Taller Buildings Near Transit Would Cut Austin’s Affordable Housing Costs by $2.5 Billion
Allowing denser apartment buildings along Austin’s planned light-rail lines could slash the city’s affordable housing subsidies from $8 billion to $5.5 billion while meeting housing goals that current zoning makes impossible, according to a University of Texas study.
The findings address a critical challenge facing Austin. Housing costs have skyrocketed, with median home prices jumping 71% between 2010 and 2022 to $565,000. As the city builds its $7.1 billion Project Connect transit system, it faces the question of how to meet its ambitious affordable housing goals: 60,000 affordable units over 10 years, with 75% built along transit corridors.
UT graduate student Aodhan Hemeon-McMahon set out to answer that question in his study “Making TOD Equitable.” He also found that tax increment financing could potentially cover the entire remaining subsidy cost by capturing increased property values near transit stations.
Key Takeaways:
- Under 2022’s zoning rules, meeting Austin’s affordable housing goals along transit corridors would require $8 billion in subsidies ($933,000 per affordable home). It would still fall short of targets by hundreds of homes for lower-income households.
- Allowing denser buildings near transit (increasing multifamily zoning by two levels) would cut costs by 53% to $439,000 per affordable home by enabling homebuilders to include more market-rate homes that help offset affordable housing costs in the same buildings.
- Creating a special financing district that captures increased property taxes near transit lines could generate $2.3-$7.6 billion by 2045 (varies based on property value growth rates and assumptions), potentially covering the required subsidies for affordable housing, if combined with zoning changes.
The study analyzed 1,500 properties within a half-mile of planned light rail lines. Using local property values, construction costs, and typical financing requirements, the research identified which properties could most cost-effectively include affordable housing under three scenarios: current zoning, slightly increased density (increasing zoning by one level), or moderately increased density (increasing zoning by two levels).
Why current zoning fails to create enough affordable housing: Height and density limits along transit corridors severely restrict how many apartments can be built on each property. The area has only scattered multifamily-zoned parcels surrounded by single-family zoning, severely limiting apartment density and forcing developers to spread affordable homes across many expensive land parcels. Even with $8 billion in subsidies, the city would fall short of its affordable housing targets, specifically 810 homes short for households earning 30% of the median income and 1,044 homes short for those earning 60%. This happens because homebuilders can’t include enough higher-rent apartments to help cover the financial gap from affordable homes in the same buildings.
How zoning changes reduce the taxpayer burden: Increasing allowed density by just two levels creates a dramatic financial improvement. Austin’s apartment zoning runs from MF-1 (18 units per acre) to MF-6 (highest density). The study tested moving every multifamily parcel up two levels – MF-1 becomes MF-3 (54 units per acre), MF-2 becomes MF-4 (90 units per acre) – dramatically increasing how many apartments can be built on each piece of land.
This change would enable homebuilders to build 10,434 market-rate homes alongside affordable ones. This reduces the public subsidy needed by $2.5 billion, from $8 billion to $5.5 billion, while meeting more affordable housing targets. The cost per affordable home falls from $933,000 to $439,000 through this change alone, without any additional public funding, because market-rate rents help pay for affordable units in the same buildings.
How capturing increased property values and upzoning solve the affordable housing gap: Transit improvements typically raise surrounding property values. A tax increment financing (TIF) district would redirect a portion of this increased property tax revenue specifically to affordable housing. With conservative 4.85% annual property value growth (Austin’s 2021 rate), this approach would generate over $2 billion by 2045. With Austin’s higher 2017-2021 average growth rate of 9.51% and assuming higher property values near rail, this method could potentially fund the entire $5.5 billion needed to fund affordable housing goals—but only when combined with zoning changes that improve project economics.
The research revealed three solutions: increasing building heights near transit stations to cut per-home subsidy costs in half, establishing a dedicated financing district to capture and reinvest increased property values from transit improvements, and deploying anti-displacement funding to protect existing affordable housing while implementing these structural reforms. These coordinated approaches could transform Austin’s ability to create mixed-income neighborhoods along light rail corridors while significantly reducing the financial burden on taxpayers.
Photo of high rise construction in Austin by Larry D. Moore, CC BY 4.0, Wikimedia Commons.
