Steep fees, bureaucratic red tape and lengthy approval processes may be driving small business owners out of Austin or discouraging them from opening altogether.
Some Austin districts once known for their iconic local businesses have undergone significant transformations in recent years. South Congress Avenue, for one, was once lined with homegrown shops, but is now overwhelmingly dominated by out-of-state brands with deep pockets. While increasing costs of construction and rent have undoubtedly been a driving factor behind this shift, a new report presented to city officials Friday argues that onerous and arcane permitting processes are also contributing.
“Austin’s process is so complex that the only entrepreneurs who could make it through easily are those who can hire permit navigators or who can withstand the opportunity cost of delays,” said Ava Mouton-Johnston city policy coordinator for Institute for Justice, the public interest law firm behind the report. “These small local entrepreneurs were getting started and succeeding despite the city, not because the city was actually supporting them in their policies and rules.”
Mouton-Johnston’s team found Austin’s permitting process for opening a restaurant can cost nearly $9,000 and require up to 105 steps, creating costly delays that disproportionately affect under-resourced prospective business owners.
“We’re on day 410 or 420 of a 140-day proposed contract with the general contractor,” said Justin Shugrue, owner of Shug’s Bagels, which should soon open near the intersection of North Lamar Boulevard and West 12th Street. “The biggest thing is the lost revenue … I know we would have been busy.”
Shugrue started Shug’s Bagels in Dallas during the pandemic and has since opened a second location there and another in New Orleans. After moving to Austin, Shugrue is preparing to open his fourth, but said the process has been the most challenging yet.
Despite having more experience opening a business than when he started five years ago, Shugrue expects launching the Austin location will take about six months longer than his previous shops, costing him tens of thousands of dollars in lost revenue. He also relocated employees from Dallas, who are currently on the payroll, as he planned to open in fall 2025. Now, in spring 2026, he still doesn’t know when he will be selling bagels.
He said many of the delays stem from setbacks with utility providers like Austin Energy and Texas Gas Service.
“Should I have been hounding my general contractor more? Should I have been hounding my electrician more about staying on top of it? Sure, hindsight is 20/20,” Shugure said. “This has definitely been a unique experience here in Austin. … You need to really stay on top of it.”
Improving the landscape for small business owners
Mouton-Johnston said the city’s requirements for opening a restaurant in Austin are the most complex of the 25 cities her group has looked into. Those cities include San Antonio, Boston, Seattle and San Francisco.
Austin “has the best of intentions with trying to make sure everything is safe, supporting the environment, building good spaces for individuals,” she said, “but they have overlooked the fact that this takes so much time and money, especially for those entrepreneurs who are under-resourced.”
Mouton-Johnston’s group recommended waiving or reducing fees for new businesses in their first few years of operation, streamlining food permits for vendors so they only have to obtain one annual permit instead of separate ones for individual special events and expanding zoning rules to allow entrepreneurs to run businesses from “accessory commercial units.”
Austin has passed policies in recent years to make it easier for homeowners to build secondary residences known as “accessory dwelling units” on their property to promote density and increase affordability. Mouton-Johnston said those same principles could be extended to small businesses.
“It would allow for front yard businesses, which would be an accessory commercial unit, [that] serves the neighborhood,” she said.
This change could soon become a reality in Austin. On Thursday, the Austin City Council will vote on a resolution that would allow businesses to operate in residential areas. If approved, the city manager will be directed to produce an implementation plan within 90 days of the vote.
“I do think the city is headed in the right direction,” Mouton-Johnston said. “Being able to have those small neighborhood community storefronts or front yard businesses will be a way to attract more people into Austin and to make those neighborhoods have that character.”
