enough of the units meet affordability criteria. Florida already allows third-party reviews and has seen no negative effects on public safety nor housing quality.

Texas has boomed because legislators did not shy away from taking on tough challenges to keep the state welcoming to working- and middle-class families. As the state continues growing and housing prices climb higher and higher, it is welcome to see the Texas commitment to families, businesses, and free market principles staying strong.