Texas Real Estate Reform: What Homebuyers, Builders, and Policymakers Should Know

Facing rapidly rising housing costs and intense demand, Texas enacted sweeping real estate reforms in 2025. Among these changes, Senate Bill 840 (SB 840) stands out as a pivotal law, empowering residential conversions in commercial zones and easing development barriers for more housing supply.

The Drive for Reform

Major Texas metros like Austin, Houston, Dallas-Fort Worth, and San Antonio continue to grow at record pace. That growth has created both opportunity and stress, including:

• Skyrocketing home prices and rent

• Insufficient affordable housing supply

• Outdated zoning restricting density

• High property tax burdens

• Investor-driven competition for entry-level homes

To address these challenges, the Legislature passed a reform package in mid‑2025 that aims to improve affordability, increase housing access, and streamline development.

Spotlight on Major Legislative Changes

1. SB 840 – Residential Development in Commercial Zones

• Allows multifamily or mixed-use housing by right in areas currently zoned for commercial use, enabling faster approvals and conversions without rezoning.

• Targets vacant or underutilized office space in downtown zones, unlocking housing near jobs and transit.

• Intended to accelerate housing supply in places like Austin and Dallas where demand is high and white-collar vacancy rates are significant.

2. SB 15 – Smaller Lots, More Homes

• Caps minimum lot size requirements in large subdivisions, cutting the size threshold to 3,000 square feet.

• Encourages more compact, affordable starter homes and increases development flexibility in suburban areas.

3. SB 673 – Expanded Accessory Dwelling Units (ADUs)

• Legalizes backyard cottages or small guesthouses statewide, even in traditionally single-family zones.

• Multigenerational families, rental tenants, and affordable housing advocates benefit from greater housing variety.

4. HB 24 / SB 844 – Limiting NIMBY Influence

• Raises the opposition threshold from 20% to 60% of neighbors to trigger supermajority hearings on rezoning.

• Designed to reduce the ability of small groups to block housing without broader community support.

5. SB 2477 – Office-to-Residential Conversions

• Streamlines permitting and reduces impact fees for converting older commercial buildings, especially those over five years old.

• Eliminates burdensome requirements like excessive parking mandates, making it viable to turn vacant offices into homes.

6. SB 2835 – Mid-Rise Construction Efficiency

• Permits single-stair apartment buildings up to six stories with four units per floor.

• Cuts construction costs and enables more density in walkable areas.

7. SB 785 – Manufactured Housing Expansion

• Broadens where manufactured homes can be placed within city limits.

• Accelerator to affordable ownership opportunities for low- to moderate-income Texans.

8. SB 1567 (“Golden Girls” Law) – Shared Housing for Unrelated Residents

• Protects the right of unrelated adults to share a home in cities of 250,000+ population.

• Increases housing flexibility by allowing roommates and house-shares without zoning exceptions.

9. SB 1883 – Impact Fee Transparency

• Requires a two-thirds vote for cities to raise impact fees and mandates independent audits.

• Reduces surprise costs and makes development planning more predictable.

Why These Reforms Matter

Unlocking Supply with SB 840 and Beyond

SB 840 is transformational, allowing housing developments in commercial zones bypass traditional rezoning. That shift helps fill pockets of underused acreage in urban cores and promotes density in established neighborhoods.

Combined with smaller required lot sizes (SB 15) and expanded ADU rights (SB 673), the reforms offer diverse pathways to increase housing supply across urban and suburban zones.

Using Existing Infrastructure

Office conversions under SB 2477 mean housing where roads, utilities, and transit already exist, limiting sprawl and avoiding redundant infrastructure costs.

Cost Efficiency and Inclusion

Reducing construction costs through regulations like SB 2835 and expanding manufactured housing rules (SB 785) lower barriers to entry for first-time and working-class buyers.

Adding shared housing rights (SB 1567) and controlled impact fees also help preserve affordability in the face of development.

Balancing Local Input

By raising the threshold for NIMBY-induced rezoning blocks (HB 24 / SB 844), these reforms protect housing projects from small groups obstructing community-wide benefits.

What It Means for Key Stakeholders

For Buyers (Especially First-Time)

• More housing types and better access to affordable homes.

• Faster adoption of converted office or retail space as living areas.

• Fewer regulatory hurdles for properties suitable for families and roommates.

For Developers

• Clearer pathways for building multifamily and mixed-use housing.

• Predictable permitting timelines and impact fee structures.

• Ability to build efficiently with smaller lots and taller mid-rise formats.

For Local Governments

• Ability to plan for growth strategically.

• Potential to retain revenues without overburdening taxpayers, supported by SB 1883.

• Tools to address housing shortages while preserving operational budgets.

Early Outcomes

• Cities like Houston, San Antonio, and Austin experienced a modest slowdown in price growth as more housing capacity came online in late 2024 and early 2025.

• Pilot developments converting low-occupancy office buildings in urban areas began permitting under SB 840 rules.

• New ADUs and multifamily builds began appearing in neighborhoods previously restricted to single-family units.

Challenges and Pushback

Despite broad support, these reforms have faced resistance:

• Some Hill Country communities expressed environmental concerns over expanded development in limited water supply zones.

• In Austin, community groups have cited fears of gentrification and loss of neighborhood character as density increases.

• Skeptics remain concerned that these changes could overload infrastructure like roads, schools, and water systems if not managed carefully.

Looking Ahead: What’s on the Horizon

• Implementation of rulemaking between state agencies and municipalities continues into 2026.

• Legislators may revisit property tax caps, housing finance reforms, and restrictions on large investor ownerships in coming sessions.

• Cities might adjust zoning maps, permitting procedures, and parking ordinances to fully align with the spirit of SB 840 and related statutes.

Final Thoughts

Texas’ 2025 real estate reforms, including the landmark SB 840, mark a major shift in housing policy. By lifting zoning restrictions, enabling office conversions, expanding housing types, and reducing fees, the state aims to usher in a new era of affordability and urban livability.

For prospective buyers, investors, developers, and public officials, understanding these changes is essential. Whether you’re planning to build, buy, or invest, the regulatory landscape is more dynamic and more opportunity-rich than ever before in Texas.

If you’d like a deep dive into SB 840’s legal application in your city or see case studies of conversions and ADU builds, I’m happy to help break it down.