What you need to know about new housing legislations in Texas

Texas’ 89th Legislative Session, concluded on June 2, 2025, has ushered in a transformative housing reform package aimed at addressing the state’s critical housing shortage and enhancing affordability. For real estate investors, these new laws—effective September 1, 2025—present significant opportunities to capitalize on streamlined development processes, relaxed zoning restrictions, and increased housing supply potential. This report provides a comprehensive analysis of the key legislative changes, their implications for investors, and critical considerations for navigating the evolving Texas real estate market.

The Housing Crisis Context

Texas has experienced rapid population growth, adding over 2.1 million residents between 2020 and 2024, equating to a 7.35% increase. With approximately 1,100–1,300 people relocating daily, the state faces a housing deficit of 306,000 units as of 2023. This mismatch has driven median home prices to $440,913 nationwide in May 2025, with Texas markets like Austin and Dallas feeling acute pressure. These reforms aim to alleviate supply constraints, offering investors new avenues for development and profit.

Key Legislative Reforms

1. SB 840: Commercial-to-Residential Conversion Without Rezoning

Overview: Senate Bill 840 allows developers to convert properties zoned for office, retail, warehouse, or mixed-use into multifamily or mixed-use residential developments without rezoning. This applies to cities with populations over 150,000 in counties exceeding 300,000 residents. The law streamlines permitting and prohibits municipalities from imposing arbitrary density limits, height caps, or excessive parking requirements.

Investor Implications:

  • Opportunity: High office vacancy rates (20-30% in major Texas cities) make conversions a cost-effective strategy to repurpose underutilized assets. Austin developers are already planning over 3,000 units in areas like Riverside and Anderson Square.
  • Market Impact: This facilitates mixed-use, compact developments along commercial corridors, revitalizing urban centers and increasing rental income potential near job hubs.
  • Considerations: Investors should ensure projects meet minimum standards to qualify for streamlined approvals and verify compliance with local ordinances protecting historic landmarks or pre-2025 deed restrictions.

2. HB 24: Streamlined Residential Project Approval

Overview: House Bill 24 raises the threshold for neighborhood objections to block residential projects from 20% to 60%, reducing the influence of “not-in-my-backyard” (NIMBY) opposition. It also simplifies land use code updates, potentially reviving initiatives like Austin’s CodeNext. A simple majority city council vote can now approve rezoning even if objections meet the 60% threshold.

Investor Implications:

  • Opportunity: Faster project approvals reduce holding costs and development timelines, enabling investors to bring units to market more quickly. This is particularly impactful in high-demand cities like Austin, Dallas, and Houston.
  • Market Impact: The reduced risk of project delays enhances feasibility for infill developments, including “missing middle” housing like duplexes and townhomes.
  • Considerations: Investors must still navigate local review processes and engage with communities to mitigate potential opposition, even with the higher threshold.

3. SB 15: Elimination of Large Lot Requirements

Overview: Senate Bill 15 prohibits cities from mandating minimum lot sizes larger than 3,000 square feet for single-family developments on unplatted land over five acres in municipalities with populations over 150,000 in counties exceeding 300,000. Earlier drafts proposed a 1,400-square-foot minimum, but the final version allows flexibility for smaller lots, aligning with reforms like Austin’s HOME initiative (1,800 square feet).

Investor Implications:

  • Opportunity: Smaller lot sizes enable higher-density developments, reducing land costs per unit and making homes more affordable. This is ideal for entry-level housing targeting first-time buyers or renters.
  • Market Impact: The law supports diverse housing types, such as townhomes and smaller single-family homes, increasing inventory in high-growth areas.
  • Considerations: The law applies to new subdivisions, not existing platted areas, and does not affect smaller cities like Richmond. Investors should confirm applicability based on project location.

Additional Reforms

  • SB 2477: Complements SB 840 by simplifying office-to-apartment conversions, leveraging high vacancy rates to boost urban housing supply.
  • SB 2835: Allows small apartment buildings with one stairway, reducing construction costs and enabling development on smaller, irregularly shaped lots.
  • HB 2025: Requires an original tax certificate for property transactions, simplifying filings for developers and ensuring no delinquent taxes.
  • SB 785: Streamlines the approval process for HUD-code manufactured homes, though local restrictions on manufactured homes in certain areas remain.

Timeline and Market Outlook

The reforms take effect September 1, 2025, but immediate impacts may be tempered by high interest rates and construction costs. Experts predict a significant supply surge when market conditions improve, particularly in major metropolitan areas like Austin, Dallas, and Houston. Smaller cities, however, remain unaffected, signaling the need for future legislative expansion.

Investment Strategies:

  • Urban Infill: Focus on commercial-to-residential conversions in high-vacancy areas for multifamily or mixed-use projects.
  • Suburban Development: Target unplatted land for high-density single-family or missing middle housing to capitalize on smaller lot allowances.
  • Cost Management: Leverage streamlined approvals and reduced regulatory burdens to offset construction costs and improve ROI.

Risks and Considerations

  • Local Pushback: While NIMBY influence is reduced, community engagement remains critical to avoid delays in non-streamlined review processes.
  • Market Constraints: High interest rates and material costs may delay project starts. Investors should monitor Federal Reserve policies and construction trends.
  • Geographic Limitations: Reforms primarily apply to large cities, limiting opportunities in smaller markets unless further reforms are enacted.
  • Foreign Ownership Restrictions: SB 17, effective immediately, bans property acquisitions by entities from China, Russia, Iran, and North Korea, potentially affecting international investors.

Expert Insights

Felicity Maxwell, executive director of Texans for Housing, notes that these reforms have been years in the making, addressing long-standing zoning barriers. Robert Steuteville, urban planning expert, calls Texas’ approach “transformative” and a model for other states. However, investors should remain cautious of local variations in implementation and potential amendments during reconciliation processes.

Texas’ 2025 housing reforms create a fertile ground for real estate investors by unlocking new development opportunities, reducing regulatory hurdles, and promoting diverse housing types. By strategically targeting urban conversions and high-density suburban projects, investors can position themselves to meet rising demand and improve affordability. Stay informed on local zoning updates and market conditions to maximize returns in this dynamic landscape.