The Triplex Panacea

Recently, Austin City Council voted to allow 3 units on residential lots and directed city staff to write some rules.  What I’ve been hearing since from sellers and their brokers is the value on their property is justified because anyone who buys is going to be able to build 3 units very soon.  This is in spite of no one having jumped on that opportunity in the 100 days they’ve had it listed.

So, it occurred to me that there is a disconnect here.  I think that in most cases, the value change is neutral at best and might even decline.  But, why wouldn’t a property automatically be worth more if you can build more houses on it?  

In order for a property to be worth more to a developer, you need to be able to generate more money from it either as a rental or as a sale.  To do that, you need to be able to do more with the property or to do it in a different way.  But, more can mean different things.  For a developer, it means more value.  That doesn’t necessarily mean more square footage or more units or more trees or more amenities.  It means more function that the market values.

So, let’s look at a single family lot example in Austin Texas.  As of 2026, with 3 units you can build up to 55% building coverage.  This is a premium over the 40% for 2 units. So, if you have a 7,000 sq. ft. lot, you could build one 2800 sq ft house, two 1400 sq foot units in a duplex, one ADU of 1100 sq feet and a 1700 sq ft main house or three units in some combination adding up to 3850 sq. ft.   Now, if you build 1 big house, you have 2 cars most likely.  If you build the duplex, you likely have 4 cars to park.  If you build 3 units, you probably have at least 4 cars, maybe 5 to 6.  Where do you put these cars?  No problem, the city council just voted to remove all minimum parking requirements. Not your problem as a developer.  Just junk up the street with cars parked everywhere.  

However, that gets us back to value.  Providing off street parking and reducing property clutter adds value to the end user as it creates a more livable and desirable product.  So, from a sales standpoint, it’s very likely that the greatest dollar value accrues to the single house, followed by the duplex followed by the three units as the costs to build those works in reverse - most expensive per square foot for the 3 units, next for the duplex and next for the single house assuming finishes and style remain equal throughout.  If your goal is to rent the houses, the 2 or 3 units likely produce slightly greater overall rents.  And, if your goal is to provide smaller houses at lower prices for society, then that is good too.  But, from a sales standpoint, 3 doesn’t move the needle much and might move it in the negative direction.  This holds true within the central city.  If you get a little out to the periphery where prices are lower and there are upper price barriers on sales, then having 3 lower priced homes vs 1 expensive home likely is better.  This might make these properties a little more valuable but it’s still not a huge movement.  What happens is the risk of devaluation with 3 units is far far lower than if you take a central city property and clutter it for the next 15 years.

I’m actually in favor of allowing three units.  My point is that it doesn’t increase project profitability and doesn’t increase the value of the underlying land, it merely provides different products at different market points.

Now, as always, there are exceptions to this.  If you have a 10,000 sq. ft. or greater lot, building 3 units would likely allow you to yield more per sq foot than you otherwise would in an average neighborhood.  In an upper end neighborhood, this might diminish the value but in an average to above average neighborhood it could increase the value and in a lower end neighborhood it could be quite interesting. 

So, the takeaways here are bigger lots in lesser neighborhoods are more valuable if you can put 3 units on them.  Bigger lots in upper neighborhoods aren’t as people can and will pay for the land area and house area.  Smaller lots in average to upper average neighborhoods likely don’t accrue any additional value by putting 3 units on them and very likely could decline in value due to the extra clutter and parking challenges.  Smaller lots in lesser neighborhoods are probably neutral.

Happy hunting and don’t overpay, unless I’m selling.