Wednesday, October 04, 2023

Building the New America and Texas' winning approach to housing supply and affordability

Our think tank, The Urban Reform Institute - A Center for Opportunity Urbanism, just released a new report, "Building the New America":

This new report examines the housing trends that are driving today’s migration of people and jobs, and suggests a strategy that better fits the aspirations of most Americans. 

You can download the whole report here.

It includes my sidebar on Texas' winning approach to housing supply and affordability, which I'm including in full below for this week's post:


Texas, renowned for its vast landscapes and independent spirit, has adopted a unique approach to housing development and affordability that sets it apart from many other states. Embracing a decentralized and market-driven approach, Texas utilizes three key strategies to keep housing plentiful and affordable:

  1. Texas does not grant counties restrictive zoning authority (only cities)
  2. Texas enables municipal utility districts (MUDs) to finance development
  3. Texas encourages the competitive growth of private master-planned communities

This distinctive approach has numerous virtues that contribute to a flourishing housing market that is significantly more affordable than most states. 

Texas does not grant counties restrictive zoning authority

Texas stands out among states by not granting zoning authority to counties, preferring a decentralized system that places greater power in the hands of property owners and developers. This approach fosters innovation, flexibility, and adaptability in housing development. Developers have the freedom to respond to market demands efficiently, resulting in a more diverse range of housing options that can cater to various income levels and preferences.  By not having zoning authority, developers are able to build homes and apartments without the restrictions that are often imposed by local governments. This has allowed Texas to build more homes and apartments than other states, which has helped keep housing prices down.

Instead of traditional zoning, neighborhoods are protected after development by private deed restrictions attached to the land and enforced by home-owner associations (HOAs).

Texas enables municipal utility districts (MUDs) to finance development

Municipal Utility Districts (MUDs) play a crucial role in financing development in Texas. MUDs are special governmental entities that provide essential infrastructure, such as water, sewer, and roads, to new communities. They issue tax-exempt bonds to finance these infrastructure projects, which are then repaid by homeowners through property taxes or utility fees. This financing mechanism allows developers to build necessary infrastructure upfront, expediting the development process and reducing risk and financial burdens on local governments. 

Like cities, MUDs build and operate water, sewer and drainage facilities; enforce water and sewer rules; enforce deed restrictions; collect garbage; hire law enforcement officers to protect MUD property; buy and sell water rights; finance roads and firefighting facilities; use the power of eminent domain on a limited basis; and own and operate parks and recreational facilities.   They have shown themselves capable of providing high levels of service for everything from wastewater and solid waste treatment to flood control and emergency services.

MUDs are tightly regulated by the Texas Commission on Environmental Quality, and they are subject to the same laws as cities and counties with respect to open meetings, open records, public bids, nepotism, elections, public official ethics, attorney general approval of bonds, investment of public funds, setting debt service and maintenance tax rates, limitations on expenditures of public funds, and conflicts of interest.

By leveraging MUDs, Texas promotes the timely development of new communities and the expansion of existing ones. This approach not only ensures that residents have access to essential services from day one but also encourages developers to create well-planned communities with amenities demanded by the market. The ability to finance infrastructure development independently contributes to the overall affordability of housing in Texas, as the cost burden is shared among residents over time, rather than being shouldered entirely by developers or taxpayers.

“MUDs have been crucial in allowing an adequate housing supply and keeping home prices lower than in other high-growth states. Without MUDs, or some other means of financing local infrastructure to accommodate a rapidly expanding population and escalating housing demand, new-home construction would be severely limited and much more expensive and overall housing costs would escalate. That’s what happened in such high-growth areas as California and Florida, where supply was constrained by local infrastructure development and highly restrictive, costly land-use regulations.”

- Dr James Gaines, chief economist of the Real Estate Center at Texas A&M University

Texas encourages the competitive growth of private master-planned communities

Texas is renowned for its thriving master-planned communities, which offer an enticing combination of amenities, housing options, and quality of life. These communities, developed by private entities utilizing MUDs for infrastructure financing, compete to attract homebuyers by providing well-designed neighborhoods, recreational facilities, parks, and commercial centers. By focusing on a comprehensive approach to community development, master-planned communities foster a high quality of life and a sense of belonging.

The competitive nature of these developments promotes efficiency and innovation, resulting in a wide range of housing options to suit different budgets and lifestyles. From affordable starter homes to luxury residences, master-planned communities provide diverse opportunities for individuals and families to find their ideal living arrangements. The competition between these developers has helped keep prices down and quality up.

In summary, Texas’ approach to housing development and affordability is unique in that it allows developers more freedom than other states. By not giving counties zoning authority, developers are able to build homes and apartments without the restrictions that are often imposed by local governments. Municipal utility districts (MUDs) also play an important role in Texas housing development by providing infrastructure funding without requiring upfront payment from developers. Master-planned communities have also contributed to Texas’ success in housing development by competing fiercely with one another to offer a variety of amenities at an affordable price.  These are the three essential elements of Texas’ housing competitive advantage.

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