The Impact of Zoning Laws on the Housing Shortage

From one of the smaller cities in the U.S. – Minneapolis – to the country’s most populous state of California, urban planners are using zoning laws to address the extreme shortage of homes. A report by the Rosen Consulting Group for the National Association of Realtors in June 2021 estimated that the U.S. has underbuilt 5.5 million homes in the past two decades. Thus, builders will need to construct more than two million homes per year in the next decade to close the gap.

Many factors contribute to the housing shortage, which is particularly acute for starter homes and affordable properties. Some jurisdictions are attempting to address the problem by adjusting zoning restrictions. The specifics vary from one location to another but essentially the goals are the same: expand development options beyond single-family homes and allow duplexes, fourplexes, and small apartment buildings in neighborhoods where they were formerly limited.

The Minneapolis City Council was the first to eliminate single-family zoning in December 2018, permitting duplexes and triplexes to exist in neighborhoods where they were once prohibited.  

In March 2019, Seattle “upzoned” about six percent of its residential neighborhoods, giving consent for duplexes in those areas.

In that same year, state lawmakers in Oregon passed a bill to eliminate single-family-only zoning in all cities with 10,000 or more residents throughout the state. Lawmakers in Portland went further in 2020 to adopt rules that allow more duplexes, triplexes, fourplexes, and cottages to be built in communities with single-family homes.

California’s new state-wide zoning law, signed in September 2021, makes it legal to build duplexes on all single-family lots, except in certain fire-prone areas. While California’s size and national influence make this big news, the impact of the change remains to be seen.

“It’s self-evident on a macro level that we have an affordability issue and housing shortage in this country, especially on the coasts,” says Eric Sussman, an adjunct professor in real estate and financial reporting at the University of California, Los Angeles Anderson School of Management. “We have a severe supply problem that needs to be dealt with. To add housing, we need to allow for increased density. One way to do that is to eliminate single-family zoning.”

Proponents of loosened zoning rules hope that allowing greater density will encourage more development of new housing to address the shortage of homes and affordability issues. Opponents express concern about property values of existing homes and potential traffic and transit congestion that could accompany higher density.

Historical Context for Single-Family Zoning

To understand the zoning issues and their contribution to the housing shortage, it helps to look at how these rules were first introduced. Los Angeles offers a good example.

“Historically, in the 1960s, Los Angeles was zoned with a combination of multifamily [apartments and condos] and single-family homes that could easily accommodate about 10 million people,” says Gary Painter, a professor in the Sol Price School of Public Policy at the University of Southern California in Los Angeles. “Over the next several decades, Los Angeles was ‘downzoned’ from multifamily to single-family neighborhoods so that now the city has the capacity to have enough units to house just 4.5 million people. We’re close to bumping against the cap already.”

Today, an estimated 3.9 million people are living in Los Angeles.

“If you look at Los Angeles 100 years ago, it was mostly farmland,” says Sussman. “The urban planners in Los Angeles had a lack of vision about what would happen in terms of density and they fouled it up. They never gave a thought to linking housing with transit hubs and they just focused on creating space for 2,500-square-foot single-family homes with two-car garages.”

Housing policies were used to control growth but were also tied to segregation and racial discrimination, says Painter.

“The kinds of policies that led to single-family housing were also meant to segregate people by income, which de facto segregated people by race,” says Painter. “People didn’t think about the long-term consequences of some of these policies until recently.”

Many cities across the U.S. limit construction in most neighborhoods to detached single-family homes, which means apartments and attached housing are clustered in specific locations.

Exclusionary zoning was used to intentionally reduce the number of homes in different cities, says Painter.

“In the 1970s and 1980s we had a good ratio of housing production to demand, but now it will take a lot to undo the shortage,” Painter says. “We’re just starting to untie our own hands to allow for more production to happen.”

Prognosis for Development

Eliminating single-family zoning hasn’t been a panacea for affordable housing in Minneapolis yet, says Painter. According to an Axios report, only16 new duplexes and four triplexes were built in 2020, and 22 existing properties were converted into duplexes and triplexes, adding about 70 new housing units to the city.

“It’s hard to say how many new homes will be built, but now homeowners have the freedom to tear down their older home and build a duplex to sell both homes or rent one out,” says Painter. “There are some protections in place so that investors can’t buy up a whole bunch of single-family homes and tear them all down. The expectation is that this will increase options but won’t create a rapid change in housing in California.”

In Oregon and Minneapolis, there’s been incremental development of more housing after zoning changes, Painter says.

“The data is murky so far on how much more housing may be created with zoning changes,” says Sussman. “Revised zoning offers progress, but then you need permitting after that through local housing departments. Even if the permits all get through, I think it will have a marginal impact in Los Angeles.”

The Terner Center for Housing Innovation at the University of California, Berkeley estimated in a study that approximately 700,000 new homes would be developed as a result of the change to single-family home zoning rules. Currently, there are more than 14 million housing units in the state.

Painter anticipates new development in California to see the biggest impact of the zoning change.

“Developers may be more creative and develop more diversified communities, especially near transit hubs or job centers,” Painter says. “I can see a mix of duplexes and fourplexes along with single-family homes rather than all single-family homes.”

Painter anticipates more jurisdictions will begin to make zoning changes, particularly in places with a history of exclusionary zoning.

“Opponents of zoning changes will realize that this doesn’t destroy their neighborhood or force the end of single-family homes,” Painter says. “You’re more likely to see changes in neighborhoods in the commercial corridor of a city, especially as people realize that a mix of townhouses and single-family homes is not so bad.”

Painter believes the population will become more open to higher density as they realize their children and grandchildren will be unable to afford to buy homes in the neighborhoods where they grew up unless more homes are built.  

“Inevitably zoning changes will spread to other cities and states, but anti-development sentiments are widespread so it will be a battlefield in a lot of communities,” says Sussman. “It’s economics 101 that the demand for housing is high and demographics show that it will increase. To improve affordability, you have to increase supply and allow for greater density. But that’s a fight because a lot of people don’t want density.”