New Law Will Spur Texas Housing Development — Unless Cities Have Their Way

A new law allowing by right multifamily housing development is being put forward as a fix for Texas' housing supply. Developers see an opportunity to densify existing mixed-use projects and convert underperforming office buildings.

But some of the state’s biggest cities are scrambling to neutralize it, which means the window to capitalize could be small and the impact on Texas housing supply could be underwhelming. 

“It's probably only a matter of time before at least some larger municipalities figure out how to legislate around this to dull the corners [and] take off the edges of this bill to pull control back,” Project Management Advisors Vice President Matt Silvers said.

While many Texas cities, especially booming suburbs, have used their future land use plans and zoning policies to dissuade multifamily development, they may need to adjust to seeing a lot more apartment projects when Senate Bill 840 goes into effect in September. 

Under the new law, signed by Gov. Greg Abbott in June, developers will be able to add multifamily housing by right in areas zoned for commercial property. There will be no need for public hearings, variances or any zoning processes as long as developers are in cities that have populations greater than 150,000 in counties with more than 300,000 residents. The policy also sets minimum density and parking standards.

More than half of the 19 cities affected by the law are in North Texas, where pushback against multifamily has long been fierce. Austin, San Antonio, El Paso and a handful of other major metros fall under the policy. Houston is large enough for inclusion but isn't affected, as the city has no zoning regulations.

“It's going to be very helpful for multifamily developers that historically have had issues getting units on the ground,” Northmarq senior associate William Rosatti said.

The bill was devised as a way to address the state’s worsening housing shortage. From 2013 to 2022, the number of homes needed grew by more than 240% in the Houston metro and more than 350% in Dallas-Fort Worth, according to housing policy organization Up For Growth.  

Around 50,000 multifamily units were permitted in the state last year, with many facing delays due to zoning disputes. The implementation of SB 840 could help increase that number by 20% to 40% in 2025, according to Steve Triolet, senior vice president of research and market forecasting at Partners. 

“In the DFW Metroplex, SB 840’s streamlined approvals could launch dozens of multifamily projects across 11 cities by year-end 2025, transforming vacant commercial spaces into homes before local rules tighten the reins,” Triolet said in an email.

The state’s biggest cities affected by the new law are likely to experience the most activity due to their large commercial zones and high demand, he said. Midsized and smaller cities will also likely see projects break ground, contributing to a statewide projection from just under 10,000 to nearly 90,000 new units possible. 

In addition to expanding the housing supply, the increased competition should help keep rents in check, according to a Northmarq report.

Many of the North Texas cities impacted by the law have old industrial warehouses that are now vacant. Rosatti said with approval in hand, those would be easy to convert into wrap multifamily projects, with the multifamily units surrounding a pool in the middle. All it takes is a site that is 3.5 acres or more.

The loosening of the reins will allow developers to probe what kinds of projects will work — and discover which don’t, Silvers said. The national real estate advisory firm’s self-proclaimed “serial deal facilitator” said SB 840 will add momentum to the multifamily pipeline, at least at first.

Then cities may figure out how to take the power back.

While the law will remove most zoning policies for qualified projects, cities will still control permitting and design standards. Affected municipalities could implement more infrastructure requirements, stricter design guidelines, additional overlay districts with specific restrictions, higher standards for low-income housing tax credits and more, Northmarq said.  

Restricting water and sewer rights could also be used to exert more control over projects, something cities have done to regain oversight of projects in their extraterritorial jurisdictions after the Texas Legislature stripped away municipal control in 2023.

Municipalities could also lengthen the administrative processes required to slow things down. 

Silvers said the new law will be an interesting tool, but he expects its impact will be “considerably lower than was hoped for” by legislators.

“There probably will be project failures,” Silvers said. “Private capital, which backs all these projects typically, is going to be another consideration in terms of how comfortable they are with this bull in the china shop approach versus the traditional way of doing this in a more measured, thoughtful manner.”

The new law also conflicts with some cities’ existing regulations. It mandates minimum development standards, including density of at least 36 units per acre, one parking space per apartment and a minimum height of 45 feet. 

For example, Arlington falls under the policy but has a minimum density of 22 units per acre and parking requirements based on the number of bedrooms per apartment. Its city council has expressed concern about how its oversight is being removed.

McKinney officials are still evaluating the potential impact of the new law on its residents, land owners and businesses, Executive Director of Development Services Michael Quint said.

“It is unfortunate that the legislature continues to attack cities' rights to establish rules and regulations that specifically address the needs and concerns of local residents,” Quint said via email.

That loss of control is a common concern among city officials who have addressed the potential impact of the new law. Plano Land Records Planning Manager Christina Sebastian updated the Planning & Zoning Commission last week on the city's efforts to comply while still following its comprehensive plan. 

Since multifamily and mixed-use will be allowed in traditionally nonresidential areas, some Plano commissioners expressed support for also allowing single-family homes in those areas. 

But that idea wasn’t universally loved.

“There is a reason we kind of put buffers and we put single-family and separate them from industrial,” Plano Commissioner Sean Lingenfelter said. “Not to pick on a city, but we don’t want to be like Houston, where you have no zoning and everything’s just mismatched around.”

SB 840 wasn’t the only bill aimed at improving the state’s housing efforts that Abbott signed into law. Senate Bill 15 reduces the lot sizes homebuilders need for single-family homes, encouraging smaller houses on smaller lots in new subdivisions of at least 5 acres.

While these moves are celebrated by commercial real estate developers and housing advocates, their actual impact may be muted.

“You’ve got to give Texas credit for giving it a shot. How it will work out in the end, nobody really knows,” Silvers said. “Like most bills, it'll probably be a partial success and a partial failure.”