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Could these three issues ruin Austin's real estate market?

Ryan Rodenbeck

Ryan started in Austin real estate as an investor in 2001. He looked at all investment opportunities — Austin foreclosures, condos, homes for sale...

Ryan started in Austin real estate as an investor in 2001. He looked at all investment opportunities — Austin foreclosures, condos, homes for sale...

Nov 20 7 minutes read

I had a client several years ago moving to Austin from California.  He told me that he was moving to get out of California because the real estate was too expensive, the traffic was too much to deal with and the local government was imposing too many taxes for local business owners.  He thought this could never happen in Austin, Texas.  Fast forward a few years.  I get a call from this same person and he asks a really good question: what do you think could hurt our local economy?  

Before we dive too far into this, let me begin by saying that Austin has very good reports all around on every economic indicator you can think of. As this business journal article reports, the unemployment rate dipped below 3% for the first time since 2000! Our housing numbers continue to increase as well, referenced in this report, boasting a 12.5% appreciation gain in central Texas.   

Our population growth shows no signs of slowing. As the ABJ reports, our population continues to boom, with Georgetown and San Marcos leading the nation in smaller cities with major growth. The interesting thing, though not surprising, is that two out of three people moving to the Austin MSA are moving to the outlying areas such as Buda or Leander, making population booms in the outskirts of Austin.  

Another great incentive for investing in Austin is the cost of rising rents. As we continue to struggle to keep up with housing demand, investors should continue to see rent increases, especially areas close to downtown where lots are scarce. The business Journal put out this map showing hotspots in Austin and their most recent rental rates. That article shows rates of 1 bedroom apartments, but duplex and single family home investors should see similar gains in rental rates as the apartment rental rates continue to appreciate.

So with all these great articles and news hitting the nation about how attractive Austin is in terms of growth, economy and jobs, the question I get the most is, “what are the threats to our local economy?”  

First and foremost: affordability. We talk about this all the time in Austin, and builders are constructing homes mostly in the $300,000’s and up, mainly due to what builders have to buy the land for. It has gotten much more expensive, especially in Central Austin. It’s not uncommon to hear amongst buyers from California that they were expecting to move to Central Austin and get a much bigger house than they were used to in Cali, only to be disappointed by Central Austin home prices.  

So what’s the cure for affordability? It is small-lot density.  As reported by the Austin Chronicle “This was recently ruled to be legal as an unintended consequence of an ordinance allowing the development of existing undersized lots which would otherwise be too small to build on. City staff recommends closing this loophole as bad policy and bad law, but the density-at-all-costs lobby has latched on-to it as an unexpected windfall: multiple tiny houses springing up where now there is one sprawling ranch house.”  The city council of Austin, however, shot this option down by repealing this loophole in the building code.

The next issue we have is traffic. Yes, the city seems to be making improvements to Mopac-olypse, but it’s far behind what needs to occur to keep up with population growth. Cap Metro has the Metrorail (which you never seem to see enough people riding in) and the buses, which at some times can cause problems. Have you ever seen a bus driving down the street with 5 people in it and they stop every 5 blocks? Hence the push from Cap Metro to drive awareness to their public transit. Whether the campaign will work is yet to be determined. It doesn’t help that Uber and Lyft left recently. Yes, there are replacements coming in but will the infrastructure be enough with the new companies to replace the old ones? We need to embrace innovative business that cure problems like traffic and affordability, not damper it.

And lastly, reputation. If you have been watching the local Austin news you know that the biggest debate lately has been the Uber/Lyft issues. If you haven’t, here’s a run-down on the issue. I’m not going to get into whether Austin is better off or not after Proposition 1 was voted down, but in the eyes of venture capitalists, Silicon Valley and business in general, we are growing a very dangerous reputation. With daily national articles coming out (like this one from CNN asking if we’re still the tech hub without Uber), it's a serious concern.  

First, the city put a moratorium on all investment short term rentals with a promise to phase all of them out in the near future. This was taken by many as a spit in the face in Austin’s own, HomeAway. Then there is the Uber/Lyft issue. Combine these issues with traffic solutions that are coming 5 years too late and a city permitting process that’s among the worst in the nation, and it could have serious repercussions on whether businesses choose us over other progressive cities in the nation.  

We’ve outgrown expectations year over year and the elected officials that govern our local economy tend to be seen as anti-growth, anti-business and anti-innovation. There seem to be two very different sets of people in Austin: “old Austin” and “new Austin.” Old Austin wants things to remain as they have been and is very outspoken about not wanting development or corporate influence in the city. They want the city to keeps it “small town” charm and look down on the tremendous growth that we’re going through now. They also don’t want to feel like they’re being bullied by corporate America which stemmed from Uber’s terrible campaign during Prop 1 that turned many people off. New Austin embraces these changes and wants to see the exact opposite.

The tech community, which is definitely new Austin, has now engaged in local politics, something that no one thought would ever be possible. The elections in Austin are going to get a lot more attention moving forward as these issues take center stage in a city that is now paying more attention to them than ever before. Where do you stand on these issues? And do you consider yourself “new” Austin or “old” Austin?

P.S. We’re updating our YouTube videos and posting our renovation projects regularly.  Please check us out here and click to become a subscriber.  We’d appreciate your feedback on any of the videos.  And don’t forget to like us on Facebook.  We’re going to be running a pretty cool give-away soon through Facebook. (Hint: Pack your bags!)

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