Excessive land use restrictions are a primary contributor to the ongoing housing crisis, and minimum lot size (MLS) regulations are among the most pervasive. MLS requirements dictate the smallest amount of land on which a home can be built. These rules are often coupled with minimum setback and square-footage regulations, creating a template for what homes must look like to obtain a permit. This bundle of laws makes smaller homes either unprofitable for developers or illegal. The homes produced by these design standards are out of reach for many Americans, underscoring a need for flexible housing options in the low-density forms most appealing to buyers.

Rolling back these regulations where they are excessive can open the door for smaller, denser, and less expensive units. Empirical evidence from many municipalities finds that allowing more homes per acre can lead to an influx of new units at the lower end of the market. Understanding the motivations behind MLS regulations, their current state, and what positive policy change would look like can pave the way for reform in this area.

History, rationale, and current state

Minimum lot size requirements are among the oldest and most pervasive elements of zoning, shaping land use patterns across nearly every city in the U.S. Throughout the 20^th century, MLS regulation expanded, both in where it is imposed and the size of lots mandated. According to a report from the American Planning Association (APA), in the mid-20th century, it was not uncommon for localities to have lot requirements of over 20,000 square feet, with some areas requiring as much as five acres per unit. Despite growing populations, many of these laws have remained stagnant or become more severe. MLS laws serve three functions: generating tax revenue, providing water and sewer distribution, and maintaining aesthetics.

The inception of many MLS laws can be traced back to local tax policy. The Mercatus Center finds that MLS laws expanded during the baby boom, in part, to exclude smaller homes that could not generate enough property tax revenue relative to the number of children who would live in them. Specifically, “by setting a floor for land costs, [MLS] was intended to slow, if not exclude entirely, the entry of such families…”

Additionally, according to the APA, historical justifications for MLS regulations include the ability for local governments to plan their distribution of utilities, regulate congestion, and maintain air quality and health standards. For example, lots must be large enough to accommodate adequate water and sewage service, especially in areas not connected to a central system that relies on disposal methods such as septic tanks. Typically, zoning codes account for different levels of connection by having lower requirements where connection to central systems is possible, and higher requirements where it is not. Laws to ensure a minimum standard of sanitation are understandable. However, the vast majority of American homes are connected to central water and sewage, so sanitary concerns are a somewhat dubious justification in most areas today. Instead, today, MLS requirements are commonly used to promote spacious residential environments and to exclude denser housing options.

Figure 1 depicts the median lot size in each state. One influence is the environment and nature preservation. Nevada, which has the lowest median lot size, is largely uninhabitable, with development concentrated around cities and necessitating more efficient use of space. However, in less environmentally constrained areas, local land-use regulations play a significant role in determining lot sizes. Vermont combines extensive land conservation with some of the most stringent MLS requirements in the country, designed to preserve its rural character. The Northeastern Vermont Developments Association, for example, mandates an acre lot for every family as the densest option.

Often, MLS requirements vary significantly on a granular level. Let’s consider just one state. Florida has a wide range of minimum lot size requirements, determined either at the county or city level. Figure 2 shows the minimum lot sizes in a single city, Plantation, with just over 100,000 residents.

The patchwork of 18 different districts with 10 different minimum lot sizes in Plantation is not the result of meaningful differences in infrastructure capacity, but rather, a legacy of aesthetic preferences. In fact, Plantation was founded in the 1950s with the vision of large lots, fruit gardens, and a unique feel to every home in mind. Initial advertisements for the “anti-development” bolstered that there would be “a full acre with every home,” to prevent crowding. The zoning code accompanied these preferences to ensure this outcome. While a large home far from neighbors is the dream for many, codifying this preference into law has downstream consequences that cannot be ignored. Today, the median home sale price in Plantation is $515,000, well over Florida’s median of $404,400. Prices in Plantation have climbed so high that the city has signed on to a countywide gap-finance effort, despite a history of being resistant to affordable housing measures. Crystalized policy has not allowed Plantation to adapt to its modern challenges, highlighting a need for reform in this area. While their stories may be less clear, most other localities across the nation look just like this. Each county has its own version of these regulations, leading to varying MLS standards that can change from city to city and even street to street. As these areas look to tackle their affordable housing challenges, it would be helpful to reassess existing rules, such as minimum lot sizes, rather than trying another complicated and expensive approach.

MLS regulations and the cost of development   

The cost of housing can be divided into several categories, and the relative proportions depend on many factors. Location, current market conditions, and home construction processes all determine the division of cost categories. While construction is typically cited as making up the majority of the cost of new housing, evidence from Redfin suggests that, depending on location, the cost of land acquisition can be substantial. Tracking the cost of land as a share of home values across 40 U.S. metros, Redfin finds that the cost of land can be up to 60% of the home’s value. Of the top 20 metros with the highest land-cost-to-home-value ratio, nine were in California, with the rest in other notorious high-cost areas, including Boston, New York City, and Seattle. Requiring developers to purchase more land than they need influences the types of projects they can take on and the cost of housing down the road.

Research finds that MLS regulations raise housing prices in two ways: directly and indirectly. Accounting for 78% of the cost increase, the direct effect refers to mandating larger homes, which are naturally more expensive. The indirect impact captures the amenities that larger lot sizes create, for example, less congestion and higher local tax revenue. A 2011 study of homes in the Boston area corroborates this finding, estimating that areas with restrictive MLS regulations have home prices 20% higher than towns that do not. Further, regions that restrict their MLS are likely to experience rapid home price appreciation after the restriction takes effect. The study finds that towns experienced home price increases of up to 40% 10 years after an increase in MLS listings, controlling for other factors. Importantly, this relationship goes both ways.

Houston, Texas, has among the most liberal land use rules in the country, and this trend extends to minimum lot sizes. In 2013, Houston expanded a previous policy allowing lots as small as 1,400 square feet across most of the city. This reduction is credited as one of the reasons home prices in Houston, even in its urban core, have remained lower than in comparable metros across the country. A flexible policy has made Houston resilient in a time of strain. Minimum lot-size rules raise housing costs across the board, and their impact is burdensome on entry-level homes.

Small single-family homes, often referred to as starter homes, have been hit especially hard by large lot size regulations, contributing to the phenomenon of the “missing middle.” This phrase refers to the decline of middle-density development affordable to middle-income earners. By mandating expensive land purchases, small housing becomes unprofitable. Just by allowing more homes per acre, massive supply additions can be made specifically for middle-income buyers. Estimates by the American Enterprise Institute (AEI) find that single family homes were built at an average rate of 5.5 units per acre (~8000 sq ft) from 2000-2024. Even a modest increase in density of eight units per acre (~5400 square feet) could have added 4.8 million additional units in this time frame. These findings are not just theoretical; they are supported by profit incentives that developers respond to. Data from the U.S. Census Bureau show that between 2009 and 2024, the percentage of single-family homes built on 7,000-square-foot lots or smaller rose from 25% to 39%, indicating a desire among developers to supply these density levels—if they are allowed to do so.

While large homes and neighborhood amenities are desirable for many, they should not be the only option. When land is a primary expense, requiring developers to purchase more of it than they need is a substantial barrier to new supply—especially for lower cost options. In combination with other regulatory reforms, many high-cost areas would benefit from allowing smaller land parcels for housing development.

Policy recommendations

Fully addressing current housing challenges requires not only expanding total housing supply but also enabling the construction of the types of homes that reflect the preferences of buyers, particularly single-family housing in the form of starter homes. Reforming minimum lot sizes will lower prices for many housing types, and it is an especially critical step toward opening the single-family market.

Key points

As policymakers work to liberalize land use in their communities through MLS reform, here are several key points to consider:

#1 Reduce and standardize minimum lot sizes

Where central water and sewer connectivity is possible, states and communities should reduce and standardize their MLS to modest entry-level sizes. While different communities will have varying levels of willingness, any change in regulations could increase the supply of affordable units. By reducing and standardizing, states can create a predictable development atmosphere and enable more efficient use of space where desired. Standardization also aids city planners in accounting for utilities, one of the primary motivations behind MLS regulations from a planning perspective. Importantly, reducing lot size minimums does not mean that every neighborhood will be dense—just that developers can offer more options to prospective residents.

#2 Couple MLS and dimension requirement reform

While clear MLS reform is the top priority in this area, these reductions must be supported by accompanying dimension reforms. For example, setback rules specify how far a structure must be from the edge of the property line. Setbacks are often justified on grounds of fire safety or privacy, but are frequently used in practice to maintain a suburban or rural feel for communities. If safety were the true motivation, it raises the question of why urban areas with far smaller setback requirements are not viewed as comparably at risk. Much like MLS, these laws mandate inefficient use of space and result in higher prices for residents. Reducing minimum lot sizes should be paired with adjustments to setback requirements to ensure land is used efficiently.

Further, square-footage requirements for structures restrict small housing options, like tiny homes (defined as having 400 square feet or less of living space). While some areas have changed their square-footage minimums to accommodate these housing options, many maintain larger minimums. For small lots to make sense, they must be paired with small homes. Together, MLS and dimension reforms enable compact development.

#3 Allow lot-splits by right

Lot splitting is dividing one existing lot into two or more lots. Allowing lot splits is critical for infill development and complements MLS reform by creating options for existing neighborhoods. For example, lot splits are a great way to integrate smaller housing options, like tiny homes and accessory dwelling units. Because adjusting minimum lot sizes only affects future development on raw land, it may fail to capture areas that already have homes but include property owners interested in more density. Allowing this practice by right is a valuable tool to ensure MLS reform reaches its full potential.

Recent lot size policy reform: Case studies

As housing becomes an increasingly relevant policy action item, several states and localities have reformed their MLS regulations. Below are three recent examples of putting the policy recommendations above into practice.

Maine, House Paper 1224 (2025)

In April 2025, Maine passed House Paper 1224, banning any municipality from setting an MLS requirement greater than 5,000 feet per dwelling unit in areas connected to central water and sewer systems. Importantly, this bill includes a provision that setback and other dimension requirements cannot be stricter for multifamily housing than for single-family housing, though no specific maximum is given. In addition to reforming lot size requirements, this bill loosens density rules and allows affordable housing projects an additional story above the existing local height limit. HP 1224 ranks among the most comprehensive, clear, and far-reaching statewide minimum lot size reforms to date.

Texas, Senate Bill 15 (2025)

Texas’ 2025 Senate Bill 15 sets a minimum lot size of 3,000 square feet for single-family lots in new subdivisions larger than five acres. These provisions apply only to municipalities with more than 150,000 residents at least partially in counties with over 300,000 residents. In qualifying municipalities, SB 15 also provides maximum setback limits. As of 2025, municipalities within 19 out of Texas’ 254 counties meet the county population requirement to be subject to SB 15. While this change may seem incremental, the passing of this bill represents a massive win for Texas. The provisions in this bill were contentious and required revision from an initial 1,400-square-foot minimum proposed due to pushback from House members. While not as sweeping as initially desired, SB 15 opens the door for further reform and establishes a significant win for efficient use of land in the populated areas where Texans need it most.

The City of Pittsburgh, Pennsylvania, Legislation 1579 (2025)

In Pittsburgh, Pennsylvania, a recent MLS reform reduced requirements across all existing subdistricts, effective May 7, 2025. Table 1 includes the change in minimum lot size per dwelling unit for each subdistrict.

Table 1: Pittsburgh Minimum Lot Size Reform by Subdistrict

Source: The City of Pittsburgh

While Pittsburgh’s current median home price is $235,000, which is well below the national average, prices in the city are rising. Through this legislation, lawmakers are taking active steps to ensure residents and developers are not faced with arbitrary hurdles.

Conclusion

Reducing MLS requirements does not mean mandating density or erasing existing neighborhood character. Instead, it provides flexibility, allowing communities to grow with their needs and respond to housing challenges as they arise. Buyers need these smaller homes, and developers are willing to answer. Reducing these regulations could substantially increase supply in the coming years through medium-density development. Homeowners can still enjoy traditional large single-family options, but others gain access to homes that better meet their needs, desires, and budgets. Given current home prices, mandating inefficiency through outdated lot size regulations is no longer a viable option.

The post Mandating inefficiency: Minimum lot size regulation and housing appeared first on Reason Foundation.

One reason the act has gained support is that it avoids preempting local zoning authority outright. Instead of overriding local control, the act focuses on research, guidance, and incentives for localities that choose to reform their zoning and regulatory frameworks. While this approach may seem like a balanced first step, it raises important questions about how far federal agencies should go in shaping local decisions. Incentives and guidance can easily evolve into indirect pressure, administrative burdens, or expectations that narrow the flexibility of states and localities. Even if all the bill’s provisions are implemented, it will not, on its own, significantly reduce price pressures. States and local governments still must reform their restrictive systems.

The ROAD to Housing Act utilizes a range of policy tools, grouped into four general categories: mandated reports, financial incentives for regulatory reform, adjustments to housing finance programs, and updates to existing federal supply-side initiatives. This bill takes the unusual step of focusing on expanding housing supply before turning to subsidy-heavy approaches, which marks a shift from many earlier federal housing proposals. Even with this emphasis on supply, the breadth of the bill makes it difficult to evaluate as a cohesive policy approach, and combining many unrelated programs into a single package increases the risk of mission creep, a problem common across federal housing initiatives.

New reports

A major component of the ROAD to Housing Act is its mandate for a series of reports from the Government Accountability Office (GAO) and the Department for Housing and Urban Development (HUD). Many of the reforms highlighted in these guidelines are supported by evidence, including reducing minimum lot sizes, parking reform, allowing accessory dwelling units (ADUs), and streamlining both zoning and building codes. Collectively, these reports would be mandated by the Housing Supply Frameworks Act. The Housing Supply Frameworks Act is the portion of the broader bill that directs GAO and HUD to develop these reports and model guidelines, essentially serving as the research and planning section within the ROAD to Housing Act. However, federally curated guidance often becomes an informal standard that localities feel pressured to follow, even when local conditions differ. Analysts at institutions focused on federalism have frequently warned that benchmarking and advisory frameworks can grow into de facto expectations that add new bureaucratic oversight without meaningfully accelerating supply.

However, requiring research and monitoring by HUD and GAO into these reforms is not equivalent to enacting them. Local governments must implement these changes to enable supply adjustment, and that is where they are likely to encounter resistance. Knowing these barriers, this act goes one step further to nudge local governments toward enacting these proposed reforms.

Federal financial incentives for reform

Beyond requiring research, the ROAD to Housing Act establishes several incentives to local governments that expand their housing supply. Most notably, it establishes a $200 million “Innovation Fund,” which will be awarded annually by HUD to local governments that demonstrate measurable supply expansion from 2027 to 2031. Grants will range from $250,000 to $10 million and be awarded to no fewer than 25 recipients annually.

This could encourage cities to take on politically difficult zoning reforms. However, federal grants can also cause jurisdictions to prioritize actions that maximize eligibility rather than reforms that address the most significant structural barriers. Jurisdictions may make symbolic or superficial changes to qualify for funding while avoiding deeper reforms that could truly expand housing options. There is also the possibility that some jurisdictions will benefit from market-driven supply increases unrelated to any policy change, while others with genuine constraints receive little or no support.

In addition, the ROAD to Housing Act establishes several other grant programs to expand home supply through rehabilitation. Notably, the Whole-Home Repairs Act and the Revitalizing Empty Structures Into Desirable Environments (RESIDE) Act give grants and forgivable loans to low-income homeowners and small landlords looking to repair old or dilapidated structures, through differing avenues and terms. Further, under the Accelerating Home Building Act grants are provided to local governments to develop pre-approved designs. These grant programs are also to be administered through HUD. 

Rehabilitation programs help preserve aging housing and prevent the loss of existing units. Still, they do not meaningfully expand overall supply in markets where zoning and permitting rules limit the addition of new homes. The act also supports pre-approved building designs through the Accelerating Home Building Act. These efforts may help simplify parts of the construction process, but without broader zoning reform, pre-approved plans will not significantly expand supply. HUD’s growing portfolio of grant programs also raises concerns about administrative complexity.

Mortgage reform

The ROAD to Housing Act includes several demand-side tweaks to the existing housing finance landscape to aid accessibility. Included as part of the act are incentives to increase the role of small-dollar loan originators and the expansion of Title I loans to cover the construction of accessory dwelling units (ADUs) and the purchase or improvement of manufactured homes. Further, this act expands existing financial literacy programs.

While these may help certain borrowers, demand-side tools do not directly address the primary driver of high prices: inadequate supply in many communities. If supply does not increase, new lending programs can unintentionally raise prices by boosting purchasing power without increasing the number of available homes. Because the act also aims to encourage supply-side reform, the risk is smaller than in past demand-driven programs, but it still warrants caution.

Reforming existing housing programs

Finally, this act makes several positive adjustments to existing housing programs. For example, it lifts the cap on the Rental Assistance Demonstration (RAD) program, which allows local Public Housing Authorities (PHAs) to convert public housing into privately-managed Section 8 housing and is largely beneficial for tenants. Further, through the Build Now Act, it ties community block grants, one of the largest federal affordable housing and development grants, to broader housing supply, thereby again incentivizing land-use liberalization. Regarding private investments in affordable housing, it raises the cap on public welfare investments by banks, many of which directly support affordable housing initiatives.

This could encourage better land-use regulation, but it also imposes additional conditions on one of the largest federal development programs. The expansion of caps on public welfare investments for banks will likely increase private capital in affordable housing projects, though it also raises questions about the growing federal influence over private investment decisions.

Conclusion

Taken together, these provisions aim to connect federal programs more directly to local regulatory reform and affordable housing investment. The intent is to support voluntary action rather than mandate it. However, there is a real risk that expanding federal incentives, guidance, and grant programs will overshadow the need for comprehensive local reform. A meaningful improvement in housing affordability still depends on states and cities reducing exclusionary zoning, shortening permitting timelines, and updating outdated building codes. The ROAD to Housing Act identifies many contributors to high housing costs and encourages local governments to take action. The bill includes several positive elements, especially the emphasis on zoning reform and regulatory streamlining. At the same time, it carries risks of administrative expansion, program duplication, and indirect federal involvement in land use decisions. A balanced assessment should highlight both the promise and the pitfalls of the act. Federal guidance and financial incentives can only support affordability if they help remove barriers to housing expansion rather than add new layers of oversight. Genuine progress requires local and state governments to confront and reform the regulatory barriers that continue to limit housing supply

The post The ROAD to Housing Act carries promise but risks bureaucratic expansion appeared first on Reason Foundation.

The common thread from stories to political campaigns to proposed legislation is the claim that institutional investors buy up homes to rent them out for profit, and in doing so, crowd out families who want to buy homes to live in. At the same time, these investors also drive up rents and tend to be absentee landlords who don’t take care of properties. But a closer look at what’s actually happening in the market shows that almost the opposite of all that is happening: Institutional investors are actually helping renters.

The first clue that institutional investors are not likely to be the driver of housing costs or rents is that they only own about two percent of the total single-family housing stock in the United States, though they own almost 40% of apartment buildings. There are good reasons for both numbers.

When the housing market crash triggered the Great Recession in 2008, millions of mortgages went into default, and many of those homes wound up owned by banks and by federal lending institutions Fannie Mae and Freddie Mac. At that time, only institutional investors were in a position to buy those homes from the lenders and get them back on the market. In fact, before 2011, no investors owned more than 1,000 units.

A similar shift occurred during the pandemic, as thousands of landlords saw their rental income plummet, leading many to sell out or walk away. Again, institutional investors had the capital to get those homes back into the rental market. Without institutional investment in stores, millions of homes likely would have sat vacant for years.

Neither of those crisis opportunities for institutional investors is happening today. Housing analyst Kevin Erdmann has pointed out that almost all purchases of homes by institutional investors happened at the time of crisis, and their growth has been minimal since then. A shift in ownership years ago is not what is driving housing prices and availability today. Erdmann notes that in 2004, there were 33 million rental households, which grew to 44 million by 2016. But during that same time, only three million single-family homes were built, so about eight million single-family homes shifted from being owned to being rented. Despite that shift, census data shows that the homeownership rate in the U.S. increased by over two percent since 2015, even as investor ownership grew.

In fact, in the subsequent years, while the rate of homeownership was growing, the rate of building permits was half the rate at the peak of U.S. homeownership, and the rate of construction of new homes was flat. So, homeownership was growing as homes shifted back from being rented to being owned.. Institutional investor-owned rentals have not been crowding out homeowners; instead, rising numbers of homeowners combined with slow growth in housing stock mean homeowners have been crowding our rental housing!

Meanwhile, there’s no evidence that institutional investors are letting the housing they own fall apart. The Urban Institute argues that institutional investors tend to purchase homes in need of repair and “can repair these properties more quickly and efficiently than an owner-occupant generally can.” It makes sense: Fixer-uppers cost less, and with economies of scale, it will cost less per unit to remodel and repair a large number of homes in an area than just a single home alone.

Banning investor-owned housing doesn’t work—Dutch city Rotterdam tried it in 2021 and promptly saw rents increase and displace low-income families. In truth, fears surrounding investor-owned housing are just red herrings in trying to understand the housing crisis.

The real culprit is local government restrictions on housing supply. Homeownership growth since 2016, not investor-owned housing, has crowded out rental housing. If rental housing permits and construction had kept up, increased home ownership would not be a problem, but permitting of new rental housing has not kept pace with demand.

Persistent regulatory barriers, including zoning restrictions, minimum lot sizes, limits on multifamily housing, and long and costly permitting processes, have made it difficult, if not impossible, to adjust to the rise in demand in a cost-effective way. According to a recent paper from the National Bureau of Economic Research, barriers to building have led to fewer homes being built: “If the U.S. housing stock had expanded at the same rate from 2000-2020 as it did from 1980-2000, there would be 15 million more housing units.”

This is why states as politically diverse as California, Texas, Vermont, and Montana have passed laws in the past few years that require local governments to allow more housing to be built and reduce restrictions, costs, and delays on new housing.

It really works. Austin, Texas, pursued one of the most aggressive efforts to change policies to allow more housing construction, allow more density in parts of the city, and allow a wider range of housing types. The result is that average rents dropped by 22 percent, about $400/month.

It is not the infusion of capital from investors that disrupts housing markets; rather, it is local government policies that fail to allow supply to keep up with demand. Banning institutional investors will not help, but allowing housing supply to fulfill the needs of both renters and owners will.

The post Investor-owned housing helps renters appeared first on Reason Foundation.

As with all policies, there are trade-offs, and in the case of the Low-Income Housing Tax Credit, the trade-offs have been substantial. It is likely that its positive outcomes can be brought about through simpler, more widespread, and less burdensome means. While the LIHTC has maintained bipartisan support since its inception, it is worth considering whether alternative policies would better address current housing needs. 

How does it work?

The Low-Income Housing Tax Credit was established through the Tax Reform Act of 1986 and made permanent in 1993. Between 1987 and 2023, the Department of Housing and Urban Development (HUD) calculated that 3.7 million housing units had been created under this program. To achieve this, the federal government allocates population-proportionate federal income tax credits to states, which then distribute them to qualifying projects either directly or through a competitive application process.

To apply for the LIHTC, developers must set aside a minimum proportion of units meeting specified affordability requirements. These units can take a variety of forms, including multifamily developments or several detached single-family homes. Though credits are distributed over a period of 10 years, qualifying developments must maintain affordability for at least 15.

A development can qualify for one of two LIHTC versions–4% and 9%. Once developers are granted these credits, they sell them to investors to finance the costs of construction. Entirely new projects and substantial property rehabilitations are eligible for a 9% credit, which finances 70% of the cost of construction. For lighter repairs and property acquisitions, a 4% tax credit is offered, which then finances 30% of costs. The 9% and 4% figures are applied to specific construction costs, often referred to as the “eligible basis” of the property, to determine the size of the tax credit. Calculating the eligible basis of a property requires intimate knowledge of the tax code and the costs associated with each development. The complexity of calculating these credits and applying them remains one of the largest challenges of the program.

Despite its intricacy, the LIHTC remains a favorite among federal legislators. While many programs were slashed during the 2025 budget reconciliation, the LIHTC grew. The One Big Beautiful Bill Act permanently increased the number of 9% credits each state can give by 12% and loosened the financing requirements, environmental consideration incentives, and depreciation deductions for LIHTC properties.

Benefits

Through its nearly 40 years in operation, the LIHTC has been associated with several documented benefits. A 2019 study found that units built through this program have positive spillover effects, especially in low-income neighborhoods. Specifically, LIHTC developments are linked with lower property and violent crime, potentially due to the stability these developments provide for the community and the introduction of security measures. Further, low-income neighborhoods surrounding a LIHTC development have observed home price increases, though the opposite was seen for high-income neighborhoods.

Additional research has found a connection between LIHTC developments and locational efficiency. Locational efficiency in the context of affordable housing is the ease of access to everyday destinations like work, school, and shopping locations. Specifically, between 25% and 50% of LIHTC developments built from 2007 to 2011 were placed in location-efficient areas, meaning substantial transportation gains for residents. This benefit is particularly helpful because low-income residents have been priced out of these lucrative areas across the nation. The LIHTC program is one avenue for low-income residents to access locationally efficient areas and the benefits they bring.

Concerns

Despite some success, the Low-Income Housing Tax Credit has several major drawbacks. A 2010 study finds the LIHTC does not increase the overall stock of housing and instead produces a “crowding-out” effect. Rather than bringing in developers from other endeavors (like commercial development) to add to the stock of housing, the LIHTC is primarily utilized by developers already specializing in housing construction. A University  of Wisconsin study corroborates this finding, observing “no significant relationship between the number of LIHTC units (and other subsidized units) built in a given state and the size of the current housing stock, suggesting a high rate of substitution.”

The existing housing crisis is the result of a persistent housing shortage. The substitution observed by the available academic literature suggests the LIHTC does not address this fundamental problem.

Further, a 2009 study found that LIHTC developments are generally more expensive to construct than market-rate units, stating, “the program encourages developers to construct housing units that are an estimated 20% more expensive per square foot than average industry estimates.” In some notoriously high-cost areas, these figures have reached staggering figures, with per-unit costs as high as $898,837 in Chicago, and $708,000 on average in California.

There are several reasons for these high costs. First, basing the amount of tax credit awarded on the eligible basis of a development does not incentivize cost minimization. Further, the administrative costs of building affordable housing through this program can be steep. Receiving and using this credit requires extensive documentation and verification on behalf of the developer and their accountants, not to mention the administrative costs that come with housing development in general. Both the material and compliance costs of these developments exceed those of their market-rate counterparts. The LIHTC creates an incentive structure and regulatory framework antithetical to an efficient use of resources.

Finally, as with many subsidy programs, the LIHTC has been fraught with corruption. From several documented cases of developers inflating reported construction cost figures for larger credits to state officials leveraging credit awards for political gain, there are abundant opportunities for federal funds to be misused.

With so many remaining questions about efficacy, cost, and corruption, this program appears to have fallen short of its goals. As policymakers at all levels of government consider tools to address the ongoing housing crisis, it is important to consider alternatives to the LIHTC.

Conclusion and alternatives

The Low-Income Housing Tax Credit fails to address the root of existing housing challenges. It gets one thing right: there is a severe housing shortage, especially for low-income residents, and building more units is the answer. However, the documented benefits of the LIHTC are not necessarily program-specific and instead are the result of building housing affordable to low-income individuals in desirable areas generally. Other programs and market outcomes share the credit. Instead of expanding already overcomplicated and inefficient incentive programs, like the LIHTC, the government should consider stepping out of the way.

The National Low Income Housing Coalition estimates that the lowest income groups are short 7.1 million units as of 2025. Closing this gap is going to require building and entrepreneurship, not a burdensome regulatory process. Policies from rent control to restrictive zoning have made investing in housing affordable to low-income individuals either impossible or unprofitable. Easing rules around density, parking, and permitting would unlock new housing supply, something LIHTC struggles to deliver at scale. Even small legislative tweaks could bring about massive additions to housing supply with little additional cost to the taxpayer. Zillow estimated in 2019 that allowing duplexes on one in ten single-family lots could add over 3.2 million new units over the next 20 years across the 17 largest US metros. More drastic changes would bring more drastic results. Just in the Los Angeles area, Zillow notes that allowing four homes on 20% of single-family homes would “add more than 1.5 million more homes than allowing only one additional home on the same lots.”

Medium-density development is often less expensive due to its smaller size, making it ideal for low-income families. When local and state governments pass legislation allowing it, developers respond. Instead of continuing to distort these markets through a complicated tax credit, federal policymakers should encourage state and local officials to remove laws that discourage housing construction and allow regional adjustment to meet local housing needs. Supply expansion is possible without a middleman; it just must be allowed to happen.

The post The Low-Income Housing Tax Credit does not address the root of America’s housing challenges appeared first on Reason Foundation.

This rush to ban certain entities from owning homes flows from a misunderstanding of their effect on the housing market and their small presence in the single-family housing market. Evidence shows institutional investors in housing rarely displace individuals from the housing market or increase prices, but local government restrictions certainly do reduce housing supply and drive up prices.

Professional housing providers first significantly appeared in the aftermath of the 2008 housing and financial crisis. Before 2011, no investors owned more than 1,000 units. After the housing crash, investors purchased foreclosed homes, anticipating a rebound. This helped to balance the mass exit of individual homebuyers and prop up housing prices that were in freefall, which meant significantly fewer abandoned homes and dilapidated neighborhoods.

Today, institutional investors only own about 2% of single-family housing in the United States, which is far from a crisis. They did not displace individuals or families—census data show that the homeownership rate in the US increased by over 2% since 2015, even as investor ownership grew.

Professionally managed housing provided a much-needed increase in the supply of single-family rental housing. The Government Accountability Office found that, over time, institutional investors are increasingly paying for the construction of new rental houses rather than buying existing homes. The Urban Institute has pointed out that institutional  investors tend to purchase homes in need of repair and “can repair these properties more quickly and efficiently than an owner-occupant generally can.” Fixer-uppers cost less, and with economies of scale, institutional investors can repair a large number of homes at lower cost.

And banning investors has failed. Rotterdam in the Netherlands banned them in 2021, which promptly triggered a 4% increase in rents, displaced lower-income families, and led to homes being purchased more often by richer and older buyers. Hardly a victory for affordability or equity.

Blaming institutional investors distracts focus from addressing real housing problems. The market is not acting as the critics of institutional investors say. If investors are driving up prices, the natural market response would be to increase supply so that homebuilders could sell to both investors and families. If supply keeps up with demand, prices won’t fluctuate much. But while prices did increase, housing supply hasn’t kept up. Persistent regulatory barriers, including zoning restrictions, minimum lot sizes, limits on multifamily housing, and long and costly permitting processes have made it difficult, if not impossible, to meet the rise in demand in a cost-effective way. According to a recent paper in the National Bureau of Economic Research, barriers to building have led to fewer homes being built. In fact, the paper finds that “If the U.S. housing stock had expanded at the same rate from 2000-2020 as it did from 1980-2000, there would be 15 million more housing units.”

Investors see that and are likely to continue to invest in single-family homes. When Jeff Bezos launched a new company to invest in buying rental properties, he pointed out that after years of housing supply not keeping up with demand, it was a sure investment. Rather than being a cause of persistent high prices in the housing market, investors are aware of the major shortage. Should barriers be reduced, not only would prices fall, but it might also spark a reduction in the presence of institutional investors. This is why states as politically diverse as California, Texas, Vermont, and Montana have passed laws in the last few years that require local governments to allow more housing to be built and reduce restrictions, costs, and delays on new housing.

It really works. Austin, Texas, pursued one of the most aggressive efforts to change policies to allow more housing to be built, more density in parts of the city, and a wider range of housing types. The result is that average rents dropped by 22%, about $400/month.

It is not the infusion of capital from investors that disrupts housing markets; it is local government policies that do not let supply keep up with demand, creating a shortage that attracts investors. The increased involvement of investors in the housing market should be a wake-up call to policymakers. Housing supply should be able to fulfill the needs of both the single-family rental and the for-ownership sectors of the broader housing market.

A version of this column first appeared at RealClearMarkets.

The post Institutional investors are not making housing more expensive appeared first on Reason Foundation.

Table 1: 2023 Montana Housing Reforms and brief synopsis

2023 legal challenges

These bold reforms have not been without their legal challenges. In late 2023, Montanans Against Irresponsible Densification (MAID), an interest group created to challenge the state’s sweeping zoning reforms, filed a suit against the state. They claimed these new bills violated “Montana and U.S. Constitution’s Equal Protection guarantees” as well as “substantive due process protections” by reversing local zoning restrictions without sufficient justification. As written in the original plaintiff’s motion for temporary restraining order specifically against Senate Bills 323 and 528 (see Table 1), the essence of these concerns rests on a fear that residents may “wake up one morning to find that, without any notice at all, a new duplex or ADU is going up next door in their previously peaceful and well-maintained single-family neighborhood.”

Initially, a Gallatin County District Court sided with MAID and granted a preliminary injunction. However, in 2024, the Montana Supreme Court overturned this initial decision and ultimately upheld the initial zoning reforms. The court concluded that housing does, indeed, constitute a legitimate state interest and provided enough justification to warrant overhauling restrictive local restrictions.

This decision by Montana’s highest court provided the basis for even bolder reforms in 2025.

Taller buildings

During the 2025 legislative session, the Montana state government passed Senate Bill 243, allowing taller buildings in areas that previously prohibited their construction. Specifically, in municipalities with more than 5,000 residents, maximum height restrictions are not permitted to be lower than 60 feet. Typically, this corresponds to anywhere between five and six stories. The 5,000 resident requirement is a common feature of these types of legislation because that is the Census Bureau’s qualifier for an area to be considered “urban.” This step mandates that localities allow the option for a more efficient use of space in urban areas. This law will take effect on October 1, 2026.

Impact fee reform

Impact fees are one-time fees charged to developers to offset the cost of the additional strain on public resources caused by their new construction. These fees typically go toward roads, emergency services, and schools. While impact fees are, in general, good policy tools to offset the burden on existing residents through property taxes, it is vital that these fees are proportional to the impact they are designed to mitigate. If impact fees are excessive, poorly designed, or regressive (meaning they are a higher proportion of home value for smaller homes), these fees can be unfair or even discourage development.

Through Senate Bill 133, the Montana State Legislature took steps to make sure impact fees in their state are properly designed. In addition to existing state guidelines that require impact fee calculation to be proportional and in accordance with Generally Accepted Accounting Principles (GAAP) new legislation forbids impact fees to increase by more than the rate of inflation. This provision prevents unjustified impact fee increases, taking steps to not only enact proportional impact fees but maintain them over time.

Manufactured housing

Manufactured homes are typically assembled off-site and then transported to the desired final location. Traditional homes, in contrast, are constructed on-site from start to finish. Importantly, manufactured homes do not include mobile homes or trailers. Senate Bill 252 makes a statewide change to local zoning laws, requiring local governments to treat manufactured and factory-built homes exactly as they would traditional homes. Manufactured homes are typically less costly than traditional homes, so they present an affordable option for prospective homebuyers. SB 252 takes precautions to ensure these homes are not barred from certain neighborhoods due to their construction method, expanding housing opportunities across the state.

Continuing ADU reform

Montana’s Senate Bill 532 explicitly builds on and revises SB 528, the state’s 2023 ADU reform. The original 2023 legislation made bold moves in expanding the areas in which ADUs can be built and getting ahead of many ADU killers (owner occupancy requirements, impact fees, etc.), but included some restrictions. For example, initial restrictions required that these ADUs be no larger than 1,000 feet or 75% of the floor area of the primary dwelling. SB 528 strikes this requirement.

On the other hand, SB 528 originally banned counties from requiring a parking space for ADUs. The 2025 version reinstated counties’ ability to require parking for ADUs. Finally, SB 532 qualifies ADUs on parcels already connected to public water and wastewater service for a 15-day expedited review. Largely, these 2025 revisions make it easier to permit an ADU and start construction. ADUs are an infill tool to aid existing housing supply problems. While they don’t offer a universal solution, they are great options for low-income individuals, homeowners looking to make additional income, and extended family. Likely due to intense early criticism of ADU legislation in the state, the legislature has only made this bill a trial. As currently written, this new law will sunset on September 30, 2029.

Single-exit stairways

For decades, the International Building Code (IBC) has required that buildings with multiple floors have two exit stairways accessible from each point in the building. These requirements arose from a concern over safety in the case of a fire emergency. Existing analysis suggests that having these requirements for four to six-story buildings makes construction more expensive, without realizing the promised safety difference compared to single-exit stairways. Existing estimates suggest that single stairway buildings can cut anywhere between 6%-13% off the cost of construction. Further, additional stairways either encroach on living space or require larger parcel purchases. With the Montana State Legislature actively looking to encourage new multifamily construction, they amended this requirement via Senate Bill 213. This legislation tentatively relaxes building requirements, allowing single-exit stairways in buildings no more than six stories tall, with no more than four units on each floor. To qualify, buildings must also meet specified fire safety standards, like being equipped with automatic sprinklers and having windows in each unit.

Parking reform

Excessive parking requirements substantially increase the costs of new housing construction. States across the nation have taken steps toward loosening their parking requirements to lessen the burden on developers and encourage more building. While minor parking provisions have been included in several other bills, House Bill 492 is Montana’s most extensive parking reform to date. Under this law, municipalities with more than 5,000 residents may not require more than one parking space per unit or one-half parking space for units under 1,200 square feet on multi-family developments. For residential units more broadly, this bill prohibits requiring more than one parking space per unit, or any requirement at all for non-multifamily units under 1,200 square feet. Developers are, of course, still able to add more parking if they choose. HB 492 bill is effective October 1, 2026.

Conclusion

Montana’s housing crisis has been over a decade in the making, and no policy can provide an overnight solution. Many of these 2025 reforms have yet to take effect, and it is still too early to see the results of the 2023 bills. All markets take time to adjust, construction being especially time-consuming, so these policy reforms have yet to manifest in lower home prices for Montana residents. However, expanding supply through incremental reform is the clearest path toward relief for the state’s residents. These 2025 bills, in coordination with those passed in 2023, provide a foundation for Montana’s housing market to adjust to the new challenges placed on it.

The post The ‘Montana Miracle’ continues through housing reform passed in 2025 appeared first on Reason Foundation.

On the news, social media, and even in legislatures, housing market speculators have been taking the blame for high home prices.

CBS Miami said earlier this year, “Finding an affordable home in Florida is becoming increasingly difficult for families as corporate investors buy up properties, driving prices up and limiting options for local buyers.”

Even in Congress, several bills have been introduced to restrict investors from buying houses, and at least half a dozen states have seen similar legislation. Despite calls for such restrictions in Florida, the legislature has instead focused on passing several bills like the Live Local Act that make it easier to increase housing supply statewide.

There has been growth in the role of institutional investment in the housing market throughout the last 20 years, but speculation by major financial players is far from the primary culprit behind current sky-high home prices. Lagging supply remains the largest driver of high housing costs. Rather than being a cause, persistent high prices in the housing market have attracted these investors who are aware of the major shortage.

When Amazon’s Jeff Bezos launched a new company to invest in buying rental properties, he pointed out that after years of housing supply not keeping up with demand, it was a sure investment. Stagnating supply and existing barriers to additional construction are what make entry into the housing market lucrative for investors. Should barriers be reduced, not only would prices fall, but it might spark a reduction in the presence of institutional investors. So, Florida’s legislators are on the right path on housing.

Indeed, there is good reason not to be distracted by the issue of institutional investors. Researchers at the Urban Institute categorize investors in the single-family home market as “mega investors” with over 1,000 units in diverse locations, “small investors” with between 100 and 1,000 units in diverse locations, and “local investors” with over 100 units concentrated in one geographic area. The most common umbrella criterion that characterizes “institutional” is holding over 1,000 units.

These large investors first made a substantial appearance in the aftermath of the 2008 financial crisis. In fact, before 2011, there were no investors who owned more than 1,000 units. After the housing market crash, investors anticipated a rebound and purchased thousands of foreclosed homes. This counterbalanced the mass exit of individual homebuyers and propped up a cascading housing market. Without that infusion of capital, many of those homes would have been abandoned and whole neighborhoods gutted. Today, major investors only own about 2% of the total single-family housing stock in the United States, hardly the seeds of a crisis (see figure). Those numbers are higher in some locations where the supply problem is most severe and investors see that local policies have created a market imbalance: Investors own 5% of single-family homes in the Miami area, 13% in the Orlando area, and 15% in the Tampa area.

In those areas, some are worried that investment firms with massive amounts of capital are outbidding individuals in the market and therefore driving up prices. Further, they worry that through buying properties and renting them, institutional investors are detracting from the for-ownership supply and limiting homeownership opportunities for families.

The current stagnant housing market in Florida shows how oversimplified those arguments are. A lot of things in the market have not worked consistently with that story. If investors buying up homes drives up prices, the natural market response would be to increase supply so that homebuilders could sell to both investors and families. If supply keeps up with demand, prices won’t fluctuate much. But while prices did increase, the expected subsequent supply expansion has had a more difficult time manifesting. Persistent regulatory barriers, including zoning restrictions, have made adjusting to the rise in demand in a cost-effective way difficult or even impossible in many places. Investors see that and are likely to continue to invest in single-family homes.

So, it is not the infusion of capital from investors that disrupts housing markets; it is local government policies that do not let supply keep up with demand. The increased involvement of investors in the housing market should be a wake-up call to policymakers. Housing supply should be able to adjust to the needs of the entire single-family rental and for-ownership sectors of the broader housing market.

A version of this column first appeared in the Sarasota Observer

The post Institutional investors are not to blame for U.S. housing prices appeared first on Reason Foundation.

Sarasota’s fundamental problem is that the city simply will not issue permits for affordable housing built by developers. They won’t let the private sector build affordable housing commensurate with demand, so the city feels compelled to subsidize the affordable housing it won’t otherwise allow the market to build. It’s bizarre, to say the least. 

As Ed Pinto, a Sarasota resident and co-director of the American Enterprise Institute’s Housing Center, has documented, only 4% of the housing for which the city issued permits over the last five years was single-family attached—not a single-family home, but duplexes, quadplexes, or apartments. 

Instead, 96% of permits were for single-family detached homes. 

Even worse, the handful of single-family attached homes permitted had median values of $425,000, hardly affordable. 

Unfortunately, many other cities commit similar folly, hence nearly 42 million American households in the U.S., including renters and owners, are “cost-burdened,” spending more than 30% of their income on housing. 

One result of these decisions is sprawl. Workers seeking affordable housing must live where local governments allow housing supply to keep up with demand and, in turn, face long commutes. 

In Sarasota County, the jobs are concentrated in Sarasota, but many reports have documented that almost all affordable housing is in North Port or the Ellenton area of Manatee County. By not allowing affordable housing in Sarasota, the city is massively increasing sprawl, conversion of undeveloped land, and emissions of greenhouse gases from those long commutes. 

Some easy fixes

Sarasota is a clear case of what is often called a “missing middle” housing problem. The “missing” component of the name refers to the severe housing shortage of homes affordable to middle-income earners and the rapid decline of medium-density development. 

“Middle” refers both to the modest density of units added and the middle-income earners who are the target residents of these homes. The answer is missing middle housing policies that incrementally increase residential density in neighborhoods near commercial land uses while accounting for homeowners’ interests. Florida’s Live Local Act of 2023 (LLA) was aimed exactly at addressing missing middle housing, aggressively incentivizing additions to supply via additions to workforce housing. 

Live Local allows developers to override local use restrictions if they are building affordable housing. Specifically, it allows for residential development on plots zoned for commercial, mixed-use, or industrial use as long as 40% of units are rental units that will be affordable for 30 years. One of the primary intentions of this bill is to allow working individuals to live closer to their place of employment.

The city of Sarasota should work with developers to identify parcels that meet these criteria and speed them through the approval process to develop duplexes, quadplexes, and apartment buildings. This would do far more for housing affordability than city funds subsidizing a handful of units. 

At the same time, the most common type of zoning reform to help with missing middle housing is loosening regulations around accessory dwelling units (ADUs). ADUs are smaller residential buildings constructed on the same plot of land as a larger single-family home, typically housing one or two people. The popularity of ADUs is mainly “infill.” This means they do not require denser housing development but rather provide property owners with the opportunity to build another unit on their land. 

Instead of radical changes to the zoning landscape and massive, intrusive construction projects, accessory dwelling unit reform allows additional housing to be added to existing and fully developed neighborhoods. ADUs are also a popular option for non-rental housing for extended family members, so much so that they are often colloquially referred to as “granny flats” or “in-law units.”

Accessory dwelling unit reform is an affordable housing policy tool that promotes mutual gain and voluntary additions to the housing supply. When policy allows ADUs to be rented out, their smaller size and building costs mean lower rents for tenants when compared to traditional single-family homes. 

This feature makes them especially suitable for lower-income individuals, should they be rented out. The income generated from collected rents is also a clear benefit to the primary homeowner — now functioning as a landlord with one property.

Austin, Texas, as an example of increasing supply

Austin has made leaps in multifamily permitting. In doing so, the city has seen an explosion of multifamily housing in response to the recent influx of young adults aged 20-34 who prefer renting over single-family homeownership. This increase in apartment construction and other rental unit construction, driven by relaxed zoning regulations and a pro-housing policy shift, has led to a notable decline in rents across the region. 

Between 2021 and 2023, the Austin metro area permitted approximately 957 apartments per 100,000 residents, far outpacing other major U.S. metropolitan regions. This boom resulted in tens of thousands of new units, with around 32,000 apartments delivered in 2024 alone, boosting the housing stock by about 5%.

As a result, average rents have fallen significantly. Data from Zillow and other real estate firms indicate that Austin rents dropped by approximately 4% to 7% year over year, with some reports noting a decline of up to 15% from their peak in August 2022. 

The increased supply stems from policy changes, including streamlined permitting, reduced parking mandates and upzoning measures such as allowing up to three units on lots previously restricted to one and reducing minimum lot sizes. The accompanying figure from AEI’s Housing Center shows how much better housing affordability fared in Austin compared to many other growing cities.

How multifamily developments effect property values

Despite common perceptions, research has consistently shown that multifamily developments do not necessarily decrease property values and can even increase them, according to a review of all research by the Joint Center for Housing Studies at Harvard. While there are anecdotal cases where property values have declined upon entry of a multifamily residence, “in general, neither multifamily rental housing, nor low-income housing, causes neighboring property values to decline.” 

Also, Sarasota is rich with examples of other ways to offer people an option to choose single-family housing neighborhoods or protect property values: homeowners associations, condo associations, and deed restrictions. These all allow the property owners in a neighborhood to agree to restrictions on density, and anyone buying in those areas must abide by those restrictions on their property rights. 

This is a much better way to offer people that option than broad-based restrictions across broad swaths of the city under zoning and development rules. The latter allows a small group of vocal activists to persuade the City Commission to limit their neighbors’ options, whether they want them or not. This is always and everywhere the cause of housing affordability problems. 

With the simple changes in attitudes and actions discussed above, much more affordable housing could be unleashed without even changing the city code. 

It’s time for the Sarasota City Commission to stop focusing on penny-ante solutions like subsidizing a trivial number of affordable housing units and start allowing the missing middle workforce housing to be built. 

A version of this column first appeared in the Sarasota Observer.

The post How to boost housing affordability in Sarasota, Florida appeared first on Reason Foundation.

Live Local Act background

The Live Local Act, Senate Bill 102, was passed in 2023 and a revised version, Senate Bill 328, passed in 2024. SB 102 preempted local zoning restrictions, allowing residential development on land zoned as industrial, commercial, or mixed use (if at least 65% of square footage in mixed use development is used for residential purposes). These developments are allowed as long as at least 40% of the units built are “affordable” for 30 years. Affordable in this context means those earning up to 120% of Area Median Income (AMI) do not have to spend more than 30% of their income on housing to live in these units. Developments under the Live Local Act can reach the maximum height and density permitted in the proposed area.

Further, the Live Local Act allows substantial property tax exemptions if stated affordability criteria are met. The development qualifies for a 75% tax exemption if units are affordable to those making between 80 and 120% of AMI. This provision is known as the “missing middle” property tax exemption. A full exemption is granted if units are affordable to those making less than 80% AMI. To qualify for either of these exemptions, at least 10 affordable units must be built. Additionally, SB 102 set aside funding for Florida’s State Housing Initiatives Partnership and State Apartment Incentive Loan programs and enacted a formal ban on rent controls statewide. While most original provisions have been maintained, some have been amended. SB 102’s substantial property tax exemptions prompted pushback from counties worried about diminishing their tax base and incentivizing unnecessary residential development. Pasco County was one such protestor. In response to growing concerns, the Florida Legislature passed SB 328 in 2024, the first revised version of the Live Local Act. House Bill 7073, a 2024 Florida tax bill, further revised some of the Live Local Act’s provisions.

These two 2024 bills revised the original Live Local Act to include a restriction on development near single-family homes and an avenue for counties to opt-out of the property tax exemption. Under SB 328, if a development proposed under the Live Local Act is adjacent to a single-family parcel that is part of a broader single-family neighborhood (specifically, 25 contiguous single-family homes), the county may restrict the height of the proposed development to 150% of the surrounding structures, or three stories, whichever is taller.

Additionally, HB 7073 allows counties to opt out of the missing middle property tax exemption if there is already a surplus of units in a county according to the most recent edition of the Shimberg Center for Housing Studies Annual Report. According to the 2024 Shimberg Annual Report, 34 of Florida’s 67 counties are currently eligible to opt-out of this tax exemption (see Table 1).

Source: Shimberg Center for Housing Studies 2024 Annual Report Appendix 4

SB 1730: What’s new?

Alongside other minor revisions to the Live Local Act, SB 1730 introduces two important new additions: A provision for religious institutions to add affordable housing and a clarification of parking minimums.

SB 1730 states that a board of county commissioners may approve residential development on parcels owned by religious institutions as long as at least 10% are considered affordable. Florida’s SB 1730 is the most recent bill in a growing movement known as Yes-In-God’s-Backyard (YIGBY), which seeks to expand housing supply through work with faith-based organizations. Whereas the original Live Local Act did not particularize developments on religious institution-owned property. Because religious institutions typically build low-income housing, they could play an important role in expanding supply for this income group. SB1730 opens an avenue for faith-based institutions to cooperate with local governments to make this potential supply expansion a reality.

The original Live Local Act also required localities to consider reducing the parking requirement on developments within a quarter-mile radius of a transit stop. Developments could receive at least a 20% reduction in their parking requirement if the proposed location was within half a mile of a major transportation hub easily accessible by pedestrian-friendly means and had available parking within 600 feet. Now, under SB 1730, instead of only requiring consideration, local governments must grant a 15% reduction in the parking minimum upon request of the applicant if the development is located within a quarter mile of a transit stop. Further, only one of the two aforementioned criteria must be satisfied for developments to qualify for the 20% reduction.

To date, there are 105 projects proposed under the Live Local Act, with the majority concentrated in the Miami area. These projects amount to over 31,000 additional units for the state of Florida. This bill has been a monumental step toward alleviating Florida’s shortage-driven sky-high home prices. The Live Local Act, in all its variations, has been successful in spurring development, but this legislation is still far from ideal; several problems remain.

First, while the Live Local Act dramatically expands the areas in which residential units can be built, it does little to address density expansion in places that are zoned as residential but only allow single-family detached homes. The 2024 version of the bill even explicitly restricted projects in the vicinity of single-family neighborhoods. In addition to expanding residential development areas not already zoned as such, addressing density restrictions in residential areas would complement the Live Local Act. Such reform can be made through allowing Accessory Dwelling Units (ADUs) statewide or expanding options for missing middle housing in residential areas as other states have done. Freeing housing markets via state-level preemption should not be limited to commercial centers but also should expand options in existing residential areas.

Second, SB 1730 does not go far enough in its YIGBY reform. Currently, it only encourages localities to consider allowing religious centers to build affordable housing, but takes no explicit steps to prevent localities from preventing religious organizations from building housing. California’s Senate Bill 4 is an example of a state making affordable housing development on land owned by religious organizations legal by right. Without a similar provision, it is unclear whether SB 1730 will be able to realize its full potential given the ease of avoidance.

Finally, by including an affordability requirement for units, the Live Local Act has inherited problems associated with inclusionary zoning since its inception. Specifically, enacting these policies distort markets, often materializing smaller additions to supply than could be seen under blanket zoning reform. Instead, expanding the areas in which residential development can happen without affordability requirements, while simultaneously providing assistance in the form of housing vouchers, may better expand supply and help alleviate Florida’s ongoing affordable housing crisis.

SB 180: Emergency provisions for impact fees

In addition to continuing zoning reform through SB 1730, in 2025 the Florida Legislature also amended the permitting process for rebuilding in wake of a natural disaster. SB 180 clarifies the impact fees that can be charged on rebuilding structures and establishes a statewide standard for post-storm permitting and rebuilding regulations enacted by local governments.

Impact fees are one-time fees charged to developers to make up for the additional strain on public facilities created by their projects. Impact fees fund local roads, schools, and emergency services among other public goods. Generally, impact fees are necessary to ensure that development pays for itself rather than adding the burden of new infrastructure onto existing residents via property taxes. Well-designed impact fees are proportional to the impact of the development for which they are charged. SB 180 takes steps to ensure that Florida’s impact fees are proportional in the wake of a disaster.

Specifically, SB 180 forbids localities from charging impact fees on the reconstruction of destroyed structures if the replacement does not increase the impact on public facilities. If it does, then any impact fee charged must be proportional to the increased strain on public facilities. This law prevents developments from being charged twice by the local government for the same public facilities and is key for maintaining the proportionality of these fees.

Additionally, SB 180 prevents localities from increasing barriers to construction after an emergency in two ways. First, it bars them from increasing their permitting and inspection fees for 180 days after a state of emergency is declared for a hurricane or tropical storm. Second, it prevents them from enacting a moratorium on development or making more restrictive amendments to land development regulations for one year after a hurricane makes landfall. This bill is a step in the right direction, but may be too broad to account for every area’s needs. After a disaster, it is vital that communities can be rebuilt without additional financial or regulatory strain from their governments. However, the general language of SB 180 has led this bill to receive some early pushback, namely from the American Planning Association’s Florida chapter and the New Smyrna Beach city commissioners.

These entities primarily oppose the state’s preemption of local authority over comprehensive planning in the aftermath of emergencies. In New Smyrna Beach, for example, the enactment of SB 180 into law would nullify their recent stormwater regulations. While these provisions may be broad, it is unclear whether stringent comprehensive plan requirements are the answer. Florida building codes already account for the state’s susceptibility to hurricanes and tropical storms. Construction experts in weather emergency-prone areas have been innovating and employing storm-resistant building technologies to grapple with their specific challenges. SB 180 ensures that builders all over the state can build back their communities without undue interference from local government.

Both SB 1730 and SB 180 are awaiting signatures from Governor Ron DeSantis to become law. Both bills, while having room for improvement, are promising steps toward a better housing policy landscape in the state of Florida.

The post Florida Senate Bills 1730 and 180 are solid housing reforms appeared first on Reason Foundation.

In news reports, on social media, and even in state legislatures, housing market speculators have been catching some blame for high housing prices in the United States. Sen. Jeff Merkley (D-OR) introduced two federal bills in 2023 to restrict investors from buying houses, and at least half a dozen states have seen similar legislation. In February 2025, Rep. Adam Smith (D-WA) proposed the “HOPE for Homeownership Act,” which aims to impose additional taxes on hedge funds purchasing single-family homes.

There has been growth in the role of institutional investment in the housing market throughout the last 20 years, but speculation by major financial players is far from the primary culprit behind current sky-high home prices. Lagging housing supply remains the largest driver of high housing costs. Rather than being a cause, persistent high prices in the housing market have attracted these investors who are aware of the major shortage. While supply remains the most significant challenge to high home prices, a deeper look at the role of investors in the housing market can help us better understand the current crisis and how policymakers should proceed.

What is institutional investment?

Under the broadest definition, institutional investors are entities that purchase housing with the goal of making a profit. This is primarily done through flipping and/or renting out properties.

Many of these major players own housing as an asset, so the term “institutional” investors is an attempt to distinguish between small-scale, regional investors and those that may be large enough to induce a broader trend in the housing market. Despite thorough media attention, the definition of the term “institutional investor” seems to be different to everyone. Some consider the worth of the cumulative holdings of an entity. Others are more concerned with the quantity of units owned. Another approach still focuses on the status of ownership entities as “hedge fund taxpayers.”

The wide variance in definition has made data-driven analysis of the role of institutional investors especially challenging. Researchers at the Urban Institute have even created their own stratification system for investors in the single-family home market, where “mega investors” are those with over 1,000 units in diverse locations, “small investors” are those with between 100 and 1,000 units in diverse locations, and “local investors” are those that own over 100 units that are concentrated in one geographic area. The most common umbrella criterion that characterizes “institutional” is holding over 1,000 units, so this article uses this definition.

These large investors first made a substantial appearance in the aftermath of the 2008 financial crisis. In fact, before 2011, there were no investors who owned more than 1,000 units. After the housing market crash, investors anticipated a rebound and purchased thousands of foreclosed homes. Some of this market entry was even facilitated by government-sponsored entities like Fannie Mae. Some argue that this counterbalanced the mass exit of individual homebuyers and propped up a cascading housing market. Since this initial entry, housing has gained a reputation as an increasingly lucrative and stable investment. Today, major investors own about 2% of the total single-family housing stock in the United States. Observing purchases since 2008, transactions involving these types of players make up a small share of overall market activity (see Figure 1). While their presence seems insignificant on the aggregate, institutional investors have a substantial presence in some high-growth areas, especially in the south and southeast (see Figure 1).

Figure 1: Corporate Landlords Buy Only a Tiny Sliver of US Homes

Figure 2: Estimated Share of Single-Family Market Held by Investors with over 1,000 Homes in Selected Areas, as of 2022

The arguments against investors

Critics of major investors in the housing market have multifaceted concerns. First, they are worried that investment firms with massive amounts of capital will be able to outbid individuals in the market and therefore drive up prices. Further, they worry that through buying properties and renting them, institutional investors are detracting from the for-ownership supply and limiting homeownership opportunities for families.

Major investors do have substantial capital at their disposal, and their increased activity has presented an additional shock to demand in the single-family housing market. Standard economic theory suggests a price increase should follow, and it has. This is precisely what happened in the aftermath of the housing crisis. Economic theory also suggests, however, that in the absence of restrictions, supply should respond to this price pressure and expand until the price level falls. While the price increase is observed, in part due to the entry of investors, the predicted subsequent supply expansion has had a more difficult time manifesting. Persistent regulatory barriers, including zoning restrictions, have made adjusting to the rise in demand in a cost-effective way difficult or even impossible in many places. While increased presence and bidding in the housing market may have had some influence on the original price increase following the crash, the persistence of high home prices across the United States suggests an underlying supply-side problem with market adjustment. Beyond supply and demand, the argument for homeownership is based on principles.

Some believe that suburban neighborhoods should be a hub of homeownership, not renting. Often, major investors will rent out their single-family holdings for a steady stream of income and guaranteed long-term returns. However, renting in these single-family neighborhoods is nothing new. The Joint Center for Housing Studies analyzed the proportion of all renter households living in single-family homes. In 2001, before substantial entry, about 30% of renter households lived in a single-family home. By 2021, that number rose to 33%. This is an increase, and while not substantial, it presents one effect of investor entry into the housing market. Recent research suggests that the entry of institutional investors into a neighborhood is associated with a decrease in for-ownership properties and an increase in rentals. These rentals are occupied by lower-income individuals on average compared to the homeowners that surround them, though this isn’t always the case. While this trade-off has been documented, a relative increase in rental properties is not necessarily a negative thing.

Single-family rentals are an integral part of the housing stock and meet the needs of a specific kind of tenant. David Howard, chief executive officer of the National Rental Home Council, stated that “Single-family rental home providers offer residents a more affordable option to live in neighborhoods that offer the kinds of things families really care about—access to quality schools for their kids; proximity to good jobs; opportunities to be a part of a community. Why should it be that homeownership is the only avenue that makes these things possible?”

What are the investors saying?

The presence of institutional investors is undeniable, but they are a symptom of price pressure, not the cause. With a consistently suppressed supply through excessive regulatory burden, and the fallout from the 2008 financial crisis, upward price pressure made housing an extremely lucrative investment. Rising prices have signaled to investors that housing is a safe, reliable, and relatively low-risk investment. Investors themselves have revealed why they are entering the market.

In 2021, Jeff Bezos backed Arrived, a company that allows individuals to invest small amounts into the single-family rental market. Currently, their single-family residential fund has over 21 million dollars in assets, with 53 properties all over the country. This is just one of their several investment avenues. While not yet large enough to qualify as an “institutional investor” under the definition employed here, statements made by company heads give insight into the motivation behind housing market entry.

When initially asked about why he was launching this venture, the CEO, Ryan Frazier, noted that housing is a less volatile asset than alternatives, and that “the persistent demand for housing [has been] outpacing the supply of new homes over the last decade.” Stagnating supply and existing barriers to additional construction are what make entry into the housing market lucrative for investors. Should barriers be reduced, not only would prices fall, but it might spark a reduction in the presence of institutional investors.

Conclusion

The presence of institutional investors in the housing market has grown substantially in the past 15 years. Despite an inconsistent definition and mounting criticism of their involvement, these players are responding to price signals—regardless of whether those signals reveal an over or undervalued asset. Housing has gotten more expensive, and large firms are noticing. Rather than being a cause, the increased involvement of investors in the housing market should be a wake-up call to policymakers. Housing supply should be able to adjust to both the needs of the entire single-family rental and for-ownership sectors of the broader housing market. Policymakers must address the need to expand the housing supply rather than cracking down on investors.

The post A symptom, not the cause: Institutional investors and the housing crisis appeared first on Reason Foundation.

Houston is the closest to a natural experiment on loose zoning regulations in the United States. This city has no traditional zoning or comprehensive planning, though the employment of deed restrictions on individual land parcels and neighborhoods is permitted (in addition to other workarounds). Deed restrictions, which often apply to neighborhoods and subdivisions, impose zoning-like requirements on homebuyers as a condition of purchase. These agreements dictate what can be done with the home or parcel of land and can be very specific. The primary difference between deed restrictions and traditional zoning is that deed restrictions are private agreements that apply to only about one-quarter of the city. Traditional zoning divides an entire city into predetermined areas for different uses. Despite multiple proposals to institute citywide zoning in Houston, voters have rejected its implementation every time.

A primary driver of the housing crisis is an inability to expand the housing supply commensurate with population growth. Houston is also the second-largest city in Texas by population and the largest by land area (see Table 1). Since 2008, it has had the second-largest population growth in the state. Despite its size and explosive growth, Houston’s regulatory flexibility allows developers to respond to price incentives more quickly than in cities with strict zoning. Developers in Houston have more options regarding where and what they can build.

In the American Planning Association’s Planning Magazine, William Fulton writes, “Under the city’s development code, no parcel of land is restricted for any particular land use, and in many cases there are no density or height restrictions either.” While Houston still has restrictions when it comes to housing development, less top-down regulation has manifested in more housing construction and lower home prices. Houston stands out as an exemplary model for housing market responsiveness, not just for Texas but for the whole country. Given the current shortage-driven housing crisis, Houston’s unique land use arrangement is an important reference when developing public policy.

In 2009, Reason published “Housing Market Resilience and Affordability in Houston, TX.” It analyzes the resilience of the Houston market in the wake of the 2008 financial crisis. At the time, Houston was found to issue significantly more housing permits (both single and multi-family) than any other Texas metropolitan area. However, challenges with the labor market meant this additional supply could not be fully realized in more affordable housing.

Today, the United States is facing another ongoing housing crisis. Houston’s unconventional land use approach continues to exemplify a means of facilitating housing construction that others may choose to follow. Examining permitting and home price data from other Texas metropolitan areas and other rapidly growing cities from across the US can illuminate changes in these housing markets and provide policy worth emulating.

Recovering since the 2009 trough, Texas has added substantially to its housing stock (see Figure 1). For single-family homes, most additions have taken place in Houston and Dallas, with Houston maintaining a lead since 2004 (see Figure 2). Austin has experienced steady growth, while El Paso and San Antonio have maintained relatively stable additions year on year (as expected due to their smaller populations). This trend continues what was observed in 2009 and is largely consistent with each city’s population changes.

Multifamily permitting, however, has produced some unexpected trends. Most notably, Austin has made leaps in multifamily permitting, joining and recently surpassing both Houston and Dallas (see Figure 3). Austin’s overrepresentation in multifamily permitting is likely in response to the recent influx of young adults aged 20-34 with a preference for renting over single-family homeownership. According to local housing experts, the response by developers may have been too eager, with record-high vacancy rates resulting.

Permits in Houston and Dallas, while taking dramatic leaps year on year, have generally trended upward. However, Houston has lost its 2007 lead. Ft. Worth, Arlington, and San Antonio have gradually increased their multifamily permitting (a similar trend to their single-family permitting data). As previously observed, El Paso has maintained very low levels of multi-family permitting with no discernable positive or negative trend.

Dallas, Austin, and Houston have all made substantial additions to both their single-family and multi-family housing stock. However, they have observed varied results when it comes to affordability. The American Enterprise Institute’s (AEI) Home Price Appreciation Calculator displays inflation-adjusted home prices in these Texas metropolitan areas since 2012. Figure 4 shows the home price appreciation (HPA) of overall home prices in Dallas, Austin, San Antonio and Houston, the four metropolitan areas with the highest populations in Texas up until December of 2023 (please note that data were not available for El Paso at all and Ft. Worth as separate from Dallas).

Despite Houston’s rapid population growth, its steady housing supply expansion has kept its overall home prices from appreciating as substantially as other large Texas cities like Dallas and Austin. It is important to note that this result is an average and not consistent for every price category. For example, in the “high” price range, Houston has experienced the lowest appreciation out of these metropolitans, while for the “low” price tier, it has the second-highest appreciation. Notably, San Antonio has experienced the lowest home price appreciation of these metropolitans (see Figure 1). San Antonio has launched substantial affordable housing initiatives ranging from loosening zoning restrictions to a 150 million dollar municipal bond to be used for affordable housing.

A comparison with other metros across the country reveals a similar pattern (see Figure 5). Despite having the second largest population among these incredibly fast-growing metros, Houston has maintained among the lowest home price appreciation.    

It is vital that markets are given the flexibility to adjust to mitigate price pressure. One way to facilitate rapid responses by developers is to eliminate sweeping barriers to development, like citywide zoning, and issue housing permits at a rate that keeps up with demand.

Importantly, this does not mean removing the ability of property owners to have a say in what their communities look like. Enforcement of private deeds and covenants allows for the maintenance of certain neighborhood characteristics if they are useful and desired by residents. Simultaneously, allowing for spontaneous and rapid private housing development in the rest of the city without the hassle of regulatory hoops is the secret behind Houston’s success. As policymakers consider housing policy alternatives, iterating toward a regulatory framework with less arbitrary barriers to housing development should be a primary objective.

The post Houston’s housing success is a model for other cities appeared first on Reason Foundation.

While some progress has been made, medium-density housing is still far outpaced by traditional single-family homes. Currently, 75% of residential land in U.S. cities is zoned exclusively for single-family detached homes. Zoning restrictions are a substantial barrier to housing development, both in terms of the quantity and the type of homes that can be built. Relaxing zoning is one way to expand the supply of housing voluntarily and effectively. However, this policy change faces substantial opposition from homeowners. 

Homeowners who oppose density increases in their neighborhoods typically have two concerns: the potential for multi-family development to adversely affect their property values and the potential for it to alter the structural and design character of their neighborhoods. While understandable, both reasons are insufficient to justify the current zoning regime, which restricts property rights and the supply of housing. 

One problem is that those who use local government to restrict dense development in their neighborhoods on the grounds of a potential decline in the market value of their home are conflating their property rights with entitlement to value. Property rights do not and cannot extend to maintaining a specific price of a home. Markets and all the actors that participate in them determine home prices. Under the most common understanding of property rights, neighbors should not be able to dictate what an owner does with their property unless it poses a tangible and demonstrable invasion of their parcel. The use of local zoning restrictions to enforce a certain value is a misuse of government power. Organized homeowners who treat homes as investments rather than depreciable consumption goods vote in favor of policies that maintain the value of their investment under the assumption that multifamily development entering their community will diminish it. This pattern is outlined in “The Homevoter Hypothesis” by William A Fischel and empirically backed up in the following research. 

The motivations of homeowners are clear and rational. However, they do not justify exclusionary zoning over most of the country’s residential land. One alternative to lobbying local government could be the use of deeds and private covenants, as is commonly done in Houston, Texas. These legal tools are a much more voluntary and individualized approach to residential land use regulation. Without these, many current exclusionary zoning laws are based on a faulty understanding of property rights. They are further based on the unsupported fear that the addition of multifamily housing automatically decreases their property values. 

Despite common perceptions, research has consistently shown that multifamily developments do not necessarily decrease property values and can even increase them. The Joint Center for Housing Studies compiled a review of the existing literature in 2007. It concluded that while there are anecdotal cases where property values have declined upon entry of a multifamily residence, “in general, neither multifamily rental housing, nor low-income housing, causes neighboring property values to decline.” More recent research from 2020 has arrived at the same conclusion.

In a case study observing Little Rock, Arkansas, and employing a difference-in-difference analysis, researchers found that “most forms of multifamily housing have either no effect or a positive effect on sales prices for single-family homes within 2,000 feet of a new multifamily housing development.” Of course, with large additions to supply nationally, home values should be expected to decline–alleviation of the housing affordability crisis is the goal of expanding supply. However, research has repeatedly suggested that the presence of multifamily development does not in itself decimate property values on the neighborhood level.

This basis for rejecting denser development based on a fear of declining property values is not only dubious in principle but also unsupported by existing literature. Property values, however, are only part of the concern of homeowners; community character is another. Homeowners buy into neighborhoods with the expectation of a specific lifestyle and an architecturally consistent design. Missing middle policies balance the desire to maintain the suburban character of neighborhoods by increasing density marginally. This usually means allowing duplexes, triplexes, and fourplexes in places where only single-family detached homes were allowed before (though specifics vary by state and locality). Numerous other less common developments are also covered by the umbrella of missing middle housing.

Recently, medium-density development, defined here as developments with between two and four units, has been modestly climbing, likely due in part to the enactment of zoning reforms (see Figure 1). A comparison of recent missing middle policies in California, Oregon, and Florida highlights successes and remaining challenges in passing missing middle policies to remedy the existing housing shortage.  

California Senate Bill 9

On September 16, 2021, Governor Gavin Newsom signed Senate Bill 9 into law, effectively ending exclusive single-family zoning in California. This law, also known as the Housing Opportunity and More Efficiency (HOME) Act, preempts local governments and automatically grants homeowners and developers the right to either split their lot into between two and four separate lots or develop additional structures with a minimum of 800 feet in floor area on one lot (which can be either attached or detached). Note that this does not require developers to build more units on each lot; single-family home construction is still allowed, and many buyers prefer it. But now, state law does not allow local governments to ban developers from putting more units on a lot if they desire. The HOME Act is a missing middle housing policy in the pure sense—modest density increases that allow for middle-income housing.

Existing property owners are also now allowed to add units to their property, adding a second unit or rebuilding as a duplex, for example. These additional structures still must comply with all other regulations and impact fees and maintain “neighborhood scale” (floor-to-area ratio (FAR), height restrictions, aesthetic considerations, etc.) Instead of requiring an application for special permission, owners may now expressly split their lot, transform their home into a duplex, or add an accessory dwelling unit (ADU) onto their property. California was already passing a string of ADU-friendly legislation, and S.B. 9 only furthered the commitment to supporting ADU policy. These additional units can provide valuable streams of income to homeowners or provide the opportunity for family members to live near them. The HOME Act removes a roadblock to a practical way to add housing supply through the voluntary projects of homeowners. 

The most vocal opposition to S.B. 9 has come from city governments over the preemption of their zoning authority. First, cities were concerned that just allowing the option found in S.B. 9 did not guarantee additional housing. The California League of Cities executive director and CEO, Carolyn Coleman, said the following when urging Governor Newsom to veto the bill: 

We’re disappointed that the Legislature passed Senate Bill 9 and urge Governor Newsom to veto this flawed legislation. SB 9 would undermine the ability of local governments to responsibly plan for the type of housing that communities need, while usurping local democracy and the input of local residents. 

These complaints beg two questions. The first is how much democracy and majority rule are desirable when making decisions about property rights. Democratic decision-making is useful for certain policies, but its place in determining whether or not an individual can build a duplex on their own land (if they are not creating a tangible invasion onto the property of another) is much more dubious. The HOME Act would be a reinstatement of property rights that should have been respected all along. 

The second is whether localities are inherently more capable of planning what kind of housing is necessary for communities than the homeowners and developers who directly bear the cost of additions. Both existing community members and developers are free to build middle-density development under this law. Presumably, they would not invest in unprofitable projects that would not benefit consumers because of the loss of their investment. Individuals, whether homeowners or developers, who take on projects have every reason to perform the necessary market research and, with housing prices consistently high, have an incentive to develop additional housing units. With the ongoing housing shortage and consequent affordability crisis, communities need more housing, and the market is signaling to developers that they would benefit from providing it. 

While understandably disgruntled with the overriding of their authority and planning considerations, cities should not overlook the ability of homeowners and developers to make wise decisions about the housing additions their communities would benefit from, especially because of the stakes they hold in their decisions. 

The League of Cities is correct: Senate Bill 9 does not guarantee additions to the housing supply. It does not require any duplexes or ADUs to be constructed; it only gives developers and homeowners the option to choose. However, considering the severity of the housing crisis and consequent profit incentives for homeowners, it is reasonable to expect they will respond accordingly, and they have (see Figure 2). 

Data on ADU permitting from the California Department of Housing and Community Development suggest homeowners immediately exercised their right to modify their property. After the passing of this legislation, California experienced the largest single-year increase in ADU construction in its history, with 4,827 more permits issued in 2021 than in 2020, and the trend has continued—though not at such a staggering pace. While data on single-unit to duplex expansion are not available, evidence from ADUs alone suggests homeowners are not only willing but do, in fact, add to the supply of housing when given the opportunity. 

California’s S.B. 9 is an example of a modest and incremental housing policy that has helped add to the supply of housing. Though not without opposition, its focus on homeowner choice, option expansion, and extreme cost-effectiveness makes it an important policy for other states to consider emulating. 

Oregon House Bill 2001

Oregon’s 2019 missing middle housing policy, House Bill 2001, is very similar to California’s Senate Bill 9 in the way it approaches density increases incrementally. Oregon’s state government created a tiered system that allows developers and homeowners even more choices, depending on local populations. 

By mid-2021, this law required that duplexes be automatically permitted in areas zoned for detached single-family homes in cities with between 1,000 and 25,000 residents. By mid-2022, cities with populations above 25,000 were required to allow not only duplexes but triplexes, fourplexes, cottage clusters, and townhomes as well. Towns with under 1,000 residents are exempt from any zoning alteration requirement. 

Despite the seemingly modest proposals of his bill, it had opponents from multiple angles. Some opponents say that developers will take advantage of this loosening of zoning not to build affordable housing but to build more expensive duplexes. Whether this is the case is yet to be clear, but even expanding the supply of high-end development increases housing supply and overall affordability. Further, multiple affordable housing coalitions supported the bill. Before this legislation, developers could not build anything but single-family homes on these plots—whether affordable or otherwise. H.B. 2001 gives more options for developers to fill a missing space in the housing market with medium-density housing. 

Further, members of local government councils are concerned about the trampling of their authority to determine the best housing measures for their communities. Local government officials say they would prefer to be funded for planning projects rather than have their zoning authority undermined. However, these are the same localities that put the original barriers to denser housing in place. H.B. 2001 allows for private market solutions to the housing shortage, focused on voluntary additions made by developers and homeowners alike. 

Medium-density housing has been on the rise in Oregon since the early 2010s (see Figure 3). The passing of H.B. 2001 has made it easier for individuals to construct these types of housing. Further, it considers the varying needs of cities of different sizes by creating a ladder of density increases. When passing state-wide legislation, policymakers may benefit from considering a tiered system to increase political feasibility while enforcing the property rights of developers and homeowners. 

Florida Senate Bill 102

Florida Senate Bill 328, otherwise known as the Live Local Act 2023 (LLA), takes a radically different approach to missing middle housing than the two previous two laws discussed. This law is the revised and updated version of Senate Bill 102 (the original “Live Local Act”), which passed in 2023. In both versions, this law is much less incremental than both Senate Bill 9 in California and House Bill 2001 in Oregon. Due to Florida’s substantial housing shortage across the low-middle range of the income spectrum, this law aggressively incentivizes additions to supply via additions to “workforce housing.” 

LLA allows developers to override local use restrictions if they are building affordable housing. Specifically, it allows for residential development on plots zoned for commercial, mixed-use, or industrial use as long as 40% of units are rental units that will be affordable for 30 years. One of the primary intentions of this bill is to allow working individuals to live closer to their place of employment – something that many current zoning laws make very difficult.

Affordable in the context of the bill is defined as not charging individuals who make up to 120% of area median income (AMI) more than 30% of their monthly income for rent. This AMI threshold is a key indicator of alliance with missing middle principles, requiring that additional housing is designed for middle-income earners. Unlike California’s HOME Act and Oregon’s H.B. 2001, which both only hint at the type of development they incentivize by universally allowing plexes and ADUs, LLA enforces a strict affordability threshold, without which developers will not gain a zoning bypass. 

While originally allowing substantial bypassing of local height restrictions, the amended version of LLA allows localities more say in height restriction if the proposed developments are near single-family home neighborhoods. 

Further, LLA offers property tax exemptions to developers willing to substantially add to the supply of affordable housing. Instead of targeting modest density increases, this exemption applies to massive multifamily developments. It is sometimes referred to as the Multifamily Middle Market Property Tax Exemption. If more than 70 units in a development are designated as affordable, there are two categories of tax exemption that developers can qualify for. To developments with units affordable to those making between 80% and 120% AMI, a 75% exemption is granted. If they are all affordable to those making less than 80% AMI, a full exemption is granted. 

These are not the only provisions included in LLA, though they are most pertinent to the discussion of missing middle housing policy. 

Officials in localities have, predictably, protested this bill. In addition to contesting the override of their authority, some have argued that this bill adds the wrong kind of development. By not only allowing but incentivizing affordable housing, they worry that the LLA will encourage residential development instead of the industrial and commercial development their specific area needs. As discussed in California’s case, it is not always immediately obvious that developers will engage in unnecessary projects, considering their need to make a return on their venture.

However, LLA’s substantial tax exemptions make incentive distortion a more realistic possibility. Officials of some smaller cities were further worried about detractions from their tax base brought up by the large tax exemptions awarded to large developments. These are reasonable concerns. The LLA strays from the missing middle playbook by going beyond simply allowing voluntary additions and explicitly incentivizing large projects inconsistent with the character of many residential neighborhoods. This deviation has made it a target of substantial protest. 

While LLA directly addresses affordable housing, it lacks many of the typical characteristics of a missing middle policy. The income threshold prioritizes middle-to-low-income earners, but LLA lacks the homeownership element and the marginal nature of the density increases. Because the bill is so new, whether it will be successful in substantially adding to the supply of affordable housing is yet to be seen. However, it offers an alternative perspective and approach to missing middle housing. 

S.B. 9 in California, H.B. 2001 in Oregon, and S.B. 328 in Florida are a few examples of recent and successful state-wide missing middle housing policies. They are far from the only ones. Experience in a number of communities shows that simply allowing duplexes can have large impacts on housing supply and affordability. The marginal density increases offered by typical missing middle policy simultaneously refocus property rights, maintain the general character of neighborhoods, and add to the supply of housing voluntarily. While not perfect in every case, missing middle policy broadly is a promising step toward expanding the housing supply.  

The post Missing middle housing policies balance interests while addressing the affordable housing crisis appeared first on Reason Foundation.

Construction built through 3D printing uses a printer to stack thin layers of concrete, creating the skeleton of a home. This technology is derived from a process known as “contour crafting.” This process makes building intricate and curved shapes easier than traditional construction due to the maneuverability of the robotic arm which lays the concrete and the ability to give precise instructions. In addition to complex form construction, 3DCP has noticeable cost and time-saving benefits. One advantage is the reduction in labor. 

Aside from the people needed to program the printer and to install finishes like plumbing and wiring, the printer does the bulk of the homebuilding. The resulting reduction in labor costs alone makes 3D printing an attractive option for developers.

A 2018 study by British and Malaysian engineers compared the cost of building a traditional home in the United Kingdom to that of a comparable 3D-printed home. Not accounting for the initial investment in a printer, these researchers estimated a 30% reduction in building costs per home.

Further, 3D printing as a construction method has substantial time-saving benefits. COBOD International is a company specializing in the use of 3D printing technology in construction. Evidence from COBOD suggests that 3D-printed homes can be built up to 20 times faster than traditional homes —critical at a time when a nationwide housing shortage has kept prices high. 

While the cost- and time-reducing capabilities of 3D-printed construction are clear, there are questions about incorporating the technology into residential construction broadly. A 2018 study from California Polytechnic State University suggests that the size limitations of 3D construction and lack of aesthetic appeal will prove primary barriers to the broad acceptance of this new technology. Substantial progress has already been made on both fronts. 

At the time of the study, most 3D-printed homes ranged between 600 and 900 square feet. The study attributes this size limitation to the cost of a printer large enough to construct more sizable structures and the consequent unaffordability of the homes produced. Understandably, the size constraint at the time of the study did not align with the needs of would-be homeowners in the United States, making 3D printing an undesirable construction tool for housing development.

Further, this study cites the exclusively concrete design and lack of customization options as potentially aesthetically off-putting to homebuyers. Innovative startups working on 3D construction have already put their efforts towards the development of better-looking and larger homes.

ICON, a 3D construction firm, in partnership with Lennar, is currently in the process of building a community, Wolf Ranch, of 100 3D-printed homes in Georgetown, Texas. As of July, 95 out of the 100 planned homes have been finished, and many have been sold and occupied. Once completed, this will be the largest community of 3D-printed houses in the world. 

Counter to preliminary size concerns, these homes range between 1,850 and 3,000 square feet and have between three and four bedrooms–in line with the average size of an American home. ICON built Wolf Ranch using their original 3D printer, but they have since unveiled a new 3D printer that can construct two-story buildings up to 27 feet tall. Rapid advancements in printing capabilities have dispelled concerns about the size of homes. 

The promise of affordability, however, has yet to fully manifest. Wolf Ranch homes have been sold for between $475,000 and $599,000. These prices are near the median home price in the Austin area. While not necessarily an overnight solution to bringing down housing prices, 3D-printed home construction is nevertheless a useful tool to bring timely and cost-effective additions to the supply of housing. Given that the housing affordability crisis is largely shortage-driven, further use of 3DCP will be necessary to fully realize its cost-saving potential–especially if traditional home dimensions and aesthetics are to be maintained. 

Other developers have adopted 3D printing on a smaller scale–both in terms of quantity and the size of the houses themselves. Mighty Buildings in California, for example, has specialized in smaller homes that include accessory dwelling units (ADUs) and are nearly carbon-neutral. Currently, only 8% of 3D-printed homes in the United States are designed as ADUs, though the growing acceptance of ADUs in local zoning is likely to expand this use. 

While acknowledging the lucrative nature of 3D-printed construction, the National Association of Homebuilders (NAHB) warns that there may be legal barriers to implementing this new technology: 

 “… [A]nyone interested in residential 3D printed construction should have the expectation that they will face heightened scrutiny from building and code officials, and will likely need to draft new contracts in order to capture the relationship nuances.” 

One potential setback is the inconsistency of local building codes regarding 3D printing. An attempt to unify standards was incorporated into the International Residential Code, the comprehensive set of standards compiled by the International Code Council to regulate development. It is now up to municipalities to either adopt these recommendations or institute their own. Either way, legal clarity is a crucial step in incentivizing the use of 3DCP. 

Further, because the technology is new and has ample room for error in the software, hardware, and printing elements, potential legal disputes could arise when mistakes are made involving parties not typically part of construction disputes. Construction contracts and liability rules must evolve to consider the responsibility of software companies and technology providers. A similar process is going on with liability in automated vehicles as part and parcel of these technological changes. 

As affordable housing advocates and policymakers examine solutions to the current housing crisis, lowering barriers to the use of technological advancements should not be overlooked. Three-dimensional printing presents a cost- and time-effective alternative to traditional construction methods that can be used in conventional single-family home construction and ADUs. Now, the role of government should be to remove barriers and set clear standards. 

The post 3D-printed homes: Advancements in technology and remaining challenges  appeared first on Reason Foundation.

In the face of an affordable housing crisis and rent increases in much of the country, the pressure for policymakers to act is great. However, a policy that creates new problems while attempting to fix others should be avoided.

That has always been the chief problem with rent control: it stops rents from rising but creates other problems that make it an overall poor policy. President Biden’s proposal is not traditional rent control, which tends to have many controls on when and how property owners can change the rents they charge, but it will have similar distortionary effects. And it certainly fuels the fire of advocates for state and local rent control proposals, whose activism has been on the rise.

The current housing crisis is primarily caused by a nationwide housing shortage. Among other factors, the fallout from the 2008 subprime mortgage crisis has resulted in the worst decade for housing construction since the 1960s. Fannie Mae estimated that in 2019 the U.S was 3.8 million housing units (both rental and for sale) short. The COVID-19 pandemic only worsened the situation through materials shortages, though rent increases have recently slowed as developers respond to price incentives.

The primary cause of price hikes is a shortage of housing supply. Demand is simply outstripping affordable and available housing units. Effective policy should focus on adding housing units in the private market to meet demand. Economic research suggests that rent stabilization laws (a derivative/soft form of rent controls), like Biden’s, reduce the supply of housing, thereby exacerbating the problem.

Rent control policy’s effects

Most of the research related to this is on rent control rather than rent stabilization like Biden’s proposal, but the effects are likely similar. As with much economic research, rent control policy outcomes can be hard to assess. Economics 101 tells us that in a free market, rent control’s price cap decreases profitability, inevitably leading to less rental housing being available.

However, some studies disagree. This article by Rutgers professor Mark Paul goes over many studies that find positive effects of rent control, mainly for those people who live in rent-controlled units whose costs are frozen. The research is clear that some people do benefit from rent control.

However, a 2012 University of Chicago survey of a diverse panel of economists found that 81% agreed that local rent control ordinances have not positively impacted the amount and quality of rental housing. A very recent comprehensive survey of the effects of rent control concludes:

[A]lthough rent control appears to be very effective in achieving lower rents for families in controlled units, its primary goal, it also results in a number of undesired effects, including, among others, higher rents for uncontrolled units, lower mobility and reduced residential construction. These unintended effects counteract the desired effect, thus, diminishing the net benefit of rent control.

The Brookings Institution has also concluded, “Rent control appears to help affordability in the short run for current tenants, but in the long-run decreases affordability, fuels gentrification, and creates negative externalities on the surrounding neighborhood.”

San Francisco is a great example with long experience using rent control. A study by Stanford University researchers in 2017 found:

[Rent control] reduced their supply of available rental housing by 15%, by either converting to condos/TICs, selling to owner-occupied or redeveloping buildings. This led to a city-wide rent increase of 7% and caused $5 billion of welfare losses to all renters. … Taken together, we see rent control …  increased property investment, demolition, and reconstruction of new buildings, conversion to owner-occupied housing and a decline in the number of renters per building. All of these responses lead to a housing stock which caters to higher income individuals. Rent control has actually fueled the gentrification of San Francisco, the exact opposite of the policy’s intended goal.

After President Biden’s rent stabilization plan announcement, several housing experts and economists released warnings concerning the proposed policy. Bob Brokesmit, president and CEO of the Mortgage Bankers Association, called it a “counterproductive policy idea that ultimately harms renters by distorting market pricing, discouraging new construction, and degrading the quality of rental housing.”

The Washington Post quoted Jason Furman, a chief economist in the Obama administration, saying, “Rent control has been about as disgraced as any economic policy in the tool kit. The idea we’d be reviving and expanding it will ultimately make our housing supply problems worse, not better.”

Aware of these negative effects, most states have taken direct action against rent control and stabilization ordinances on the local level.

Figure 1 color codes the United States by the legal status of rent control by state. Considering the overwhelmingly unpopular nature of rent controls and similar policies, the proposed federal rent stabilization is likely to encounter substantial pushback.

Figure 1: Legal Status of Rent Control by State

Alternatives to rent control

Many U.S. cities provide adequate supplies of affordable rental housing without rent control. Average rents in some large, growing cities like Nashville, Houston, and Las Vegas have been declining, while rents in other cities like San José, Minneapolis, and Jacksonville have skyrocketed. The difference is the former are aggressively allowing new housing to be built and the latter are restricting new housing supply.

What causes rents to increase faster than wages, in part, are local government restrictions on housing supply that drive up costs. Policies and approaches that allow housing supply to meet demand inevitably keep housing more affordable. Local governments need to permit sufficient housing construction and also allow for denser development and redevelopment.

About 75% of all “residential” zoned land in the United States is currently zoned for the exclusive development of single-family detached homes. Aside from converting structures to allow for denser occupancy, thinking long-term and incentivizing local governments to reform their zoning and land use plans to benefit multi-family development would be a better use of federal attention on housing policy. Also, allowing current property owners to add accessory dwelling units like granny flats or basement apartments, or rebuilding on their lot with a duplex instead of a single home can dramatically increase supply without dramatically changing the character of a neighborhood.

Rather than sweeping price controls, one simple way to increase housing supply is to address the multiple categories of commercial real estate that are now underutilized and ripe for conversion to residential uses. Hotels, retail stores, and shopping malls are market sectors currently shrinking due to the COVID-19 crisis and the rise of online shopping. Local governments could take advantage of this trend by rezoning commercial properties to permit residential use, allowing new housing stock to be added much more easily and inexpensively than through ground-up construction. The resulting supply could help push down rents in many parts of the country without rent regulation.

The post Why President Biden’s rent stabilization proposal won’t solve the housing crisis appeared first on Reason Foundation.

The zoning law of an area influences its every aspect, including development type, traffic, and property values. These laws are typically decided on the municipal level, as cities consider the best ways to organize their specific communities. Despite admirable goals, excessively restrictive zoning policies are common and put housing out of reach for many. As local leaders look for cost-effective means for dealing with the rising housing costs (see Figure 1), trends suggest an increasing openness to zoning reform.

Figure 1: U.S. Real Residential Property Prices where 2010=100

The University of California, Berkeley’s Othering and Belonging Institute (O&B) has compiled a database of the major municipal zoning reform efforts across the United States between 2007 and 2023. The Othering & Belonging Institute researchers have also written a series of articles explaining the database. The data and insights reveal a budding acceptance of zoning reform that favors property-owner choice and density. Visualizing the data through charts and reviewing critical case studies can help display the trend toward reform and what barriers still stand in the way of change.

Figure 2: Number of Zoning Reform Attempts 2007-2023

The housing crisis and zoning reform

The recent skyrocketing of zoning reform attempts coincides closely with the rise in home prices nationwide. Recent findings suggest that as of 2022, nearly 42 million American households (including renters and owners) are “cost-burdened,” spending more than 30% of their income on housing. This is an increase of nearly 5 million since 2019. A tightening of housing supply in the aftermath of the Great Recession, significant regulation around development, and population shifts have led to the steady climb of real home prices. For renters, as Figure 3 shows, the number of cost-burdened households is growing and affecting households at all income levels, but it is most severe in the lowest tiers. As municipal leadership grows increasingly concerned with the lack of affordable and available housing, some have turned to zoning reform as a solution.

Figure 3: Cost Burdens Climb the Income Scale

Years of compounding regulatory barriers have led the housing market to its current state. Zoning codes and standards are enacted to address specific concerns about the character of a city (ex., minimum lot sizes, height restrictions, development type restrictions, etc.) Codes tend to remain once enacted. Dr. Jessica Trounstine, professor of political science at Vanderbilt University, has described how this accumulation of regulatory barriers over time contributes to a rise in home prices. Strict, “exclusionary” zoning codes and population growth (especially around metropolitan areas) each place upward pressure on prices. The primary goal of recent zoning reform is to facilitate property owners’ ability to create new housing and eliminate arbitrary barriers to additions to the housing supply. This can be achieved through several policy avenues.

Types of zoning reform

Zoning reform most often takes the form of “upzoning“—increasing the density permitted in a certain area. Upzoning can take many subtle forms, including raising height restrictions, lowering minimum parking lot size requirements, and raising permitted floor-to-area ratios. In its standard form, however, it is altering the compositions of suburbs to permit developments that are not exclusively single-family detached homes. Some of the most popular types include accessory dwelling units, plex, and transit-oriented deveopment reforms.

Accessory dwelling units (ADUs)

The most common type of zoning reform is overwhelmingly the loosening of regulations around accessory dwelling units (ADUs). ADUs are smaller residential buildings constructed on the same plot of land as a larger single-family home, typically housing one or two people. Their popularity is mainly due to being “infill.” This means they do not require denser housing development but rather provide property owners with the opportunity to build another unit on their land. Instead of radical change to the zoning landscape and massive, intrusive construction projects, Accessory dwelling unit reform allows additional housing to be added to existing and fully developed neighborhoods. ADUs are also a popular option for non-rental housing for extended family members. So much so that they are often colloquially referred to as “granny flats” or “in-law units.”

Accessory dwelling unit reform is an affordable housing policy tool that promotes mutual gain and voluntary additions to the housing supply. When policy allows ADUs to be rented out, their smaller size and building costs mean lower rents for tenants when compared to traditional single-family homes. This feature makes them especially suitable for lower-income individuals, should they be rented out. The income generated from collected rents is also a clear benefit to the primary homeowner—now functioning as a landlord with one property.

This low-hanging fruit of zoning reform is among the most popular. Municipal changes around ADUs include allowing them to be used as long-term rental properties, expanding the quantity permitted on one parcel, or allowing them to be built by default without needing permission from a regulatory body. Flexibility around ADU development is a case where the supply of affordable housing can be expanded simply by allowing entrepreneurial homeowners to use their property in the way that is most beneficial to them. More significant reforms have proven more challenging to pass.

Plex reforms

As of 2019, 75% of all residential land in the United States was zoned exclusively for single-family detached homes. This restriction dramatically hinders the construction of higher-density, and consequently higher-affordability, units on most residential-zoned land. Besides contributing to the rise of home prices for middle- and low-income individuals, exclusive single-family home zoning has been associated with community disconnect, car dependency, and a stifling of neighborhood diversity.

Zoning codes are not simply part of the legal code of an area but an integral part of the culture and a reflection of public sentiment. The Not-In-My-Backyard (NIMBY) movement is a coalition of often single-family homeowners that oppose changes to their community’s character through new projects. Higher crime, degradation of neighborhood character, lower property values, and a strain on public resources are often-cited concerns of NIMBY proponents. However, the severity of the current housing crisis has created a political climate more conducive to moderate density amendments in the form of “plex reforms.”

Plex reforms are rezoning ordinances that allow the development of “plex” developments (duplex, triplex etc.) in certain single-family zoned neighborhoods. These housing types have also been called “missing middle housing,” referring to their lack of availability compared to single-family homes and high-density apartments. In contrast to the homeowner-targeted ADU allowances, these regulatory amendments are for commercial developers seeking to add to the broader housing stock. It should be noted that these reforms often do not apply to properties restricted by deed covenants and conditions, such as in HOAs.

These amendments, like ADU reforms, are a form of “light-touch density.” This term has been used to describe incremental increases in an area’s density. Plex reforms expand flexibility in zoning codes, making light-touch density possible in ways more palatable to community members than large apartment buildings.

Transit-oriented development (TOD)

While ADU and plex reforms are powerful tools to address housing abundance, they do not directly address community interconnectedness. Transit-oriented development centers not only increase housing supply but the creation of desirable communities.

Transit-oriented development (TOD) is a planning approach that maximizes walkability and access to public transportation, often by increasing the permitted density and mixed-use development within a certain radius of a public transportation center. After housing, transportation is the largest expenditure for the average American household. TOD reform focuses first and foremost on walkability and accessibility of public transportation; hence, it is transit-oriented. It is an unorthodox approach to zoning policy—rather than strictly segregating different zones for singular uses; TOD encourages compatible but diverse development. The TOD approach prioritizes flexible zoning for housing types and interlaced commercial and residential zones. Dense, mixed-use zoning is a top priority. With further freedom for developers and increased leniency in density under TOD, lower housing costs are expected as a natural byproduct.

Despite their promises of community flourishing and interconnectedness, TOD reforms have proven rare, likely due to their scope. The Othering & Belonging Institute Zoning Reform’s Sortable Database reports only eight such reform attempts—one of which was rejected.

Figure 4: Types of Zoning Reform 2007-2023

How successful are zoning reform attempts?

Examination of the O&B Zoning Reform database reveals a high approval rate for all zoning reform types. An overwhelming 83% of proposed reforms completed their course through the legislative process and cemented themselves as a part of local law. In these cases, the community saw the benefits of upzoning and ultimately decided it was the right choice. Equally interesting to those seeking reform, however, are the cases where calls for reform were unsuccessful. What were the influences at play? What critical mistakes can be avoided?

Figure 5: Phase of Zoning Reforms

These cases are rare. In fact, of 148 municipal zoning reform attempts recorded, only five were outright denied, and some are still in the approval process. However, each denied case offers unique insight into community sentiments on zoning reform and the potential roadblocks that can arise when reforming legislation.

Anchorage, Alaska: Other reform (zoning simplification)

In early 2023, members of the Anchorage Assembly proposed a collapse of the current 15 different residential zoning codes into only two in a reform titled AO 2023-66. The two districts would be titled R and R-OUS, each including residential development of various densities, including mixed-use development. The only difference between the proposals is that R-OUS developments may have limited access to “infrastructure and municipal service.” Simplifying the Anchorage zoning code was proposed to eliminate barriers to housing construction, specifically for reducing homelessness through the private market. This proposal, called the “Housing Opportunities in the Municipality for Everyone” (HOME), was not rejected outright, but public outrage over the seeming destruction of single-family home zoning led to amending the initial plan. In some cases, sweeping reform may prove too unpalatable for a community to accept outright. Updates to the amended version are pending as of the time of this article.

Gainesville, Florida: Plex amendment

In central Florida, local commissioners have reversed affordable housing strides. On April 19, 2023, the Gainesville County Commission voted 4-3 to reverse the elimination of single-family zoning, adopted in October 2022. Residents of single-family home neighborhoods raised persistent opposition to reform. Following the passing of the initial ordinance, single-family homeowners complained of receiving calls that offered to buy their homes to develop apartments and plex units. Vocal members of the public grew increasingly worried about the potential change to their communities’ character if someone agreed to take the deal and voiced their concerns to the commissioner’s office. Reform pitted the right of property owners to build more density on their land, or sell their property for redevelopment into more units, against neighbors’ desire to have only single-family homes nearby.

Like the zoning simplification attempt in Anchorage, public outcry from single-family homeowners proved the tipping point in the decision to reenact exclusionary zoning policy. These groups typically have the resources and organizational abilities to advocate for their interests in the local political sphere. In cases where zoning reform appears to threaten the goals of the existing community, it is likely to face organized, and often successful, resistance. One way to alleviate this might be to limit the redevelopment density in single-family neighborhoods to 2 or 3 units. Another might be to simplify the creation of homeowners’ associations where property owners can voluntarily preserve the neighborhood character rather than using zoning to impose it on everyone.

 Atlanta, Georgia: Transit-oriented development and ADUs

In a bid to increase community interconnectivity and housing affordability in Atlanta, City Councilman Amir Farokhi introduced three ordinances (21-0-0454 through 21-0-0456). These ordinances each targeted a narrow aspect of zoning reform (TOD, land-use reform in the comprehensive plan, and ADUs, respectively). The two mentioned in the O&B zoning tracker under the category “rejected/denied” include the first and the third.

In detail, the first was a TOD reform that aimed to rezone all low-density residential land within a half-mile radius of a “high capacity” transit station to allow medium-density development. These medium-density units are called “multifamily residential multi-units,” or MR-MU.

The third was a proposal to allow the construction of accessory dwelling units (within specified limitations), as well as eliminate parking space requirements for single-family homes.

On December 6, 2021, the ordinances were filed and referred to the zoning review board and zoning committee. Once there, the ordinances were voted on by Atlanta’s Neighborhood Planning Units (NPUs). NPUs are advisory committees composed of an area’s citizenry that make recommendations on land use and zoning-related matters. There are 25 in Atlanta. Ultimately, they voted 18-6 (one abstained) to reject the combined ordinances, which had been renamed for their purposes as “Z-21-74 – Housing Diversity.”

Investigation of the NPUs’ meeting minutes in which the ordinances were rejected reveals some key insights. The minutes of NPU-E’s meeting on October 5, 2021, reveal that committee members did not believe developers wanted to build affordable housing. One committee member said that “an increase in density does not necessarily result in affordable housing.” Further, there were concerns that eliminating parking requirements would increase traffic without having the desired effect of lowering the price of housing. The members of NPU-E ultimately rejected the ordinance 21-1.

Atlanta’s case is like the others mentioned in that community members expressed their disapproval and ultimately stopped the ordinance. However, the similarities essentially end there. From the little information available from NPU-E, the concern seems to be with the inefficacy of the reform rather than the efficacy. Those who objected were concerned that the ordinance would not add to the supply of affordable housing, making it not worth the risk of the change in community character that accompanies potential new additions (as was the case in Anchorage and Gainesville). There is a distinct distrust that developers are interested in building dense, affordable housing.

Further, the idea of eliminating parking requirements was troubling to some. The impression appears to be that once parking requirements are removed, developers will build without lots and driveways, leaving residents to park on the street and creating substantial traffic problems. This understanding begs the question: If some construction feature is not legally required, will developers always choose to forgo it? Perhaps not. The removal of the requirement does not necessitate developers will never incorporate adequate parking into their projects. Instead, developers will now have the option to cater their buildings toward residents who do not own cars, and as a result of fewer costs, potentially offer more affordable units. If they project their residents will want to park, they have every incentive to create structures that are livable for their client base.

Carmel, Indiana: Accessory dwelling units

In 2021, a broad ADU ordinance was attempted in Carmel, Indiana. This reform would not only have made it possible to build an ADU without explicit approval from the Board of Zoning Appeals (BZA) but also required 20% of all new residential developments with 10 or more lots of one acre or less to include them. After a lengthy series of revisions, this legislation was rejected 8-0. Primary concerns centered on the requirements for ADU inclusion, which was rightfully seen as an incursion on consumer choice. In the editing process, the ADU requirement provision was ultimately removed.

Instead, it was replaced with a recommendation from the land-use committee that all new ADUs must receive approval from the Board of Zoning Appeals (BZA)—essentially nullifying its original intent of eliminating barriers to ADU additions. Diluting the ordinance, coupled with pushback from members of HOAs who worried about eyesore ADUs if regulations were loosened, created the perfect storm for a unanimous rejection. When passing reform, simplicity and clarity should be prioritized. Rather than adding to the bloated book of rules for property owners, homeowners, and developers, successful zoning reform tends to strip away barriers. Carmel, Indiana, is one of the cases where the tendency to over-complicate proposed legislation proved detrimental. 

Zoning reform challenges and who’s leading the way

As local governments seek to combat rising home prices, some kinds of zoning reform have proven more politically feasible than others. Zoning reform through political channels can be difficult due to the imbalance in representation between those who would benefit from a repeal of exclusionary zoning and those who believe they benefit from the status quo.

Commission boards and other elected officials legislate according to the represented interests of their communities. To vote in an NPU meeting, ID must be presented to prove residency to the NPU’s jurisdiction. Provisions like this make sense in principle but have created serious limitations for policy reform and representation. In such cases, the existing residents of a community (often single-family homeowners) can clearly state their concerns and present a firm, organized opposition to zoning reform. Meanwhile, the potential beneficiaries of proposed affordable developments are left with no voice. In such a system, the most obvious method for change is convincing existing members that there are benefits to economic and development diversity; and that property rights matter while neighborhood character is best achieved through HOAs and similar organizations. Otherwise, one would have to eliminate the political element from the zoning process, which is not obviously possible or necessarily desirable. Persuasion and gradual steps seem to have yielded the most success so far, though each community and situation is vastly different.

Figure 6: Zoning Reform by Region

Table 1: Delineation of states & number of reforms in each

Despite varying quantities of reform, most regions make their zoning code nearly identically: Municipalities zone their land, with any land left over (“unincorporated land”) zoned by the county. However, different legislative histories and tendencies may inform outcomes.

The 2019 National Longitudinal Land Use Survey by the Urban Institute illuminates some of the regulatory barriers on residential land in the Northeast that make it so resistant to reform. As of 2019, compared to the other regions of the United States, the Northeast stands out for:

• Lowest amount of residential land zoned for maximum density development (30+ units per acre)
• Among the highest minimum sizes (in square feet) for both single-family and multifamily dwellings
• Among the highest requirements for the number of off-street parking spaces for multifamily units
• A close second to the Midwest in ADU regulation and restrictions. 

Historically, the Northeast has had among the most restrictive land-use policies in the country. Understanding this regulatory tendency can inform the hesitance to embrace flexible zoning reform practices. Local governments in the Northeast have been generally favorable toward regulations on development, and if they were to seek reform, they would have the most policies to reverse.

The West, on the other hand, leads the zoning reform, closely followed by the South. California and Washington have been home to some of the most sweeping zoning reform policies at the state and municipal levels. In the 2019 National Longitudinal Land Use Survey, the West and South had opposite results compared to the Northeast: lower development requirements (parking minimums, minimum sizes etc.) and more allowance for higher-density development. In fact, in 2019, over 80% of residential land in the West allowed ADU construction by right or with a ministerial use permit. That amount has only increased since then. The Western states have taken impressive strides toward housing affordability, becoming the model for zoning reform and flexibility.

Housing development is time-consuming, and so is waiting for the market to adjust to a higher housing supply after a prolonged affordability crisis. Tangible results from these reforms are not yet solidified, but there are indicators that these are steps in the right direction. A statewide case study regarding ADU reform from California suggests a willingness of property owners and developers to respond to changes in zoning structure.

In 2016, the California state government passed laws that required municipalities to allow ADU construction on most residential land. Between the preemption and the end of 2022, an estimated 80,000 ADUs have been constructed across the state, with 27% qualifying as low-moderate income housing. In California, when property owners were given the choice to develop their land in a way beneficial to them and their communities, many took the opportunity. It may not be overly optimistic to assume that given the same freedoms, other property owners, developers, and landlords will do the same.

Conclusion

Municipalities are turning to zoning reform to remedy the nationwide affordable housing shortage. Since 2016, the number of reforms proposed per year has skyrocketed. Loosening regulation around accessory dwelling units is overwhelmingly the most popular option, but plex reforms and transit-oriented development are also valuable avenues. While lighter, less-unintrusive ordinances (like accessory dwelling unit reforms) are seeing great general success in making it into law, NIMBY sentiment has proven a setback in some cases. Analysis of five rejection cases finds that community action groups and single-family homeowners are particularly resistant to zoning reform. Additionally, doubt that zoning reform is effective lingers among some community members. And even so, reforms are rarely rejected.

Further, the regulatory history of an area can inform sentiments toward reform. Areas that have accumulated substantive zoning regulations, like the Northeast, are associated with fewer municipal zoning reform attempts in the future (and vice versa). These trends are reflected in the data collected by the Othering & Belonging Institute. The natural question for many is how effective these policies will ultimately prove in alleviating the ongoing housing affordability crisis. While it is still too early to say for many of the specific cases mentioned here, early evidence from other reforms in places like California, Michigan, and Minnesota, suggests there are reasons to be optimistic.

The post The sunny side of the street: Unveiling strides in zoning reform appeared first on Reason Foundation.