State and Local Policy Tensions Focus Zoning Reforms

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California

It is no secret that California suffers from extraordinary housing costs. (To be precise, much of California suffers—though not the cohort who purchased homes in the state’s affluent regions a generation or more ago. By and large, those Californians have made out like bandits.) Several factors have contributed to stratospheric housing costs, but the most important has been the fabled Golden State’s ability—until very recently—to keep attracting new residents. Upon arrival, newcomers compete with the state’s existing, largest-in-the-nation population for places to live. In response to growth, the supply of homes has expanded sluggishly, and expensively, under a morass of anti-growth regulations.

For years, the politics of this issue have been toxic. Those with the most political clout (older, long-term property owners) saw their appraisals go up while a familiar status quo was preserved. But in recent years, something began to shift. In 2021, the California Legislature enacted a package of statutory reforms, centered on SB-9, designed to supersede certain provisions of municipal zoning. These changes should help ease the shortage of housing by allowing construction of more units, including through the splitting of parcels large enough to sustain additional structures. 

As Strong Towns described in a piece by Daniel Herriges last fall:

Now, statewide reform, which faltered in the Golden State for several years running, has passed in the form of Senate Bill 9 (SB 9), which effectively ends single-family zoning in California. The new law allows up to four homes on most single-family lots statewide. In general, an owner may build one additional home, or—here’s the interesting twist—split their lot in two and have two homes on each. Fire zones and historic districts (and a few other conditions) are exempted, and you cannot demolish or alter a home that has had a rental tenant in the past 3 years. 

This is significant. Allowing owners to build one to four new homes on most of California’s residential lots will unlock a large market for potential home development. 

Notably, homeowners will see an economic incentive to develop such units and will have to do so at a neighborhood-compatible scale. These factors should temper the negativity that outside developers often face when proposing larger multifamily projects. Moreover, in cases where new units are rentals, homeowners will retain some discretion over tenant selection, mitigating a fear that rental homes will bring bad neighbors.

To the extent that homeowners respond to the pent-up demand for housing with new units, California’s chronic scarcity will ease. Home prices will likely trend toward an equilibrium that better addresses local pricing and spatial requirements. As an added benefit, the provision allowing homeowners to divide large lots in two will encourage the market to make room for new households with a lower degree of sprawl. This resourceful use of land will be more consistent with traditional, incremental urban growth patterns that once prevailed; and that have been halted, in many cases, by calcified zoning.

Current Proposals

Remarkably, bipartisan sympathy can be found for these kinds of reforms. Chronic barriers to adequate new housing have begun to antagonize cherished priorities of the left, right, and center: economic fairness, private property rights, and the American ideal of mobility all hang in the balance. New York’s Democratic governor has called for more housing near transit, and Massachusetts, under a Republican governor, recently enacted legislation to promote this end. The Biden administration has signaled federal support, as well.

Some have asked whether zoning reforms can (or should) be enacted locally, rather than through state legislation. Minneapolis has shown that substantial reform can start at the local level. In fact, local initiatives may be preferable when they foster more fine-tuned solutions. In a large and varied polity (with limited regard for compromise), there is a strong case for subsidiarity. Still, it is important to bear in mind that zoning powers are typically granted by states. State legislators have an entirely legitimate interest in ensuring powers they have assigned are exercised in ways that promote the state’s overall interests. If local policies are contributing to a shortage of housing, lack of opportunity, or environmental blight, then legislatures have both moral and constitutional grounds to reshape them.

It remains too early to know just how and when markets will respond to new opportunities that zoning reforms have created. That said, we can take the experience in Minneapolis to ensure that, in future cases, in addition to unit-count limits, any concomitant regulatory obstacles are removed. Once the development potential of less restrictive zoning has crystallized, it will still be necessary for individual builders (or investors) to prove a variety of concepts before a discernible market response can take shape. This will likely happen on a case-by-case basis, in each jurisdiction, as builders respond to its particular opportunities. In many places, changes will be gradual: zoning reform is a necessary, long-term solution to the need for more homes in metropolitan America. Done right, it will allow our urbanism to recover its incremental and responsive qualities. This will be a good change, but the results may take time to show.

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