At present, there is a shortfall of more than 1.5 million affordable housing units in the United States (see Overcoming the Nation’s Daunting Housing Supply Shortage, Urban Institute, 2021). As a result of the housing shortage, families pay more for housing and have less savings. They struggle to attain homeownership and find it difficult to access jobs. Local land use regulations and zoning rules contribute to the national housing supply crisis by artificially limiting housing construction and increasing costs. This article will summarize the impacts of restrictive land use policies and outline reforms that state and local governments may adopt to increase the supply of affordable housing. Much of the information in this article is taken from a study by The Department of Housing & Urban Development (HUD) and published by the HUD Office of Policy Development & Research.
Relevant Research
Restrictive land use and zoning laws are major drivers of the national housing shortage. Short-sighted local policies increase the cost of housing, limit economic growth, accelerate climate change, and maintain residential segregation.
According to “The Impact of Building Restrictions on Housing Affordability,” (Wharton Real Estate Review 7: 5-14, by Edward Glaeser and Joseph Gyourko), the relationship between restrictive land use and zoning regulations and housing prices is especially significant in areas with higher demand. The greatest impact is on lower-income renters and starter homes for first-time homebuyers.
Recent research has demonstrated how restrictive zoning limits a worker’s ability to move to regions experiencing job growth, which has stunted national economic productivity and growth. (See “Housing Constraints and Spatial Misallocation”, American Economics Journal: Macroeconomics 11 (2): 1-39, by Chang-Tai Hsieh and Enrico Moretti). This lack of affordable housing also limits a worker’s ability to find housing near employment centers. This creates longer commutes and limits the ability of employers to attract workers. This forced living in car-dependent locations increases transportation costs and carbon emissions.
Many places use zoning restrictions to limit the types of housing that can be built to keep lower-income, often Black and brown, households from moving in. This forced segregation has well-documented negative outcomes for children, and
segregation via land use and zoning codes reduces access to neighborhoods that are associated with improved resident trajectories, negatively impacting regions’ household incomes, educational attainment, public safety, and health outcomes. In short, restrictive zoning can have Fair Housing Act implications.
Innovation is Occurring
In response to increasing housing affordability pressures and the widespread recognition of the role that restrictive zoning has played—and continues to play—in driving up housing costs and perpetuating segregation, cities, and counties across the country are taking a hard look at their zoning laws and adopting reforms that can help increase housing supply.
While local governments play the most significant role in regulating land use, state governments are beginning to play a role in land reform. Importantly, state governments are more insulated from the “not in my backyard” pressures that often dominate local politics; states typically have broad authority to set the rules by which local governments can regulate land uses, and they can create accountability mechanisms to incentivize local, pro-housing reforms. When combined with incentives and subsidies to enhance affordability, land use, and zoning reforms can significantly impact housing affordability. The most common local reforms being used to increase affordability include the following:
- Increases in Multifamily Zoning: In many parts of the country, it is impossible to build any housing other than single family. A New York Times article in June 2019, “Cities Start to Question an American Ideal: A House with a Yard on Every Lot,” by Emily Badger and Quactrung Bui, revealed that as much as 75 percent of land in major American cities is zoned exclusively for single-family dwellings, and this share is likely much higher outside of large cities. State and local reforms that eliminate or reduce the predominance of single-family zoning create more affordable housing in more places. In 2022, HUD and the Census Bureau published “New Privately-Owned Housing Units Started: Units in Buildings with 2-4 Units.” This study revealed that there were only 16,000 units started in buildings with 2–4 units across the United States, less than 20 percent of the level of construction of these residential buildings in the 1970s.
After legalizing up to four units of housing, Minneapolis, Minnesota, and Portland, Oregon, both saw increases in permits for duplexes, triplexes, and other newly allowed housing types. Portland also allows developers to build up to six units per lot if a portion of those units is reserved for tenants with lower incomes. Maine and California both legalized building two units on lots previously zoned as single-family, the latter of which could enable 700,000 new market-feasible homes. Oregon and California have enabled denser multiunit housing in certain areas of cities, including near transit.
- Development by-Right: By-right development enables housing that complies with zoning and development regulations to be built without discretionary approval. This leads to faster and more reliable development results. For example, in CT, land zoned for single-family housing almost never requires a public hearing before approval, but almost all projects with more than three units must have public hearings. CA on the other hand has made available large tracts of land for housing development by approving by-right housing development in any area currently zoned for parking, retail, or office buildings. These developments are exempt from environmental reviews and are required to provide affordable units.
- Adaptive Reuse: Cities and states can also enable housing production or conversion on land previously zoned for other uses. Due to the new “work-from-home era, demand for commercial real estate is down, which leads to a decrease in property values and real estate tax collections. Office-to-residential conversions could help to solve the dual crises of vacant office space and lack of affordable housing, but the number of buildings suitable for conversion is limited due to restrictive zoning and challenges with building footprints (e.g., reconfiguring building systems and the need for windows in every bedroom). Los Angeles’ Adaptive Reuse Program relaxed zoning and other requirements and streamlined the process for developers, leading to the development of more than 46,000 units since 1999.
- Eliminate Restrictive and Unnecessary Parking Requirements: Most cities have minimum parking requirements (parking spaces required per residential unit), which often mandate more parking spots than market demand would otherwise bear. An article by Jeffrey Spivak, “People Over Parking,” in Planning Magazine in 2018, found that garage parking drives up rents by approximately 17 percent, and other studies have found even larger impacts of minimum parking requirements on rent. Buffalo, New York; Hartford, Connecticut; and Seattle, Washington, have eliminated parking requirements either near transit or across the city and have seen reductions in parking and construction costs in new projects while avoiding using valuable urban land for parking rather than more productive uses. Washington, Oregon, and California have limited parking requirements near transit, while Connecticut enacted parking reform that affects all housing regardless of its proximity to transit.
- Minimum Lot Sizes: Minimum lot sizes are common in local zoning codes and require that each household occupy more land than is otherwise necessary, This has been a traditional method for localities to prevent the development of affordable housing. Reducing minimum lot sizes enables the construction of more “starter homes” and decreases the per-household cost of providing water and other utilities. In 1998, Houston, Texas, reduced minimum lot sizes from 5,000 to 1,400 square feet, which facilitated the development of more than 25,000 new units since then. In 2019, Helena, Montana, abolished nearly all minimum lot sizes, and Billings, Montana, moved from minimum lot sizes to a lot width requirement. Several other states, including Vermont and New Hampshire, have introduced bills to limit minimum lot sizes.
- Transit-Oriented Development: Equitable transit-oriented development promotes affordable housing options in proximity to transit, encouraging people-centered neighborhoods, and reducing displacement in historically disinvested communities struggling with rising housing costs. Both Chicago and Massachusetts have had success with transit-oriented policies. Chicago has legalized more types of housing near transit and has eliminated onsite parking requirements near public transit.
A 2021 Massachusetts law incentivized hundreds of municipalities served by the Massachusetts Bay Transportation Authority to create at least one higher-density multifamily zoning district by right within walking distance of public transportation.
- Streamlining Processes: Permitting adds costs and uncertainty to the development process. Some states are setting time limits on how long cities and counties have to review permit applications (Florida is an example). In 2016, 1,200 affordable dwelling units were built in CA. The state then changed the rules reducing permitting time and limiting utility fees and 12,300 ADUs were built in 2019.
- Bottom Line: HUD plays a vital role in promoting affordable housing in collaboration with other federal agencies. They allocate significant funds annually, including block grants, to support affordable housing. HUD mandates grantees to identify obstacles to affordable housing and is now offering grants to communities for removing these barriers. The American Rescue Plan added substantial funding through HOME-ARP and the State and Local Fiscal Recovery Fund to enhance the housing supply. However, strict land use and zoning regulations limit the effectiveness of these funds in addressing the nation’s housing shortage. Housing operators and local officials should cooperate in the reduction of these unnecessary regulations in order to enhance the potential for the production of affordable housing.