[REN #781] Real Estate: Single-Family Zoning

Picture of Houses for Real Estate New for Investors Podcast Episode #781

Oregon has become the first state in the nation to eliminate single-family zoning. State lawmakers passed the legislation to help increase the housing supply and affordability. It’s a concept that is gaining momentum in cities and states across the nation, but is also threatening the American Dream of owning a home that’s surrounded by a yard, and maybe a white picket fence.

The Oregon legislation will allow buildings with up to four units in cities with 25-thousand or more residents. For smaller cities with at least 10,000 residents, duplexes will be allowed in all neighborhoods. (1)

People opposed to the idea are worried that multi-units will lower their property values, and change the character of their neighborhoods. Some are also worried about increased traffic, demands on infrastructure, parking issues, and other impacts. Advocates say it will take the heat off rising home prices, and create more affordable housing near where people want to live and work.

Big Shift in Housing Concept

The change in thinking is monumental. The New York Times reports that 74% of the residential land in many American cities is zoned for detached single-family homes. (2) And the percentage is even higher in Sunbelt cities, like San Jose where 94% of the land is zoned for single-family homes. The paper says Seattle isn’t far behind with 81% of its land zoned for single-family homes. Those zoning rules also apply to 70 to 80% of Chicago, Los Angeles, and Portland.

The single-family zoning is a concept that’s been around for decades. It became popular after a Supreme Court ruling in 1917 that banned race-based zoning. Many African Americans couldn’t afford homes in those neighborhoods, so it was a way to discriminate without mentioning race.

The city of Minneapolis was the first to pass an ordinance that banned single-family zoning. City council members voted last year to allow duplexes and triplexes on any piece of property in any neighborhood of the city. California lawmakers are also tackling the issue of single-family zoning, but have not yet passed legislation.

In Minneapolis, the recent decision to ban single-family zoning is partially rooted in a desire to eliminate that kind of discrimination. The city’s mayor, Jacob Frey, was quoted in The New York Times as saying, “Minneapolis is not alone in being a city with a history of intentional segregation. I’m hopeful that we’re not alone in undoing it.”

Increasing the Supply of Housing

With the passage of the statewide law in Oregon and California’s effort to do the same thing, it appears that Minneapolis is not alone. California’s SB 50 would have encouraged the development of mid-rise and multi-unit housing near public transit hubs. The New York Times says it was blocked and shelved in May after an outcry from single-family homeowners. But it’s still under debate, and getting support from top state officials and people in the real estate industry. The California Association of Realtors issued a press release just a few weeks ago, in support of legislation like SB 50. (3)

C.A.R. recently launched a campaign called “Let’s Get Serious on Supply.” The campaign poses an important question about housing. Namely, “Where will our children live?” Surveys have found that more than half of Californians are thinking about moving away because of high housing costs.

One of the lingering questions in the midst of the debate, is whether it will actually result in lower home prices. That idea is based on the law of supply and demand. If you have more supply, demand will go down, along with prices. But some researchers disagree with that theory.

Upzoning Study

In a study called “Housing, Urban Growth, and Inequalities” out of UCLA and the London School of Economics, researchers argue that loosening zoning rules, or “upzoning,” without targeting affordability, will only result in additional upscale housing and gentrification. They say market forces will inspire development in desirable areas, and that will attract people with high-paying jobs. They don’t believe there will be a big “trickle-down” effect for middle- and lower-income housing without policies that specifically target affordability in the creation of that new housing.

In an interview for The Planning Report, report author Michael Storper describes the heart of the housing crisis as an income gap. (4) He says, “What drives housing prices up is the strength of the fundamental economic forces that causes the skilled to want to be in big metropolitan areas today. This force is much stronger than 30 years ago. The payoff for a skilled person to locating in a big city today is much bigger than in the past. That is why the skilled continue to crowd into L.A. and the Bay Area, in spite of their high housing costs. It’s also why any increase in supply will mostly benefit them.”

Storper says that developers will also be selective in where they build, and that, “Even if the upzoning is aimed at, for example, transit-served corridors, it doesn’t mean that all such areas are going to attract housing investment.” He says that blanket upzoning allows “for market speculation to dominate. And the market will naturally respond best in areas with the greatest returns on upzoning—mostly places with dense, white-collar employment where high-income people will want to live to be closer to their jobs.”

Links:

(1) Realtor Magazine Article

(2) New York Times Article

(3) PR Newswire Article

(4) The Planning Report Article

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