HOME Phase 2 Math in 78704: When a Lot Split Pencils and When It Doesn't
Developer Intelligence · August 2026
The short answer: a HOME Phase 2 lot split works in 78704 where land basis stays under roughly $850K and the neighborhood supports strong per-square-foot pricing on smaller homes — which today means parts of Bouldin Creek and Travis Heights. It rarely works in Barton Hills, where land runs $900K to $1.4M and the buyer pool wants square footage and lot, not density.
Austin's minimum residential lot size dropped from 5,750 square feet to 1,800 square feet under HOME Phase 2. Two years of permit activity later, the question in 78704 is no longer whether you can split a lot. You usually can. The question is whether splitting it produces more money than building one house on it — and in the four neighborhoods that make up central 78704, the answer swings hard depending on which side of Lamar you're standing on. Here is the arithmetic.
Talk Through a Specific LotCall (512) 608-8811
1,800 SF Minimum Lot Size Down from 5,750 SF, on SF-1, SF-2 and SF-3 | 10 FT Reduced Setbacks With a 5-foot option for a porch | $750K–$1.4M 78704 Land Basis The number that decides everything | 2 of 4 Neighborhoods Where It Works Bouldin Creek and Travis Heights, conditionally |
What HOME Phase 2 Actually Changed
HOME moved through Austin City Council in two pieces. Phase 1, effective February 2024, allowed up to three units on most single-family lots. Phase 2, adopted that May, did something different and more consequential for infill developers: it created a "small lot single-family residential" use in SF-1, SF-2 and SF-3 zoning that permits one unit on a lot between 1,800 and 5,750 square feet. It also cut setbacks to 10 feet with a 5-foot porch allowance, and removed Subchapter F residential design standards — the McMansion rules — from small lots.
Those two phases do not stack the way people assume. You cannot subdivide a 6,000 square foot lot into three parcels and then put three units on each of them. Phase 1 governs units on an existing lot. Phase 2 governs how small a lot can legally be. Confusing the two is the most common error I hear in early conversations with owners who have read a headline and started doing napkin math.
The practical effect in 78704 is that a standard 7,000 square foot interior lot — the kind that fills Bouldin Creek and the flat sections of Travis Heights — can now legally become two lots of roughly 3,500 square feet each, with two separately deeded, separately financeable, separately salable houses on them. That is a genuinely different exit than the one that existed in 2023.
The distinction that matters: Phase 1 gives you more units on one lot, sold as condominium interests. Phase 2 gives you more lots, sold as fee simple houses. In the 78704 luxury buyer pool, fee simple sells materially better than a condo regime — and that gap is the entire reason Phase 2 changed the development calculus here when Phase 1 largely did not.
The Arithmetic That Decides It
Take a 7,000 square foot Bouldin Creek lot with a tear-down house on it. Land basis $800,000. Two ways to play it.
Single build. Demolition and site prep runs about $25,000. A 3,200 square foot house at $450 per foot of hard cost is $1.44 million. Add soft costs, carry, permitting and fees at roughly 12 percent of hard cost and you are at about $2.44 million all in. Current exit for well-executed new construction in Bouldin Creek is $2.5M to $2.75M. The margin is real but thin, and it is the reason several builders who were running four and five projects simultaneously in 2021 are now running one or two.
Two-lot split. Same $800,000 land and same $25,000 demolition. Subdivision costs — survey, civil engineering, plat review, separate utility taps and service drops — add somewhere in the $60,000 to $120,000 range depending on how cooperative the existing utility infrastructure is. Build two houses of roughly 1,800 square feet each. Per-foot hard cost goes up, not down, because fixed costs spread across less area; call it $475. That is about $1.71 million of construction. All in, roughly $2.6 to $2.66 million — more capital than the single build. But you are now selling two fee simple houses into the most walkable submarket in 78704, where small modern infill has been clearing at strong per-foot numbers. Two exits in the $1.5M to $1.7M range put combined gross well above what the single 3,200 square foot house produces.
The split wins here for one reason, and it is worth naming precisely: in Bouldin Creek, buyers pay a premium per square foot for a smaller house in a walkable location. Where that premium exists, dividing the lot multiplies it. Where it doesn't, dividing the lot destroys the thing the buyer was actually paying for.
Neighborhood by Neighborhood
Neighborhood | Land Basis | Single-Build Exit | Does a Split Pencil? |
|---|---|---|---|
Bouldin Creek | $750K–$850K | $2.5M–$2.75M | Often yes. Highest walkability in 78704, strongest small-home per-foot pricing, lot geometry frequently cooperates. |
Travis Heights | $750K–$850K | $2.5M–$2.75M | Sometimes. Works on the flat oversized lots. Fails on the ridge, where slope, drainage and view value all argue for one house. |
Zilker | $800K–$900K | $2.8M–$3.0M | Rarely. Park-adjacent buyers want outdoor living. Heritage trees and impervious cover limits usually consume the second building envelope before economics even enter the conversation. |
Barton Hills | $900K–$1.4M | $2.8M–$4M+ | Almost never. Land basis is too high and the buyer is paying for lot size, tree canopy and greenbelt adjacency. Splitting removes the premium you bought. |
Ranges reflect current market estimates for well-positioned product in each neighborhood. Actual values vary by lot, slope, tree coverage, utility position and street. Any specific parcel requires its own feasibility analysis before land is placed under contract.
Why Barton Hills Is the Clear No
Barton Hills lots run 0.22 to 0.41 acres — larger than most of central Austin — with mature oaks, elevation changes and greenbelt adjacency on the best streets. Land basis reaches $1.4 million. Hard construction costs run $500 to $600 per square foot, higher than the rest of 78704, because the topography and tree protection make these sites genuinely harder to build.
Split a Barton Hills lot and you have spent $1.2 million on land to produce two houses that compete against Bouldin Creek product at a lower price point, on a street where every comparable sale is a 4,000 square foot house on a full lot. You have converted a premium asset into a commodity one. The buyer paying $3.5 million in Barton Hills is buying the trees, the slope, the privacy, and the walk to the greenbelt. Density is the opposite of the product.
This is the point most Phase 2 coverage misses. The code is citywide. The economics are not. A rule change that unlocks value in one 78704 neighborhood destroys it two miles away.
What Kills Deals That Look Good on Paper
Deed restrictions. This is the one that catches people. Zoning permits; deed restrictions prohibit. Many 78704 subdivisions carry private restrictions recorded decades ago that limit lots to one dwelling or set a minimum lot area independent of city code. The city does not review or enforce these, and a HOME-compliant permit does not override them. Pull the restrictions on the specific subdivision before you underwrite anything.
Heritage trees. A protected oak sitting where the second building envelope needs to go ends the conversation. Tree survey comes before feasibility, not after.
Utility separation. Two lots need two water taps, two wastewater services, two electric drops. Where the existing service runs across what will become the neighboring parcel, you are looking at easements or relocation, and both cost time and money that rarely appear in the initial pro forma.
Impervious cover. Two houses, two driveways, two walkways. The combined impervious cover on two small lots frequently exceeds what one house on the whole parcel would have produced, and the limits apply per lot.
Regulatory risk. HOME has drawn organized legal opposition, and in May 2026 city officials were asked to revise portions of the rules more than two years after adoption. The city continues to accept and process applications under both phases. But a project underwritten on a two-year timeline is exposed to a rule set that is still being argued about, and that risk belongs in your pro forma as a real line item rather than a footnote.
Own a 78704 lot and wondering which side of this line it falls on?
The answer usually takes one conversation and a look at the plat, the tree survey and the recorded restrictions. The Davis Agency works with the builders and developers doing the majority of infill in Barton Hills, Zilker, Bouldin Creek and Travis Heights — which means the feasibility read comes with a realistic view of who would actually buy the finished product.
If You Own the Lot Rather Than Build on It
Owners of oversized lots in Bouldin Creek and Travis Heights have a decision that did not exist three years ago. You can sell to a builder at teardown value, which is what most owners do. You can sell with the subdivision entitlement already in hand, which takes months and legal cost but changes who bids and what they bid. Or you can hold, knowing that the code has increased the number of parties for whom your lot works.
The middle option is the one worth understanding, because entitlement is where the value gets created. A builder buying a raw lot prices in the risk that the split fails. A builder buying an approved two-lot subdivision does not. That difference tends to be larger than the cost of obtaining the approval — but only on lots where the split was going to work anyway. Entitling a Barton Hills lot for a split that no builder wants adds cost and subtracts nothing but time.
Frequently Asked Questions
What is the minimum lot size in Austin under HOME Phase 2?
1,800 square feet for a small lot single-family use in SF-1, SF-2 and SF-3 zoning, down from the standard 5,750 square foot minimum. Setbacks on those small lots drop to 10 feet, with a 5-foot option for a porch, and Subchapter F design standards do not apply.
Can I split my lot in Barton Hills?
Legally, often yes, if the lot is large enough and no deed restriction prohibits it. Financially, it is rarely the right move. Barton Hills land basis runs $900K to $1.4M and the neighborhood's buyer pool pays for lot size, tree canopy and greenbelt proximity. Two smaller houses on a divided Barton Hills lot typically produce less combined value than one well-executed home on the full parcel.
Do deed restrictions override HOME?
Yes, in practical terms. HOME changed city zoning. It did not extinguish private deed restrictions recorded on individual subdivisions, and the city does not enforce or review them during permitting. Many older 78704 subdivisions carry restrictions limiting lots to a single dwelling. Confirm the recorded restrictions on your specific subdivision before assuming a split is available to you.
Is HOME still in effect in 2026?
The City of Austin continues to accept and process residential applications under both HOME Phase 1 and Phase 2. The policy has faced organized legal challenges and, in May 2026, council members sought revisions to portions of the rules. Anyone underwriting a multi-year project should confirm current status with a land use attorney rather than relying on any published summary, this one included.
Related Reading from The Davis Agency
→ New Construction Homes in 78704: Build or Buy Smart
→ What 78704 Luxury Sellers Need to Know About the Mid-Year 2026 Market
→ Austin Luxury Market Mid-Year Report: What the Numbers Are Actually Saying in 2026
→ Sell, Hold, or Rent: The Decision Framework for Austin Luxury Homeowners in 2026
Ready to Run the Numbers on a Specific Parcel?
The Davis Agency underwrites infill and teardown opportunities across Barton Hills, Zilker, Bouldin Creek and Travis Heights, working directly with the builders active in each. If you own a lot, are considering one, or want a second read on a pro forma that already exists, the conversation is the right starting point.
Request a Feasibility ReadCall (512) 608-8811
Derrik Davis · Broker/Owner, The Davis Agency · CLHMS Certified · TREC License #558841 · Serving 78704 and the greater Austin luxury market since 2006. This article is general market commentary and is not legal advice. Confirm zoning, plat status and recorded deed restrictions for any specific property before making a development decision.
