Upzoning Might Not Lower Housing Costs. Do It Anyway.

(Source: Unsplash/Nate Watson.)

We’re witnessing a sea change in the way American cities regulate residential development. In roughly the past decade, in response to a historic housing affordability crisis, cities in every region of the country have begun to re-examine exclusive single-family zoning. Some cities, such as Minneapolis; Sacramento, California; and recently Arlington, Virginia, have loosened zoning restrictions to allow small, multi-unit buildings citywide. Moreover, states including Oregon and California have passed a slew of bills curtailing local zoning. Many cities are also taking steps to allow more and taller apartment development along major transportation corridors.

This is a remarkable and fast-moving trend. Whereas the late 20th century saw a wave of efforts to “downzone” urban neighborhoods, limiting the possibility of change and redevelopment, today the momentum is firmly on the side of upzoning advocates. And the fire fueling this trend is unquestionably a widespread sense of alarm about the high cost of housing.

It’s that last fact that makes me nervous.

Look: To be clear, housing affordability is a defining crisis of our time for millions of Americans. There are entire metro areas, such as those of coastal California and the Northeast, that are almost systematically pricing out their own working classes at this point. The issue is morally and practically urgent. And there is powerful evidence that zoning codes which sharply limit the growth of desirable cities and neighborhoods are one primary cause of the problem.

But the evidence that rolling back those zoning codes will offer a meaningful or rapid solution to high housing costs is far weaker. And so, the fear I have is that this moment of opportunity to fix a historic mistake—zoning our cities to force neighborhoods into artificial stasis—will fade away (or, worse, provoke backlash) when upzoning fails to deliver upon the more overzealous promises of its champions.

This doesn’t mean don’t do it! (Elected officials in the audience, are you listening? This doesn’t mean don’t do it.) It means don’t stop there. Zoning reform is part of a much bigger package. And we should stop pretending that the worth of that package is entirely—or even mostly—about bringing rents lower in the near term.

The Effects of Policy Aren’t Neatly Reversible

Imagine a river teeming with salmon—you can practically reach in and grab one. A dam is built on this river, disrupting the annual migration, and the salmon disappear. Decades later, a growing environmentalist movement successfully campaigns for the removal of the dam, and it is blown up, restoring the river’s unimpeded flow. Will the salmon be back in their former numbers the next day? Or even next year? Of course not.

Well into the 20th century, American cities played host to a large number of small-scale, semi-amateur residential builders. As late as the 1960s, developers in Oakland, California, were building hundreds of small apartment buildings on scattered lots, many of them replacing older single-family homes. At least a third of these developers appeared to have no real estate industry ties, and by and large, these projects did not involve the practices—such as land assembly—typical of corporate developers who build at larger scales.

Today, the kind of infill builder who builds small apartment buildings on single residential lots is almost an extinct species in many cities. Large development companies buy up whole city blocks to build 5-over-1 apartment buildings, or they create new subdivisions in the suburbs. They are largely not interested in one-off, small-scale infill projects. You can change your zoning code to legalize such projects, but who is going to build them?

Re-creating that ecosystem of small developers and the support systems they need is the real, long-term task required to get us to the goal of cities where neighborhoods can grow and adapt to local demand—where housing production isn’t so artificially constrained. But that is complex work requiring patient cultivation. Zoning reform, while a prerequisite, is not in itself going to get any city there.

Housing researcher Yonah Freemark recently published a review of the recent scholarship on zoning changes and their effects on the housing market. Freemark finds extremely mixed and uncertain evidence for the effects of upzoning, and one of several reasons he identifies is that the link between upzoning and actual housing production is tenuous. In other words, “Are they allowed to build it?” is a different question from, “Are they building it?”

One of the clearest relationships in the complex, murky world of housing markets is between rental vacancy rates and the growth of rents. Within a given metropolitan area, high vacancies reliably correlate to slow or no growth in rents, and low vacancy rates correlate to soaring rents. This is intuitive if you think of the vacancy rate as a measure of how much competition there is for each available housing unit—giving owners the leverage to raise prices or incite bidding wars.

In other words, if your city builds a lot more housing, rents are likely to moderate somewhat. New research from the Pew Trusts confirms that zoning reform is part of unlocking that possibility. The researchers examine four places that undertook large zoning changes—Minneapolis; Portland; Tysons, Virginia; and New Rochelle, New York—and find that rent growth in those communities has been far less than the nationwide average.

But the key is that all of these places actually built significant numbers of new apartments in the past half decade. (In at least one case—New Rochelle—the surge of new apartments is almost entirely in one small area near the city’s downtown train station, so it remains to be seen whether, once those projects are completed, housing growth slows and rent growth resumes.)

If It Doesn’t Lower Rents, Is It Worth Doing?

There are a lot of reasons why zoning reform might not lower rents. It might not spur much building. It might spur building, but only at the high end of the market—particularly if it is focused on allowing or facilitating high-rise buildings which are more costly to construct. Upzoning narrowly targeted to a neighborhood or corridor might induce a speculative rush, pumping up land prices in that neighborhood and ensuring that any housing built is expensive. On the other hand, upzoning that is broad but shallow—such as Minneapolis’s citywide legalization of triplexes—might be met with crickets if the newly legal projects aren’t profitable or physically viable, or there simply isn’t a critical mass of the kind of builders prepared to undertake them.

Every upzoning is different and happens in a different market context, and so the question of whether “upzoning” will meaningfully promote affordability is, indeed, uncertain and probably so context-dependent that there isn't a meaningful general answer.

Yet the incentive for a local elected official trying to pass a policy package is to offer definite answers and simple explanations. This is where I fear that hanging the entire prospect of zoning reform on the promise of affordable housing that may or may not materialize is dangerous.

Already, we’re seeing media narratives take shape that push back against the value of zoning reform as a political priority. A recent, widely circulated Bloomberg story about Austin, Texas, is titled “Cities Keep Building Luxury Apartments Almost No One Can Afford.” The summary blurb at the beginning offers a harsh assessment: “Cutting red tape and unleashing the free market was supposed to help strapped families. So far, it hasn’t worked out that way.”

In fact, there are a lot of reasons strapped families aren’t seeing much relief in Austin, and the article does a decent and fair job of getting into those. Austin is seeing tremendous population growth and, in particular, an influx of high-income workers in fields such as tech. In addition, most of the city is still reserved for single-family homes, leaving the apartment boom to unfold in a small area of mostly very, very expensive downtown land. Under these circumstances, it is no surprise that large developers opt to build high-end projects for premium rents.

Austin is permitting a lot of apartments, but it isn’t broadly loosening zoning. It’s just a city growing very quickly under the old model, which is that a handful of big developers get to do big projects in a handful of neighborhoods while the rest of the city is in stasis.

But when the regular person’s takeaway from this is, “Austin has a development boom, and yet housing isn’t getting any cheaper,” it doesn’t look great for the credibility of those who shouted that unleashing a development boom would bring affordable rents.

The Other Reason to Upzone

The best reason to broadly upzone cities applies even if it doesn't, in itself, do a thing for housing affordability: It's simply that walkable urban neighborhoods should be legal.

A few years back, planners in Somerville, Massachusetts, did a survey of how many residential lots in the city of about 80,000 were fully compliant with the city’s own modern-day zoning. The answer: 22. Almost the entire city of Somerville would be functionally illegal to recreate if it burned down tomorrow.

Somerville is a fairly prosperous place, home to residents with a wide range of incomes and life situations. It has many expensive, highly desirable homes. It is walkable, transit-rich, fifth in the nation for its share of bicycle commuters, and meets a growing demand for places where you can live either without a car, or without needing to use one for every daily need. There is a deep, systemic shortage in America of places like this. And most Americans seem to agree that places like this are, on balance, pretty nice!

The funny thing I’ve witnessed is that a lot of people who don’t harbor any hostility toward apartments, toward denser forms of development, toward walkable places, are nonetheless deeply suspicious of zoning reforms that would make it legal to build more of those things, which are currently illegal in somewhere upwards of 70% of all American neighborhoods.

Why? As best I can tell, because they’ve been told that the sole point of those zoning reforms is to deliver affordable housing, and they aren’t convinced that will happen. Or, if it does, that the results will benefit their poorer neighbors. And they might well be right about that.

This is the outcome of tethering the more basic question of whether it should be legal to build the kinds of places that worked for decades, and that are still beloved today to the hot-button politics of the YIMBY–NIMBY wars. A lot of people have talked themselves into affirmatively defending the rigid, exclusionary zoning of the suburban era, just because nobody can prove that upending it would solve the housing crisis overnight. It's a weird sort of status quo bias. But it threatens to set back progress on something that’s important and transformative.

Americans, especially low-income ones, need housing relief imminently. Upzoning isn’t likely to be the thing that delivers that—and YIMBYs shouldn’t delude themselves otherwise. But it’s still worth pursuing.

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