Single-family zoning has been at the root of the American dream for most of the last century. But in the face of housing shortages, soaring prices, and urban sprawl, all of that might soon be changing. The residential suburb is a nearly ubiquitous feature of most American cities, designed to offer protected enclaves to those who can afford to escape the shortcomings of urban living. Owning a detached house with a yard in a nice neighborhood has been synonymous with the uniquely American values of independence and success for decades, offering comfort and status to property owners and a steady source of income for investors. But recently, cities from Minneapolis to Portland have taken a radical new approach to solving some of our nation’s worst housing problems: eliminate single-family zoning.
According to the growing number of officials calling for such a change, including presidential candidates Elizabeth Warren, Cory Booker, and Julian Castro, too much emphasis on single-family zoning has contributed to any number of social ills. In the latter half of the twentieth century, cities from New York to San Francisco set aside vast swaths of real estate for residential development. While these city governments had many motives for such planning, perhaps the biggest impetus behind so much single-family zoning was to separate residential neighborhoods from industrial development. Protecting homeowners from the nuisances of pollution, noise, and traffic have long been important priorities for city planners across the nation. As a result, claims The New York Times, as much as 75 percent of residential land in American cities is zoned for detached single-family homes, making it illegal to build anything else.
But while this approach to zoning has resulted in abundant inventory for the single-family property investor, others are now arguing that it has left too many members of the population behind. Housing shortages, affordability crises, and more have put pressure on city and state governments to come up with far-reaching solutions. In Minneapolis, this has resulted in the passing of new legislation that will end single-family zoning citywide, as well as allow high-density buildings along transit corridors and eliminate parking restrictions for new construction. City officials hope that by allowing more multi-family rental housing — up to three units per lot — throughout the city, this will provide better access to schools and jobs, reduce the displacement of lower-income residents, and help address other housing affordability issues. Similar measures are being considered in Oregon and California, where housing prices in some places have reached historic highs.
For real estate investors, zoning changes could provide either new opportunities or numerous new challenges. Should more cities start to move away from single-family zoning, this will likely shrink the market for single-family properties overall. Single-family dwellings may become a much higher commodity, intensifying both demand and competition. At a time when more people than ever are renting their homes, investors looking to build wealth through single-family rental properties might get a significant boost from the changes in zoning laws.
At the same time, higher property values and rent may come at a cost. As more two- or even three-family units are created in an area formerly zoned only for single-family residences, the additional occupants may put a strain on local resources. If city infrastructure is unable to support large increases in multifamily rentals, it is likely that these areas will face new challenges. Increased traffic and a lack of public transit in formerly suburban areas will directly impact everything from air quality to parking, leading to overcrowded roads and increased levels of crime. As the neighborhood declines, so will rental rates, resulting in real hardship for property investors caught in the middle.
As already evidenced in Minneapolis, these problems are exactly what many homeowners fear the new zoning changes will bring. In doing away with single-family zoning, opponents fear that both their property values and their quality of life will suffer as a result. Their arguments raise an important question about whether there are other, better ways to address current housing shortages. For example, cities could examine solutions such as expanding telecommuting opportunities, provide better transit services, or other, less drastic changes. Rather than jumping straight to changing zoning laws, city planners could approach housing problems with creative solutions that would provide opportunities for everyone, from single-family property owners to low-income renters.
As cities across the nation struggle to adequately house their growing populations, there are some who see ending single-family zoning as one solution to a long list of problems. However, the full effects of doing so are currently unknown. For single-family property investors, it seems likely that zoning changes like those now being considered could significantly impact every aspect of their business, from the ability to acquire new properties to local rental rates. While the full impact of zoning changes will take time to unfold, what is certain is that ending single-family zoning ordinances will require everyone, from renters to homeowners to investors, to make adjustments, too.
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