Abbott’s Sales Tax Threat and the Battle Over New Housing

Nora Whitman

If you want to kill a new apartment building without actually banning it, you do not pass a ordinance that says no apartments allowed. No, that is far too obvious, and these days, it gets you sued by the state. Instead, you get creative. You tell the developer, sure, you can turn that vacant commercial office park into three hundred homes, provided every single building is at least eight stories tall. Or better yet, you tell them every new conversion must include a full Olympic size swimming pool and a dedicated dog park.

Nora Whitman

That is precisely what is happening right now across the Dallas Fort Worth region. Last year, the Texas legislature passed two major housing preemption laws, Senate Bill 840, which allows by right conversions of commercial properties into housing, and Senate Bill 15, aimed at streamlining small lot single family developments. The whole point was to bypass local zoning gridlock and unlock thousands of new homes. But suburban city councils in places like Irving and Grand Prairie immediately started hunting for poison pills. Irving slapped an eight story height minimum on adaptive reuse apartments. Why? Because almost no suburban office conversion fits that profile, which forces the developer to ask for a special variance, putting discretionary power right back in the hands of the city council. And Grand Prairie requires apartments built using SB 840 to include an Olympic sized swimming pool. Think about the construction costs on an Olympic size pool for a second. It completely guts the financial viability of midtier housing.

Nora Whitman

Well, Governor Greg Abbott caught wind of this. On July thirty first, standing at a podium in Round Rock, Abbott pulled no punches. He announced a aggressive new legislative proposal for the upcoming session: if a municipality uses these administrative workarounds to sabotage state preemption laws, the state will cut off their municipal sales tax revenue. That is a massive nuclear option. Sales tax is the financial lifeblood of Texas cities. Losing that revenue would utterly cripple a suburban operating budget. At that same announcement, Abbott also doubled down on residential density, pledging to legalize by right accessory dwelling units, or ADUs, statewide next year.

Nora Whitman

And make no mistake, the stakes here are enormous. A recent coalition report from AEI, Texas Appleseed, and Texans for Reasonable Solutions found that over twelve thousand homes are currently in the pipeline thanks to Senate Bills 840 and 15. Twelve thousand homes. But that whole pipeline is suddenly hanging by a thread as local planning commissions invent brand new administrative hurdles to stall builders out.

Nora Whitman

I mean, as someone who spent years watching city council meetings from the press gallery, I have seen this movie before. You outlaw explicit density caps, and local boards instantly pivot to costly design mandates or ridiculous parking ratios. It is a endless game of regulatory whack a mole.

Nora Whitman

Now, threatening to strip local sales tax revenue is certainly going to ignite a huge legal fight. Texas has a long tradition of municipal home rule, and city attorneys are already preparing to argue that state financial punishment over local zoning standards is unconstitutional. For state lawmakers to make this stick, they will have to draft explicit statutory language defining exactly what counts as a bad faith amenity mandate versus a legitimate safety code. It is going to be messy.

Nora Whitman

At the same time, the political dynamic around backyard housing is shifting fast. In past sessions, statewide ADU bills stalled out over local fears about short term rentals turning quiet neighborhoods into party hubs. But the public mood has moved. Recent polling from the Texas Affiliation of Affordable Housing Providers shows sixty percent of Texans report struggling directly with escalating housing costs. When six out of ten voters feel the squeeze, political cover for local NIMBY tactics starts evaporating real fast.

Nora Whitman

And this fight is hardly contained to Texas. Looking across the country, we are seeing major movement on infill housing options this week. Over in California, San Diego County just advanced landmark zoning amendments under Assembly Bill 1033. Unincorporated areas in San Diego County will now allow homeowners to build accessory dwelling units and sell them separately as individual condominiums. That turns backyard cottages into accessible, entry level homeownership opportunities rather than just rental units.

Nora Whitman

Meanwhile, on the East Coast, Howard County, Maryland just signed major housing choice legislation into law. Their new policy targets missing middle housing options, streamlining approvals for duplexes, triplexes, and infill townhomes in areas that were previously off limits. Whether through state level threats or local zoning overhauls, the push to build more homes where people actually want to live is picking up real momentum. That is the rundown for today. I am Nora Whitman, and I will see you next time.