Texas Housing Market To Change in September: What To Know

Newsweek

18 hours ago

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Texas lawmakers trying to solve the state's housing affordability crisis passed a bill during the last legislative session that experts say will be a "game-changer" for the development of multifamily homes.
Senate Bill 840 or SB 840, which was introduced by Republican state Senator Bryan Hughes and signed into law by Governor Greg Abbott in June, would streamline the process of turning non-residential commercial buildings in the state into mixed-use and multi-family residential ones.
Under the new legislation, any land that is already classified as a zone for office, commercial, retail, warehouse or existing mixed uses could be turned into mixed-use residential housing without the need for a zone change. Essentially, the legislation does away with a process that some have complained can be time-consuming and expensive—at least in some cases.
The mixed-use housing and office property The Republic is seen undergoing construction downtown on October 9, 2023, in Austin, Texas.
The mixed-use housing and office property The Republic is seen undergoing construction downtown on October 9, 2023, in Austin, Texas.What To Know About The Bill
"SB 840 aims to tackle the state's widening housing shortage by allowing underused commercial land and buildings to be repurposed for multifamily development 'by right,'" Fawaz Bham, real estate law expert and partner at Dallas-based law firm Hunton Andrews Kurth, told Newsweek.
"More pointedly, it rebalances the power dynamic between developers who are eager to create new mixed-use projects or convert existing commercial properties against the desire of municipalities to closely negotiate, guide, and shape build sites in their cities," he said.
The bill applies only to cities with more than 150,000 residents that are in a county with more than 300,000 residents. That means that the legislation will impact less than 20 cities, including the Texas capital, Austin, where proposals to add thousands of units to two sites—almost 900 residential units 200 East Riverside Drive and up to 2,400 in Anderson Square—have already been approved.
But SB 840 does more than reforming zoning regulation. It also prohibits certain restrictions on density, building height and parking for multifamily and mixed-use developments.
Under the bill, municipalities cannot require more than one parking space per dwelling unit or a multilevel parking structure. They must allow the multifamily density to be the highest allowed in the municipality or 36 units per acre, whichever is greater; and the heights limits must allow the greater of the highest height allowed on the side by the zoning code or 45 feet.
"By removing these barriers for the repurposing of these vacant and underutilized properties, the legislature has opened the door to a significant opportunity for developers to meet the ever-growing housing needs in Texas," Clay B. Pulliam, partner at Dallas-based law firm Troutman Pepper Locke, wrote in a recent report assessing the bill.
The bill is expected to go into effect on September 1, 2025. Newsweek contacted Hughes for comment by email on July 4 for comment.
How The Bill Could Change Texas
Real estate experts believe that the bill will spark a "revolution" in the Lone Star State's multifamily market, where it is being hailed as a likely "game-changer."
The most significant impact of the new legislation would be to allow developers in the state to utilize vacant or underutilized office buildings—which became a problem for some cities in the state, like Houston, during the pandemic years—retail centers and warehouses for multifamily housing.
"There are suburban and infill areas with empty big boxes or underutilized retail and office buildings which have become acquisition targets as developers realize the potential upside of SB 840 and other companion bills that have recently passed," Bham said.
Julia Parenteau, Director of Public Policy at Texas Realtors, told Newsweek: "While commercial conversions are a more niche issue, I'd anticipate the allowance of mixed-use and multi-family by right in certain zoning areas will have a positive impact by way of more multi-family housing developments going onto the market in the coming years.
"Additionally, zoning by right shaves approximately 18 months off the time frame for development, allowing the conversation to focus on what amenities and designs the municipality wants or needs in the development, not whether the project is feasible."
This infusion of new inventory could, in turn, help first-time and lower-income homebuyers in the state, as multi-family homes tend to be more affordable than single-family housing.
"SB 840 is part of a broader suite of bills that the legislature passed, all designed to infuse the market with additional supply so that affordability improves for Texans," Emily Brizzolara-Dove, a policy adviser at Texas 2036, a nonprofit, nonpartisan public policy organization dedicated to improving lives and opportunities for all Texans through 2036, told Newsweek.
"Home prices in Texas have gone up 35 percent, 40 percent since the beginning of the pandemic, and that is simply unsustainable," she said. "Housing affordability is really one of our biggest competitive advantages in the state, but that is a very tenuous advantage. Ohio has cheap houses, too.
"So, if our housing supply gets to the point where families are really cost burdened by their rent and by their mortgage, we are at risk of losing that competitive advantage."
SB 840 helps Texas build more housing where people want to live, Brizzolara-Dove said, by essentially reducing red tape. The big impact of the new legislation, she said, is going to be allowing residential in commercial, retail and warehouse zones—areas that are already developed and which would become more livable, more walkable, and more-resident friendly once more homes are introduced at little to no additional cost, as key infrastructure is already in place.
"When you can do something that will make a really significant impact on housing prices for Texas families, and you can do it with no fiscal note, then you're in a good spot," Brizzolara-Dove said.
'The Devil Is In The Details'
Bham, however, said that whether the legislation would work to fix the Lone Star State's shortage of affordable homes would still depend on how the market reacts to it.
By cutting red tape and slashing costs, SB 840 should be able to attract developers willing to pursue new housing projects, but they will still need to ensure that any project is "still economically fruitful, financially viable, and sustainable in the long-run to secure investors, financing, and—ultimately—paying renters," Bham said.
Real estate experts also worry that the bill could also have a negative impact on the Texas housing market.
While Pulliam says that the bill does "an admirable job of addressing the bottlenecks and administrative burden of converting properties to residential uses," he warned that the legislation might have some unintended consequences.
"Zoning ordinances are often cumbersome and sometimes antiquated, but the framework that these ordinances provide gives some degree of certainty to property owners, residents and the municipalities themselves," he said.
"For example, no consideration has been given to the impact on public schools when these additional projects result in an influx of students. Will dispensing with the need for traffic studies or traffic mitigation measures create more congestion? Developers who have invested heavily in entitling their multifamily projects must now compete with developers who can skip that entire process. Will owners of existing multifamily or mixed-use projects be at a disadvantage to those who can now bypass barriers to entry quickly and without cost?" he asked.
Weston B. Rockers and Benjamin W. McKay of Polsinelli, on the other hand, are concerned about the potential for a sudden surge in converted multifamily to devalue existing multifamily properties and/or saturate the multifamily housing market in some municipalities.
"As multifamily supply increases, developers relying on exclusive and/or isolated multifamily zoning classifications will experience less demand," the two wrote in a June report.
At the same time, the single-family market could also suffer, they say, as reclassifying commercial sites to multifamily "has the potential to devalue single-family homes, which were planned or developed in close proximity to commercial developments."
Brizzolara-Dove remains optimistic about the impact of the bill, even as she admits that "the devil is in the details when it comes to implementing these bills, and there is no state agency oversight of them."
It will be "all down" to the municipalities, she said: "We will be able to see in a year from now how the cities have implemented [the legislation], if they are fully embracing the law and if changes would need to be made—and they likely will."