Free Market Solutions to the Housing Crisis: Relaxing Zoning

For a century, zoning has been used to segregate “incompatible” land uses. In most cities, each area of the city mandates that land be used for residential, commercial, or industrial purposes. And in most cities, much of the land (often over 60 percent) is zoned for single-family homes.

Defenders of segregating land uses have long claimed that zoning is necessary to protect the community’s values and interests—i.e., the values and interests of the group. Under zoning, individual land owners cannot use their property as they think best. The property owner’s values and interests are subordinate to those of the group—the community. This defense of zoning has long dropped the context and ignored the role that zoning plays in the cost of housing.

Over the past two decades, a growing number of economists and researchers have shown that zoning and similar land-use regulations, along with the associated permitting process, stifle the construction of housing and add to its cost. In response, cities and states across the nation have been changing, or considering changes to, their zoning regulations. And the Biden administration has suggested that municipalities will be required to revise their zoning laws as a condition of receiving federal money for housing.

The most common revision is to relax single-family zoning to allow other types of housing, such as duplexes and “granny flats.”  Because the cost of land is a major factor in the price of housing, greater housing density enables builders and developers to spread the land cost over more housing units. In many jurisdictions, the permitting process is also being simplified, and thus less expensive. The result is a lower cost per housing unit.

Another common revision is to allow for mixed-use communities. Mixed use allows for restaurants, retail stores, offices, houses, and apartments to exist in close proximity to one another. These are precisely the types of land uses that zoning was designed to prohibit. But as more individuals want to live in “walkable communities,” revisions to zoning regulations are necessary.

Many are opposed to these zoning changes. Opponents argue that allowing different land uses will change the character of their neighborhood. These claims are founded on the premise that the individual should sacrifice for the group—the neighborhood or community. That premise must be rejected if we truly want to produce more affordable housing.

Numerous studies have found that zoning and similar land-use regulations can add more than 40 percent to the cost of housing. Many of the jurisdictions that are revising their zoning laws and the associated permitting process are aiming to reduce the costs by 50 percent. If they are successful, that will result in a significant reduction in the cost per housing unit. However, the remaining restrictions and permitting will still add 20 percent or more to the cost of housing. Ideally, all zoning would be abolished and the full cost of land-use regulations could be eliminated.

The premise underlying the relaxing of zoning regulations is that fewer restrictions will encourage developers to build a greater variety of housing. This is a market-oriented solution, and it should be supported.