Zoning

Cities adopt a range of zoning and other policies that prevent density and the environmental and economic benefits that density provides. Zoning is a major contributor in high housing costs ¹, and by preventing people from being able to move to highly productive cities, zoning restrictions are estimated to cost the American economy from $400 billion to $1.7 trillion per year ², ³, ⁴.

The main classes of zoning restrictions--unit size, parking requirements, lot size, and height rules--should be subjected to periodic cost-benefit audit. In some cases there may be justification for retaining the rules, such as management of traffic ⁵, but cities should periodically reanalyze their rules.

Zoning Impact Overview

There is a wide range of policies that cities adopt that affect development patterns. We compare the land, energy, and greenhouse gas impacts of four of the major policies.

Comparison of the energy and land use impacts of four zoning policies, shown per unit affected. The rules are a minimum lot requirement of half an acre for single family homes, when otherwise a median lot would be used; a parking minimum that requires 0.5 more parking spaces per unit than necessary for a walk-up apartment; a minimum unit size that causes a building of studio apartments to be built instead of an single room occupancy building; and a height limit that requires a six story apartment building when the market would otherwise supply 12 stories. For the latter three scenarios, all people displaced by zoning instead live in median lot detached homes. Source and calculation details are below.

Zoning regulations impose considerable cost on homebuyers and the economy.

The authors estimate a "zoning tax" as the difference between the sale price of a property and construction cost. Absent regulation that constricts supply, the two should be equal. In Cincinnati, sale prices are below construction costs, so no zoning tax is estimated. Source: ⁶.

Property Rights

Zoning attempts to balance two concerns in urban development: the need and economic value of new develop with the external costs of development, including traffic congestion. In principle, if property rights are fully delineated, then property owners should be able to negotiate an economically efficient system of development ⁷. In practice, transaction costs associated with negotiation among many, even thousands, of property owners in intractably complicated ⁸.

Unit Size

Most cities place severe restrictions or outright bans ⁹ on the construction of small housing units, such as microapartments (typically less than 300 square feet) or single-room occupancy units. Allowing small units can create affordable options for singles that would otherwise not be available, as well as take pressure off the market for larger units. In cities with a high cost of living, there is strong evidence for unmet demand for small units ¹⁰.

The following shows how a given building with 67,100 gross square feet can accommodate more people through small unit sizes.

Allowing smaller units can increase the housing stock in a given building envelope. Source: Stern and Yager ¹¹.

Parking Minimum

Most cities require new developments to provide parking. These requirements often exceed the actual need for parking, adding to the cost of new development and consuming space that could otherwise be used more productively.

Cost of providing parking. Source: Litman ¹².

The cost of excessive parking spaces is borne by the developer, who must in turn pass it on to the renters, homebuyers, or businesses. Including access roads, one acre holds 125 parking space ¹², preventing the construction of 5 single family homes with median lot size, 22 walk-up apartment units, or 72 midrise apartment units. The reduction in the housing stock raises the cost of living throughout the city ¹³.

Density Restrictions

Cities often require a minimum lot size for new single-family homes. These rules lower population density and increase the cost of housing. In the Greater Boston Area, for instance, an increase of the minimum lot requirement by a quarter acre causes an estimated 10% decrease in the housing supply and 3.3% increase in price ¹⁴. By lowering population density below what it would otherwise be, minimum lot size regulations contribute to urban sprawl and resulting environmental costs, such as traffic congestion and land use impacts ¹⁵. In Connecticut, homes in towns with the largest lots are associated with 36.1% more transportation CO₂ emissions and 18.3% housing emissions than homes in the other towns ¹⁶. The reduction of supply in one town raises prices in neighboring towns ¹⁷.

Similarly, restrictions on the height of buildings, or on the floor-area ratio (the ratio between the total building floor space and the area of the lot) reduce a city's supply of valuable floor space that is close to the urban core.