by William Skink

Today’s post is going to be a fun and exciting look at zoning, specifically single family zoning. Is single family zoning bad? Is it racist? Will banning single family zoning in order to allow higher, more dense residential structures lead to more affordable housing?

These questions were sparked by a brief back and forth I had with a commenter by the name of Abby. Here is Abby’s first comment:

Single family zoning is racist to the core and no amount of cloaking it in anti-gentrification buzz words will change that. The landowning class must protect those precious property values…

The logic here is that single family zoning doesn’t allow for multi-family housing to be built in neighborhoods like the Rattlesnake and University District. Furthermore, because those neighborhoods have a strong NIMBY component that would actively fight changes to the character of their neighborhoods, they should be seen as selfish racists who fear poor, non-white people will invade their neighborhoods if single family zoning is banned.

Abby and other proponents of banning single family zoning assume that once this task is accomplished, denser construction will increase supply and lower prices. This makes sense. But will it actually happen?

I found a very interesting study that raises some very serious questions about these assumptions, and none other than New Urbanist guru Richard Florida is helping to raise the alarm that banning single family housing may not have the desired impact people like Abby assume it will.

Before getting to the study, here is how Florida frames the thinking about zoning reform:

One of the most influential ideas in urbanism today is that the key to addressing the housing crisis is reforming zoning and building codes to allow for taller buildings and higher population densities.

A growing chorus of market urbanists and YIMBYs make the case: Restrict supply, and demand and therefore prices go up. So, it follows, liberalizing codes to make it easier to build—and to permit taller, denser structures—will increase supply and cause prices to fall, which will then make housing (and expensive cities) more affordable.

This idea of liberalizing codes, or “upzoning”, is getting some critical pushback after a study looking at zoning changes in Chicago provided some surprising results. Here is how the study was structured:

But a new study published in the journal Urban Affairs Review throws a bit of a proverbial wrench into the works. Its author, Yonah Freemark, a doctoral student in urban planning at MIT, has analyzed the effects of upzonings in Chicago neighborhoods. His study takes the form of a natural experiment (the “gold standard” of social-science research) by comparing an initial set of zoning reforms, undertaken in 2013 to encourage development around transit stops, with a more aggressive set of reforms from 2015, which expanded the upzoned areas and increased incentives for taller, denser development.

The study design allows Freemark to overcome the analytical problem of an endogenous relationship between upzoning and changes in prices and construction activity. He uses Chicago zoning files to determine the parcels of land affected by the two zoning changes, as well as data on building permits from the city and property values from the Illinois Department of Revenue. The study tracks the period 2010 to 2018, before and after the zoning changes.

So, what were the results?

Freemark reaches two startling conclusions that should at least temper our enthusiasm about the potential of zoning reform to solve the housing crisis—conclusions that, interestingly enough, he has said he did not set out to find. First, he finds no effect from zoning changes on housing supply—that is, on the construction of newly permitted units over five years. (As he acknowledges, the process of adding supply is arduous and may take longer than five years to register.) Caveats and all, this is an important finding that is very much at odds with the conventional wisdom.

Second, instead of falling prices, as the conventional wisdom predicts, the study finds the opposite. Housing prices rose on the parcels and in projects that were upzoned, notably those where building sizes increased.

The conventional wisdom, according to this study, does not apparently align with the actual impacts of upzoning in this specific geographic location. Why?

Freemark identifies two key mechanisms by which upzoning acts to increase prices. First, the fact that upzoning registered so quickly in higher prices is a signal that land prices respond rapidly to the ability to build more units, which translates into money in the pockets of incumbent landlords. Second, the large effect of reduced parking minimums on the value of vacant land means that the biggest impact of zoning liberalization is on land that is ripe for development anyway. As Freemark puts it bluntly: “[T]he short-term, local-level impacts of upzoning are higher property prices but no additional new housing construction.”

So, liberalizing codes by itself does not seem to produce the desired effects of increasing the housing supply and lowering prices. It will produce luxury condo units, like the controversial 4th street condo project in Missoula.

Here is Richard Florida discussing this trend:

Freemark’s findings are in line with my own thinking, in my book The New Urban Crisis. There, I argued that although it is important to combat unnecessarily restrictive zoning and building codes (whose advocates I dubbed “New Urban Luddites”), easing these codes would do little to address housing affordability and might actually serve to increase housing prices in the neighborhoods in question, for the simple reason that developers would use the land not for affordable units but for luxury construction.

I noted that the markets—and neighborhoods—for luxury and affordable housing are very different, and it is unlikely that any increases in high-end supply would trickle down to less advantaged groups. Another economist who is more pro-market than I am, Tyler Cowen, has similarly argued that the result of liberalizing zoning codes to allow for taller buildings will likely be more luxury housing and more profits for landlords and developers.

Again, the 4th street condo project exemplifies how the push for density will be exploited by developers to do what will make them the most money.

There is a type of zoning that could help, called “inclusionary zoning”, but our enlightened leaders in Missoula chose NOT to make use of this zoning tool. I wrote about that unfortunate decision last November.

The findings from this study examining the real world impact of liberalizing zoning codes to build higher, more dense residential structures, confirms my skepticism that the supposed cures being offered to our community will produce the desired results.