May 20, 2026 by John Krukowski

Why MUDs Have Become 'Essential' For Homeowners And Developers In Texas' Fast-Growing Housing Market

Photo: Pexels/David McBee

While research shows that fewer Americans are moving to new states these days, you can’t tell that to Texas. Nearly 8% of all state-to-state moves in 2024 were by people going to the Lone Star State. 

These newcomers need places to live, and last year alone, more than 74,000 residential construction permits were filed in the state. Many Texas housing developments are financed through municipal utility districts, or MUDs, a unique tool that has enabled the efficient construction of tens of thousands of new homes in the state for decades. 

But MUDs don’t just finance infrastructure. They also build confidence among developers and homebuyers.

For Texas developers, MUDs and other special purpose districts allow the delivery of “high-quality, desirable communities that meet the evolving needs of homebuyers while maintaining affordability,” said Toll Brothers Vice President of Master-Planned Communities Jimmie Jenkins.

Jenkins, whose company builds master-planned communities, or MPCs, across the state, explained that MUDs and other special districts are vital in supporting the “Texas Miracle” of unprecedented population and business growth in recent decades. The housing needs of Texas' swelling population are primarily met through developments built in MUDs, a system unique to the state.

“The expansion of the Houston region in particular would not have been possible without the critical role played by special districts, which remains essential moving forward,” Jenkins said. “Today’s homebuyers are seeking more than just housing — they are looking for a true sense of place.”

For homebuyers, MUD-enabled developments can be an attractive selling point, said Lawrence Dean, president and CEO of Community Builders Advisory Services. He said homebuyers can be confident that these communities will offer high-quality amenities and reliable utilities.

“When a neighborhood has a MUD — or in the case of large MPCs, multiple MUDs — prospective homeowners know they will receive reliable, high-quality municipal services a city would typically provide but with much more local control, allowing them to feel confident in their investment and in the future of their community,” Dean said.

To understand this dynamic, it helps to take a closer look at how MUDs operate — in particular, how they allow developers to build scalable, quality infrastructure to support communities through the efficient use of locally controlled taxpayer dollars.

“MUDs and other special districts are really grassroots politics at its best,” said David Oliver, a partner at Texas public finance law firm Allen Boone Humphries Robinson LLP. “People in a MUD can make long-term decisions that affect their local community because it's all clearly visible to them.”

Financing 'A Vision'

Rick Ellis, executive director of the Association of Water Board Directors-Texas, said there are many examples of MUDs helping local communities address issues that a conventional city bureaucracy might struggle to fix. 

Ellis referenced Ricewood MUD in Houston’s Harris County, which leveraged its independent governmental status as a special district to achieve two community goals. Both outcomes would have been financially or logistically difficult if pursued through standard municipal channels, he said.  

In one case, the community used MUD funds to contract directly with the Harris County Sheriff's Office to ensure that Ricewood is patrolled by five dedicated deputies. 

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“This allowed the neighborhood to maintain a specific level of security tailored to residents' priorities, rather than relying on broader, potentially slower countywide dispatch,” Ellis said. “This has become a very common tool for communities.”

Ricewood MUD also achieved a dramatic reduction in the local property tax rate for the growing community through the strategic management of its bond debt, dropping from $1.52 per $100 of valuation in 1993 to $0.34 in 2022. 

Ellis explained that this was possible because, as more residents move in and the tax base expands, MUDs pay off their debt sooner. Unlike many municipalities that struggle to balance their budgets, the MUD financing mechanism allows the district to either lower tax rates for residents or reinvest funds into community amenities over time.

MUDs are often associated with large, planned communities with single-family housing. However, Ellis serves on a MUD board in the Katy area that oversees a mix of asset classes, including retailers, small warehouses and multifamily apartment complexes. 

“Twenty years ago, my predecessors on the Interstate MUD board had a vision to turn a barren, downtrodden detention field into a beautiful amenity lake with adjacent trails, soccer fields, a pavilion and landscaping,” he said. “This was accomplished through the sale of park bonds and was something the city would have never thought of or financed.”

How Do They Work?

Contrary to what people might think, Texas developers don’t make their money selling lots. As Maple Development CEO Itiel Kaplan explained in a Bisnow article earlier this year, “The real value derives from the velocity and getting tax value on the ground. Without the special districts, without the MUDs, our numbers don’t work.”

Let’s break that down. 

First, municipal utility districts are state-authorized entities that issue tax-exempt bonds to fund the construction of critical systems like water, sewer and drainage — the infrastructure essential for maintaining a community of any size. 

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MUDs allow developers to build this infrastructure, which otherwise might be prohibitively expensive, before a single home is built. This allows developers to begin the phased process of converting raw land into livable communities. 

Later, when a phase is completed and its homes are occupied, the district issues bonds to reimburse the developer, who can devote those funds to the next phase. This is known as the “growth-pays-for-itself” model.

Debt incurred for new infrastructure is repaid through property taxes and user fees collected only from the residents and businesses within the district. This ensures that the cost of expansion is borne by those who directly benefit from it, rather than the entire city or county.

'Only Way' It Works

That last point is key, ABHR’s Oliver said, because it means that nearby budget-constrained municipalities are not on the hook for laying new water and sewer lines to the fledgling community. Instead, it is the responsibility of the developer and, to some extent, future homeowners in the community.

The developer, bearing the full upfront financial risk, is motivated to design, install and fund quality infrastructure from the beginning of a project. That investment is reimbursed through bond sales only after the project is complete and a sufficient tax base has been established in the new community to pay down the debt through a district-levied tax.

“Through this dedicated funding source, MUDs enable development in areas where cities cannot or will not extend services,” Oliver said. “This increases the overall housing supply, which can put downward pressure on regional home prices.” 

MUDs are responsible for much of the new residential development in Texas, helping the state to keep up with its growing population. In a report issued by RCLCO, 20 of the fastest-selling MPCs in 2025 were in Texas, and almost all of them were built in a MUD.

“The new homes and communities that are being built to serve the people moving to Texas are being served largely by MUDs,” Oliver said. “The MUD financing model is the only way you can deliver the necessary infrastructure — water, sewer, drainage and roads — cost-effectively and at scale.”

Downward Pricing Pressure

Financing the construction of critical infrastructure to support new communities is not the only benefit of a MUD. The mechanism also contributes to housing affordability/price and attainability/supply. 

“The MUD financing vehicle allows for economical development of lots on which to build new homes, making the ultimate price of that new home more affordable for purchasers,” Dean said. “If not for this reimbursement vehicle, the development costs would simply be higher.” 

How much higher? According to research by CBAS, an average lot in a MUD in Texas will cost nearly $60K less to purchase than a lot outside a MUD. The resulting home price on that same lot will be $325K less expensive than a comparable non-MUD home.

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“MUDs support growth by providing all the public infrastructure needed for these projects to be paid for over time, at actual cost and at tax-exempt borrowing rates,” ABHR’s Oliver said. “At the same time, they take the pressure off of lot prices, and therefore, home prices, and encourage more rapid development.” 

This is only possible because MUDs allow developers to finance multimillion-dollar infrastructure through tax-exempt bonds rather than including these costs in the upfront home price. This results in new homes that are more accessible to entry-level buyers. 

Cash-strapped cities might have to raise taxes on all residents to finance infrastructure improvements in a single neighborhood, but MUD residents exclusively bear the costs of the infrastructure that serves their community.

“MUDs function as a ‘user tax’ because the financial burden of new infrastructure is shifted directly to the property owners who move into the specific development, rather than spreading the cost across the general taxpayer base of a city or county,” Oliver said.

Unique Impact On Taxes

If a home purchaser does not incur the cost of infrastructure in the price of the home, one might assume the difference is paid in higher property taxes than their non-MUD neighbors.

But actually, the opposite is often true. CBAS found that the average monthly taxes on a MUD home are nearly $160 lower than for a non-MUD home. This is largely due to the absence of city taxes within a MUD.

“Residents pay the MUD tax to fund their own local utilities instead of paying a city tax that would fund infrastructure elsewhere in the municipality,” Oliver said. 

Not only that, but MUD residents can see their taxes decline over time as initial infrastructure expenses are paid off.

“As happened in Ricewood, as a MUD matures, more residents move in to share the debt and bonds are gradually paid off, and the tax rate typically decreases,” Ellis said. “Once all bonds are repaid, the tax may drop significantly, only covering ongoing maintenance and operations.” 

AWBD’s research found that the weighted average tax rate for Houston-area MUDs declined from nearly $0.80 per $100 of valuation in 1981 to $0.49 in 2024. That was 5.3% lower than the tax rate for non-MUD residences in the city of Houston the same year.

'Rules Of The Road'

To understand why Oliver calls MUDs “grassroots politics at its best,” it helps to see how accountability and professionalism are baked into the process.

MUDs and other special districts were created decades ago by the state, which set guidelines to ensure that tax rates and bonds are voter-approved, highly regulated and capped. Bond applications must be submitted for approval to the Texas Commission on Environmental Quality, which maintains oversight of the state’s MUDs to ensure they are operating correctly. 

Today, those bonds have about the same risk profile as municipal or school board bonds, making them an attractive buy for investors, Dean of CBAS said.

“The state did a good job of outlining the rules of the road for how MUDs need to operate,” AWBD's Ellis said. “The hundreds of MUDs in Texas operate pretty consistently and completely to the benefit of local residents and the development community. If not for the safety, security and consistency around MUDs, these attractive developments wouldn't be able to flourish the way they have.”

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MUDs are overseen by local elected boards consisting of residents and property owners whose meetings are open to the public. The idea is to make it easy for residents to raise concerns or ask questions.

“Because MUDs are smaller and closer to the people, residents often find it easier to contact a MUD operator directly for issues like water leaks, avoiding the red tape typically associated with large city bureaucracies,” Ellis said.

The boards hire engineers, lawyers and other professionals to advise on daily operations and budgeting. These consultants can guide boards in setting tax rates to meet the district's daily operational and long-term maintenance costs, said Jordan R. Griffith, a professional engineer with Storm Water Solutions LLC.

“District consultants often encourage proactive maintenance and continual upkeep to avoid costly emergency repairs or penalties and ensure compliance with regulatory agencies,” Griffith said.

Finally, the state requires MUDs to communicate with their residents through means such as utility bill statements, websites and even roadside signage. In addition, homebuyers receive two notices during the purchase process communicating that they are joining a MUD, the current amount of issued debt, the total bond authorization and the current or anticipated tax rate.

As Texas continues to grow, the MUD model — with developers paying 100% of upfront infrastructure costs while being incentivized through a reimbursement model to build high-quality communities — provides a unique vehicle to support growth and address housing affordability. 

“New people moving in need places to live, and those places require infrastructure,” Oliver said. “MUDs make the growth possible by providing both the infrastructure and a vehicle for it to be paid for over time, while taking the pressure off of home prices in the state.”

This article was produced in collaboration between Allen Boone Humphries Robinson LLP and Studio B. Bisnow news staff was not involved in the production of this content.

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.