Discussing Austin’s Two Major Issues: Affordability And Transportation

Austin’s wild success is creating some challenges, and panelists at Bisnow’s Austin State of the Market yesterday didn’t shy away from the tough topics.

Austin Mayor Steve Adler’s chief of staff, John-Michael Cortez, says Austin’s tremendous growth isn’t benefiting everyone equally, and maintaining affordability is an important part of keeping the soul and quality that’s sparked Austin’s success. Austin’s job growth has been in an hourglass—lots of top-end high-skill/high-paying positions and lots of low-end service spots—which comes with challenges in affordability and infrastructure.

But there just isn’t a market force making affordable housing work, Gables Residential director Jennifer Wiebrand asserts. (We snapped her with Gracy Title’s Bob Roberts.) It’s a public benefit—renters are paying up to 50% of their income on rent in some pockets of Austin—but the economics keep projects from happening. She feels the city is doing as noble a job as it can, but developers need more government- or community-sponsored programs to build more. Taxes are the biggest cost of multifamily, ARA Newmark executive managing director Pat Jones says, so abating those would get more developers to build affordable projects. But the city and general population freak out if people start discussing abatements.

One more challenge: Berkadia senior managing director Brant Smith says affordable housing is overregulated, making it nearly impossible to work with the government to build.

One way developers are trying to help affordability is building micro-units. Cadence McShane VP Srinath Pai Kasturi is working on two such projects, one in Austin and one in San Antonio, with units around 375 SF. The format allows developers to charge around $2/SF to keep yields high and combat land prices, but rent for the apartment will stay below $1k/month, making it reasonable for residents. Another perk: International investors like these projects, Srinath says. That’s all good for young professionals, Brant says, but doesn’t address families. He says the lack of affordable family housing is one of Austin’s biggest issues.

Pictured is our whole multifamily panel: Berkadia senior managing director Brant Smith, ARA Newmark executive managing director Pat Jones, Srinath, CohnReznick partner Mike Celkis and Gables Residential director Jennifer Wiebrand.

Austin’s transportation woes are affecting every development decision, Momark Development president Terry Mitchell says. He wouldn’t build on I-35 because people see it as an unusable corridor. The problem is that “we have no money.” The projects in the Campo 2040 plan cost $34B, and although Austin will fight for some of the federal government’s new $305B transportation fund, it’s hard to get big chunks. TxDOT has been $5B short per year, according to a November 2014 report, and although its budget got upped, new legislation separated it from mingling funds with tolls, so its funding shortfall has actually grown. As a developer, he’s assuming there will be no transportation relief anytime soon.

John-Michael says Austin’s growth concept is about centers—you can’t just have one business district. But you also can’t just plop down a job center; you need infrastructure and connectivity and housing. Terry concurs, saying people will live farther out to avoid traffic, but they still want connectivity and amenities. That’s driving the success of places like Domain, Round Rock and Plano. Austin planned for those to be like additional downtowns, sometimes entitling them like Downtown, but transportation/infrastructure still needs to catch up.

We’ve got plenty more from our panels; check back next week for more coverage!