Report: Less-restrictive zoning can increase ‘market rate’ housing supply

Written by Andy Castillo

As communities grapple with a nationwide housing shortage and real estate affordability crisis, new research affirms one solution that local governments can enact to alleviate some pressure: An article published by Urban Institute in the scientific journal Urban Studies concluded that less-restrictive zoning increases housing supply.

“Reforms that loosen restrictions are associated with a statistically significant point-eight percent increase in housing supply within three to nine years of reform passage, accounting for new and existing stock,” reads the report, “Land-Use Reforms and Housing Costs: Does Allowing for Increased Density Lead to Greater Affordability?” The increase in housing availability via slacked zoning restrictions “occurs predominantly for units at the higher end of the rent price distribution; we find no statistically significant evidence that additional lower-cost units became available or became less expensive in the years following reforms.”

Less restrictive zoning regulations include lower minimum sizes for accessory dwelling units, higher building height limits, and lowered restrictions on allowed usage, among other things. Beginning with a dataset of tens of thousands of reforms, researchers studied 180 randomly selected from cities across the United States. In the short term, the researchers found that, after enacting reforms, the cities saw an estimated 43 percent increase in ‘market rate’ housing availability—affordable to families with incomes above the national median—and a 63 percent long term increase.

The opposite is also true. Researchers found when zoning tightened, housing supply decreased.

“Reforms increasing land-use restrictiveness, such as those increasing minimum lot sizes, were associated with a significant, $50 increase in median rents in the post-reform period, but not in the implementation period. These results, interestingly, are somewhat symmetrical to those related to the reforms loosening restrictions,” the report says.

This correlation between zoning restrictions and housing availability highlights the important role local administrators can play in solving the ongoing housing crisis.

Lowering prices is a challenge that’s going to require a multifaceted response, and collaboration across jurisdictional lines and sectors. Housing costs are so inflated right now that mortgage companies for the first time ever lost about $300 on every loan they financed in 2022. That’s down from an average profit of $2,339 per loan in 2021, according to a report from the Mortgage Bankers Association.

The impact on those living at or below the poverty line has been profound. The latest annual Gap report on housing availability and affordability from the National Low Income Housing Coalition found that the lowest-income Americans are facing a “staggering shortage of affordable and available homes,” according to Diane Yentel, the organization’s president and CEO. In Las Vegas, Nev., which had the greatest shortage of housing, there are an average of 14 affordable and available rental homes for every 100 extremely low-income households.

Given that loosening restrictions doesn’t affect lower-income residents as much, the Urban Institute report concludes that “cities should consider pairing direct investments in housing subsidies—such as immediate investments in housing vouchers and project-based subsidies for publicly assisted housing—with reforms loosening restrictions to address both short-term and long-term housing affordability.”

Even with local investment into affordable housing, the National Low Income Housing Coalition’s report concludes that federal investment is a bigger driver of change.

“Local reforms are necessary, but insufficient without federal resources for eliminating the shortage of affordable rental housing for the nation’s lowest-income renters,” the report says. “Only sustained and significant federal investments in rental housing can ensure that the lowest-income renters, who are disproportionately people of color, have affordable homes.”