If you pulled the numbers on 78704 this summer, you saw a market that looked soft. Median sale price down. Year over year, in the red. The kind of headline that makes a seller nervous and a buyer start circling listings, waiting for the discount to show up.

Then you'd have found the second number sitting right next to it, moving the opposite direction. Price per square foot. Up.

That is not a typo, and it is not noise in the data. It is the fingerprint of a zoning change working exactly as designed, and it changes what "the market is down" actually means if you own, or want to own, property in 78704.

The two numbers that don't agree

Over the three months ending May 2026, the median sale price in 78704 was $835,000, down 7.2% from the same period the year before. Over that same window, the median price per square foot climbed to $526, up 0.9% year over year. Homes sold in an average of 52 days, and sale volume actually rose, 176 homes sold in May 2026 compared with 143 the year prior.

Compare that to the city as a whole. Over the three months ending June 2026, Austin's median sale price was $557,000, down a modest 0.5% year over year, while price per square foot fell 2.0% to $312.

Citywide, the softening shows up in both numbers together, which is what you'd expect from a market genuinely cooling. In 78704, the two numbers split apart. That divergence only makes sense once you know what's actually changing hands.

What's driving the split: a lot is no longer a lot

Austin's HOME ordinance rewrote the math on what a piece of land in 78704 can become. Phase 1, adopted in 2024, allowed up to three housing units on standard single-family zoned lots. Phase 2, which took effect August 16, 2024, cut the minimum lot size in many zones from 5,750 square feet down to 1,800 square feet, a two-thirds reduction from the old standard. At the time, KUT reported that an 8,000 square foot lot, close to the city's median lot size, could theoretically be split into four separate parcels.

The city isn't done. In May 2026, Austin City Council voted 9-1 to push HOME into more single-family neighborhoods, directing staff to draft the next round of code changes covering trees, drainage, and subdivision layouts. This isn't a policy that landed once and settled. It's still expanding, and 78704, full of older houses on comparatively generous urban lots, sits right in its path.

That's the mechanism behind the split numbers. A single 1920s bungalow on a 7,000 square foot lot used to be one sale, one median data point. Under HOME, that same parcel can become two or three smaller, newer units, each selling for less individually, each carrying a higher price per square foot than the house it replaced. The median drops because the mix of what's selling has shifted toward smaller footprints. The per-square-foot number keeps climbing because the land itself hasn't gotten any less valuable. If anything, it's gotten more valuable, because it can now support more buyers.

Why builders are willing to bet on smaller footprints

The economics behind this aren't speculative. A city staff and University of Texas research effort found that land accounts for over half the total development cost of single-family housing in Austin. Cutting the number of units that share that land cost changes the entire equation. The same research pegged duplex construction at roughly $400,000 per unit, compared to nearly $800,000 per unit for single-family construction before HOME Phase 1 took effect.

That gap is the incentive. A builder who splits a 78704 lot isn't betting on the neighborhood getting less desirable. They're betting that two or three buyers paying less each will add up to more total revenue than one buyer paying for the whole parcel, and that the land cost per unit drops enough to make the math work even in a market where per-unit prices are lower.

Austin has run this experiment before, just not through zoning. Over more than a decade, roughly 1,300 single-family homes across the city were replaced by about 5,300 townhomes, and those new units sold for less than the median price of a new single-family home, while being larger in aggregate. HOME didn't invent the incentive. It removed the lot-size floor that used to cap how far builders could take it.

78704 has already lived through one version of this cycle on the high end. During the 2021 to 2022 building surge, lot prices in parts of the zip code doubled within months, and new construction was trading at $1,100 to $1,200 per square foot. When interest rates jumped in the summer of 2022, that pace broke fast, leaving some builders holding lots that no longer penciled at their original targets. The current shift is a quieter, broader version of the same story: land value holding or climbing while the price of any individual house moves with the size of what gets built on it.

The part HOME doesn't override

Here's where a lot split on paper and a lot split in practice come apart, and where 78704 in particular gets complicated.

The city's zoning allowance is not the last word on any given block. In 78704's older subdivisions, private deed restrictions and covenants, some dating to the 1920s and 1930s, sit on top of city code and can override what HOME technically permits. In practice, that means the same zip code contains real variation: some blocks in Travis Heights cap building height regardless of what the lot size would otherwise allow, some pockets of Bouldin Creek restrict lot splits outright through old plat language, and some sections of Barton Hills carry deed restrictions that neighborhood associations still actively enforce.

Two more constraints apply even where a split is legal:

• Austin's heritage tree ordinance protects any tree with a trunk diameter of 19 inches or more. In a zip code with mature live oak canopy on almost every lot, a well-placed heritage tree can eliminate a lot split or an accessory unit before it ever reaches a permit application.
• Impervious cover and building coverage caps still apply after a split. Under HOME, maximum building coverage is capped at 40 percent, and maximum impervious cover at 45 percent in the affected zoning districts, meaning a smaller lot doesn't get a smaller version of the same rules. It gets the same ceiling on a smaller base.

This is why the per-square-foot gain in 78704 isn't uniform. A lot with a clean deed, no protected trees, and room under the impervious cover cap can capture the full value of HOME's density allowance. A lot with a 1928 covenant and a heritage oak in the wrong spot can't, no matter what the zoning map says.

What this means depending on where you sit

If you own in 78704 and just watched the median headline drop, that number is not a verdict on your specific house. It's an average across a market where the mix of what sold has shifted toward smaller units. A well-maintained single-family home on a clean, splittable lot is being valued for two things now: the house that's there and the land's future flexibility. That second piece doesn't show up in a median, it shows up in what a buyer or builder is willing to pay per square foot of dirt.

If you're buying and hoping the falling median means the whole zip code got cheaper, it's worth separating a genuinely soft comp from one that's soft because it's a smaller new-build competing against a data set still full of older, larger houses. The list price per square foot is the more honest comparison point right now.

If you're evaluating 78704 as an investment or development play, the zoning allowance is the starting point, not the finish line. A title search, a tree survey, and a read of the specific plat restrictions on that block matter more than the citywide HOME headline. The gap between what the ordinance permits and what a specific lot can actually deliver is where deals either work or fall apart.

A few questions worth asking before you act

Does a falling median mean my 78704 home lost value? Not necessarily. It means more smaller, newer units are entering the sales mix. Your home's value depends on its own lot's redevelopment potential, its deed restrictions, and its comparable sales, not the zip code average.

Can any lot in 78704 be split under HOME? Only if it clears three separate hurdles: the city's minimum lot size and unit allowance, any private deed restrictions or covenants specific to that plat, and site constraints like heritage trees or impervious cover limits. All three have to line up.

Is this happening at the same pace across the whole zip code? No. Older, deed-restricted subdivisions in parts of Travis Heights and Bouldin Creek move slower than blocks with cleaner titles and fewer covenants. The zip code average hides real differences at the block level.

Reading 78704 through a single headline number leaves money on the table in both directions, whether you're pricing a listing or evaluating a lot. If you want a read on where your specific property or target block actually stands, from deed history to redevelopment math, Cody Hobza can walk through it with you. Let's Connect.