What happened in Austin

During the pandemic, my wife and I decided to move from San Francisco to Austin. We didn’t know this at the time, but that decision would give us a front-row seat to the most talked-about housing market events of the 2020s.

Recently, I’ve noticed a new story about Austin circulating in the housing space. In my opinion, the way that story is being told isn’t really credible. To explain, I’ll share what I experienced firsthand and why the more recent narrative doesn’t add up.

When the pandemic hit, I was living and working in San Francisco with my wife and three young kids. We lived in a 2-bedroom apartment, a short commute from my downtown office. Our space was small, but we spent most of our time out and about in the city, and we genuinely enjoyed it.

We’re all busy trying to memory-hole the pandemic, so I’ll spare you my stories of the first few months. Suffice it to say, when the city closed down and work from home became permanent, that setup no longer worked well for us. When my company announced an extended remote work policy, we decided it would be easier to ride out the rest of the pandemic — which, at that point, had no end in sight — closer to my family in the Austin area. We planned to stay for one year, then reevaluate.

We were also painfully aware of how much cheaper housing was in Texas. We’d been saving for years in hopes of buying something in California, so we had a big down payment ready. We decided that we’d try to buy a home instead of renting.

We started working with a broker in September, while we got ready to move out. We showed up to start touring homes the first week of October. When we made this decision, we were looking at online listings of homes that had been sitting on the market for months. Many had cut prices and still weren’t getting showings. We didn’t know that this was all about to change.

The weekend we arrived, we made an offer on one house for just under asking — they hadn’t had any interest, and they verbally accepted. Then, at the last minute, they got an offer for $2,000 more than ours and took it instead.

The second weekend we noticed more people out on tours. We didn’t love any of the homes we saw, so we didn’t make any offers. But on Monday we were surprised to see that most of the homes we’d toured were under contract. Something had shifted.

The third weekend we saw a house we really liked. We heard they’d already gotten multiple offers, so we made an offer for 10% higher than the asking price. We were outbid by someone who paid 25% over asking.

At this point, we were getting stressed. Our plan to hunker down near family was in danger. We spent the week strategizing, thinking about what was going on in the market, and decided to greatly expand our search.

We saw another wave of homes on the fourth weekend. Every one of them had sold by Sunday for more than their asking price, many of them selling for 10-20% over asking.

That Monday we went looking only for homes that had been on the market more than a week and hadn’t sold. We found a home in Austin’s Allandale neighborhood that looked nice. I flinched at the price. The owners had bought the home in 2017, they wanted 20% more than they’d paid.

We went to visit it and discovered why it was still on the market. The house was small, located in a floodplain, had no garage, and needed some work. After property taxes and insurance, the payment was higher than we’d been paying for rent in San Francisco. We offered anyway.

We closed on that house just after Thanksgiving, then did a bunch of repairs and a modest remodel. The work was still in progress when we moved in the week of Christmas.

By January, houses around us were consistently selling at 20-30% higher than we’d just paid. It felt like we’d snuck into the city just before the door slammed shut behind us. And, to be honest, I was starting to feel embarrassed to be driving around with California license plates.

In 2021, the mood in the city was conflicted. Many people felt the city was finally “arriving,” that this moment had been coming for a long time, and that the boom would continue indefinitely. Developers were scrambling to ramp up projects in response to the surge in demand. But many Austinites were unhappy about being displaced by a wave of Californians. I think this Austin Monitor article, from June, 2021, captures the sentiment well:

According to an analysis of moving van data by Zillow, those relocating to Austin in 2020 were most likely to come from one of three California cities: San Francisco, San Jose or Los Angeles.“For the price, (Austin homes) look like a much better, bigger deal,” [said Jen Martin, an Austin real estate agent]. “If you’re spending $800,000 on a condo or a really, really small home in the Bay Area and for $800,000, even in Central Austin, you can get 1,500 square feet and have a yard, it’s still a steal.”“Now you have local incomes really competing with very deep pockets that are, frankly, hard to compete with,” [said Ali Wolf, chief economist with housing market research company Zonda].…What one person considers a steal, David DeLeon considers stolen. Gone, he said, is his chance to buy a home in the neighborhood he lives and works in.DeLeon has taught English at Burnet Middle School in the Austin Independent School District for five years. Recently, he lost out on the chance to buy a home at a reduced price through an affordable housing program because his salary was just over the limit.Now he exists in this uncomfortable gray area: Earning just under $60,000 a year, DeLeon makes too much to qualify for help buying a home, but too little to compete with wealthier homebuyers.“The fact that I’m nowhere near being able to afford any of the houses near the school in which I teach – it just doesn’t make any sense to me,” he said.“At the end of the day, my heart’s here in Austin. I have so many friends and family who live here,” he said. “I would not want to leave if I didn’t have to … I’m just not sure what I’m going to do at this point, to be honest.”

The influx was real. The number of Californians moving to Austin roughly doubled in 2020 and 2021.

And regardless of where they came from, the out-of-state movers were arriving with much higher incomes.

In 2022, with the pandemic winding down, my wife and I felt ready to move on. I wasn’t surprised by this. Because I worked in tech and had family in Austin, we’d considered living there for years, and my wife had suggested it was “inevitable” that this was where we’d end up long-term. I joke that we had to actually live there long enough for her to understand why I disagreed.

But a lot of the Californians who moved to Austin apparently were surprised. As early as January ’21, this Business Insider article, “Ten things I wish I knew before I moved from California to Texas,” went viral. In part, I think it was funny for people to hear a rich and entitled guy from San Jose complain about things Texans don’t even think about. Heat, humidity, scorpions… what’s your point? But it also resonated because some of it was true. Property taxes in Texas are higher than in California (and that’s a good thing!), commutes are long (although I could have told that guy not to move to Bee Cave,sheesh), there’s not much “outdoors,” nor is there much public space, and people do, in fact, mostly live at home.

Conversations around town in 2022 included a lot of debate on whether Austin was “worth it” anymore. And at some point, enough people decided it wasn’t. The wave of move-ins ended.

That summer we listed our house for sale. Our broker was confident we’d sell quickly — he’d gotten multiple offers on a similar house down the street, and sold it for about 50% more than we paid, just the previous month. But the drop in migration and increase in interest rates meant the party was over.

Our house spent the whole summer on the market, then finally sold in the fall. After subtracting the cost of repairing, listing, and selling, we took a loss of several thousand dollars on the house. I’m not complaining, but sharing to illustrate how abruptly the market shifted on the way up, then again after the peak.

By 2023, this reversal was well-understood locally. The inflow of new residents slowed to a trickle, and by September more people were moving out of Austin than moving in.

In 2024, the City of Austin actually experienced negative net domestic migration for the first time in memory, although the suburbs continued to grow.

For an area that’s been booming for an entire generation, this was a significant drop in demand.

Unsurprisingly, if you look at the Zillow Home Value Index, we can see how that played out over the last several years. After the pandemic surge peaked in early 2022, prices have trended back down, though they’re still about 30% higher than in 2019.

A similar story played out in apartments, where new buildings started during the COVID rush have been opening as demand dropped, and rents have trended down as a result.

But as developers in Austin clamped down supply in 2023, that pipeline has also largely cleared, and the real estate industry is now reporting a return to rising prices. Just to quote a few headlines from this year:

• From the Wall Street Journal back in February (before the Pew study came out!): “Once America’s Most Affordable City, Austin Is About to Get More Expensive”)
• From Realpage, in July: “Rents increase in Austin for the first time in nearly four years”
• From Northmarq, in August: “Austin multifamily rents begin to reverse a three-year slide”

Why do I feel the need to tell this story?

This year I’ve seen an increasing number of stories in the housing advocacy space trumpeting the success of supply-side reform in “lowering the rent” in Austin. As far as I can tell, the discourse started in March with a Pew study titled “Austin’s surge of New Housing Construction Drove Down Rents,” which was more recently amplified by CA YIMBY in the more provocatively titled “Austin Added 120,000 Homes, and You Won’t Believe What Happened Next.”

This narrative has spread pretty widely, and I now see a lot of casual mentions among housing advocates where “what happened in Austin” is becoming shorthand for “build apartments → rent goes down.” And I think that’s so oversimplified that it strains credibility.

First, you won’t find any mention of the drop in demand in Pew’s study, nor in CA YIMBY’s follow-up piece. Surely if we believe that supply and demand are what determine housing prices, a significant drop in demand plays a role? And why are we not celebrating the enormous supply contributions of everything outside of Austin?

Second, the supply backlog is presented as if this is a novel conclusion, but no one in the Texas real estate industry doubts that supply lowers prices. In fact, they see this as a problem, and they were sounding the alarm about it back in 2023.

“It’s the worst housing market in the country really,” said Scott Everett, CEO of Dallas-based S2 Capital, on a recent podcast.…The capital city has 80,000 to 100,000 apartment units under construction, Everett said.“That would be a serious issue if you’re adding only 30,000 people, and that will crush rents,” Everett said.

(Via The Real Deal, Real Estate News, June 2023)

And the industry did exactly what it always does when demand drops.

Running through his firm’s Texas multifamily research data, Institutional Property Advisors’ Greg Willett set the state of play.Behind the slowdown in rents is an influx of supply. Each metro area is expecting huge increases to its apartment stock as units come online in the next 18 months. Dallas-Fort Worth is expecting 73,000 new units, the most of any American city, while Austin will get 46,000, Houston will add 39,000 and San Antonio expects 17,000.But the effects of the increase may soon wear off. “Construction starts just went off the end of a cliff,” Willett said. In each city, starts have plunged in recent months as it has become increasingly difficult to close on financing.

(Via The Real Deal, Real Estate News, August 2023)

By 2024, it was clear locally that the extra supply was benefiting renters, but the pipeline that was producing it had dried up.

To me, Austin looks more like evidence against the idea that supply alone is a viable path to lower prices. Our housing industry, and our entire financial system, pull back when prices go down.

Now, we can narrowly tailor our definition of success to claim that housing costs are lower today relative to a counterfactual where no housing was built, and I’m sure that’s true. But I don’t think anyone in Texas doubts that either.

You can also say that housing costs are lower than they were in 2021, but, given how unusual the COVID migration was, I don’t think that proves any more than me saying I can now buy toilet paper at Target again.

Lastly, adopting this Austin story as a simplified shorthand for success, when locals are still being priced out, and rents and prices in Austin are starting to climb again, seems likely to cost housing advocates credibility. And I don’t want Austin’s housing advocates to lose credibility, because I think Austin’s zoning reforms have largely been moves in the right direction, and I want them to continue!

If you want to tell a convincing story about what policy change accomplished in Austin, I’d point to how many apartments were built in high-demand, central locations, instead of the suburban periphery where they certainly would have been built had Austin not reformed zoning to allow more infill. Thousands of people opted to live closer in when the choice was available to them — that’s a real and meaningful improvement over the status quo of 20 years ago.

Beyond that, if we want to escape the Housing Trap, we have more than zoning to fix.

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In Texas, there’s just not much to do outside, and not as many public social spaces, so people prioritize having a big house with a lot of indoor activities. People try to have game rooms, media rooms, Lego rooms, or whatever floats their boat. Then a large percentage of social time is having people over to your house to hang out, or going to their house.

By contrast, my experience in California was that people mostly socialized by going out in public together.

I’m not going to argue that one is better than the other, but I will observe that most people aren’t aware of this cultural difference, so Texans see the small houses in California and think “how can you live like this?!” while Californians go outside in Texas and think “how can you live like this?!”, and they’re both kind of right.

If you want a more general sense of what it was like, this Reddit thread captures the vibe in 2022 pretty well.