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Construction put on hold for hundreds of affordable apartments in Austin

Tall buildings downtown are reflected in the water of Lady Bird Lake
Michael Minasi
/
KUT
A delay in the construction of two affordable housing projects is another setback to the city's goal of bringing tens of thousands more affordable apartment units to Austin by 2027.

Two housing projects that would have created more affordable apartments in Austin have been put on pause — and city leaders say that financing complications are to blame.

The two developments, at Ryan Drive in North Austin and Frontier Valley Drive in Southeast Austin, would have provided affordable housing along with access to public transit, parks and commercial space for residents.

The projects would have brought some relief to the city's years-long affordable housing waitlist. The delays are another setback to the city's goal of bringing tens of thousands more affordable apartment units to Austin by 2027.

The pause on these two projects comes just two weeks after the city announced a stall on another development that would have brought more affordable housing to Austin, HealthSouth. The city terminated that agreement because the developer could not meet the goals of the project. According to a city memo, the developer claims market conditions have made the project unfeasible.

Together, all three projects would have brought around 1,400 apartments to the market, more than 450 of which would have been set aside for residents who qualify for affordable housing.

To qualify for affordable housing in Austin, residents have to earn at or below 80% of the area's median family income. For a family of four, for example, that is $93,450 or less annually.

Ryan Drive development

Last year, the city entered into an agreement with 3423 Holdings to build an apartment complex on 5.5 acres of city-owned property at 6909 Ryan Drive. The site would consist of 250 to 450 apartments — at least 50% of which would be affordable — with access to green space and commercial space. The North Austin property is also adjacent to the Crestview MetroRail Station.

The city announced this week that the development agreement for Ryan Drive was terminated by the developer in May, forcing the city to look for a new development partner and restart the process, which could add at least three more years to the buildout.

Christine Maguire, redevelopment division manager for the city's Economic Development Department, said the developer terminated the agreement because current market conditions made the goals of the project unfeasible.

“It's unfortunate, but this enables us to move forward and reset,” Maguire said.

Developers have said the cost of materials, labor and land have significantly increased in recent years, making it more expensive to build. Construction costs, increased 14.1% from 2021 to 2002, according to CBRE, a real estate developer that tracks development trends.

But Walter Moreau, who leads the affordable housing nonprofit Foundation Communities, said the problem is also that the city’s competitive bidding process incentivizes overpromising.

“The developer that wins is the developer that promises the most stuff, even if it's not realistic,” Moreau said. “The assumption is that we'll win the deal and then renegotiate. But something has to change, because the winning team promised a lot and then didn’t deliver.”

He said it is more expensive to build affordable housing than it was a few years ago, and construction is taking longer. And the longer it takes the more expensive it gets.

“But it's not correct to say that the market conditions changed and that is why everything is not happening,” Moreau said. “The story of these public projects, I think, is often much more complicated and unique than just market headwinds.”

This week, the city is expected to sell the Ryan Drive property to the Austin Housing Finance Corporation, a nonprofit housing development arm of the city, which would open more opportunities for funding and development partners.

The corporation will buy the property for $3 million. From there, the corporation plans to solicit new development partners, a process expected to begin toward the end of the year. Maguire said the goal is still to create apartments, some of which would be affordable.

Jamey May, who helps lead housing and community development for the city, said that this time to find a developer, the corporation plans to shift to a request for qualifications process, which focuses more on experience, rather than a request for proposals, which is a detailed cost estimate and project scope.

“We are making sure we have the right people at the table this round, as opposed to who can put together the prettiest pictures,” May said.

Frontier Valley Drive development

The decision to pause the Southeast Austin project at 1418 Frontier Valley Drive also stemmed from financing issues — but not market conditions.

The project was to construct 101 apartments, about half of which would be set aside for people who qualify for affordable housing. About 28 of those units would be considered "deeply affordable," or for families making up to 60% of the area's median family income — that's $70,080 for a family of four.

The project is being constructed through the Housing Authority of Travis County and needs permission from the city and the Housing Authority of the City of Austin to operate in the city limits. But the project was not recommended to move forward by city staff in late June.

The project is operating under a deal that gives the developer a tax break in exchange for putting affordable housing on the site. The deal entitles the property to a 100% tax exemption for the entire term of the agreement. The term is 75 years.

But city staff said the project did not provide enough community benefits, including location, a significant amount of deeply affordable housing and adequate park space, to warrant the tax exemption.

In the first 15 years, the development would generate $6.8 million in property taxes and approximately $109 million over the 75-year term, according to city documents.

“That has a direct fiscal impact on the city of Austin,” May said.

May said the developer will go back and reevaluate options. He said the city hopes more of those community benefits can be added, but ultimately the developer can build however it wishes within zoning and code rules. There is no timeline on when the developer will come back to the city with new plans.

Austin's affordable housing goals

Despite the setbacks, May said the city is still working to meet its affordable housing goals. In 2017, the City Council adopted the Strategic Housing Blueprint, a 10-year plan to build 60,000 affordable apartments across Austin — a target the city is behind on.

According to a 2021 report from HousingWorks, only 7,601 affordable apartments have been built since 2018.

But construction is happening.

In 2022, there are 22,400 affordable apartments in various stages of construction. In the last eight years, the supply of subsidized affordable housing has increased by 155% across Austin as a whole, city officials said.

City leaders say they are working to get these projects back on track. But it could still be several more years before those apartments become available.

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Luz Moreno-Lozano is the Austin City Hall reporter at KUT. Got a tip? Email her at lmorenolozano@kut.org. Follow her on X @LuzMorenoLozano.
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