Austin ‘McMansion’ Ordinance Squeezes Home Owners
Responding to a local “McMansion” ordinance that went into effect last fall restricting the size of housing, the Home Builders Association of Greater Austin last week released the results of an impact study substantiating how the new regulation will drastically increase costs for home owners at the same time as it takes a big toll on economic activity within the city’s limits.
The ordinance is increasing the cost of new homes and remodeling projects, makes improvements difficult to finance and limits the ability of home owners to sell their property, according to Impact DataSource, an Austin-based economic research and analysis firm. Also troubling, the study concluded that the ordinance will reduce the dollars pumped into the Austin economy and its job creation.
“The new residential standards make urban projects more complicated and more expensive,” said Jerry Walker, principal of Impact DataSource. “Regulations could add as much as $75,500 to the cost of remodeling and constructing a new residence in the affected area, further pushing middle-income residents to areas outside of Austin and contradicting the city’s stated urban density goals. Young home owners trying to upgrade or move to large houses to accommodate their growing families are getting squeezed the worst.”
The city ordinance limits development plans for owners of lots in six specific zones and 48 neighborhoods.
The study evaluated the impact of the restrictions on four properties, demonstrating an average loss of $229,888 of real property improvements, a $5,806 annual loss to local taxing districts per property and reduction in possible construction to an average of $451,375 per property.
In total, of a possible 110 similar infill redevelopment properties listed for sale on Oct. 31, 2006, improvements not added to tax rolls could equal $25.2 million. Home owners would lose $12.8 million in their share of actual and projected market value, resulting in a further loss of $638,614 in annual tax revenues from these properties.
In one of the four properties, the ordinance has created uncertainty for the purchaser of a $165,000 lot who planned to construct a duplex on the property that would then be converted to two condominium units. The ordinance has reduced the size of the allowable first unit from 1,775 to 1,287 square feet and has imposed a similar limitation on the second unit. The total buildable square footage for the project has been reduced by 1,095 square feet — from 3,642 to 2,547 square feet, increasing construction costs from $150 to $160 and the project cost from $195 to $225 on a square foot basis. The estimated gross sales price for the project drops from $711,000 to $572,000 — a loss of $210,000.
The research also concludes that home owners will find it difficult to sell lots that are smaller than 10,000 square feet.
“Classic 50-foot by 125-foot properties in areas such as Hyde Park have a high value for land and smaller proportionate values for current improvements,” Walker said. “A potential buyer will find it difficult to obtain financing because lenders require a traditional relationship of a small value for land and a large value for improvements.”
“In the end, this is about property rights,” said Eric Perkins, president of the HBA. “A city shouldn’t be able to decrease the value of your property or increase the difficulty to sell it as a result of legislating ‘good taste.’”
To read the study, click here, or call 512-454-5588.