Upzoning: Fix or Fault? | Think Realty | A Real Estate of Mind

Upzoning: Fix or Fault?

What single-family rental investors need to know about upzoning

Upzoning is a relatively new feature of real estate markets, and the long-term impact it will have on housing markets, tenants, and rental property investors can be hard to determine because while a few larger cities have started to compile data from upzoning efforts, in other areas the effects remain to be seen. For single-family rental investors, there are a few important things to know about upzoning now that could affect your properties and portfolio in the future. 

Single-family zoning has been the staple of large cities for decades. But that is starting to change. For example, in 2019 the Minneapolis City Council changed zoning laws to allow multifamily units in formerly single-family-only zoning areas. This change is called upzoning. The goal is to create more (and more affordable) housing in areas close to existing employment, public transportation, and other amenities. In cities facing problems like overcrowding and a shortage of safe, affordable housing, upzoning is an attempt at a fix. City governments also hope that it will prompt renewal and continued development in otherwise declining areas. 

For single-family rental investors, it is too early to tell what these zoning changes effects will be. But change is coming. Cities as diverse as New York, Seattle, and Washington, D.C. have attempted to apply upzoning in ways to help solve some of their challenging housing problems. So far, the results have been mixed, with some areas seeing urban regeneration and others still left struggling. But that does not necessarily mean bad news for single-family rental owners; indeed, a recent study conducted over a five-year period concluded that while construction may not immediately increase in upzoned areas, property values might. 

While a study covering only a five-year period is not enough time to accurately measure the effects of upzoning, it does offer intriguing hints at how upzoning might affect investment property owners. For example, one thing that seems to be certain is that upzoning will have different results in different cities. The impact that upzoning will have on supply and demand in the rental market is also likely to vary widely. An increase in multifamily or mixed-use properties could create more economically diverse neighborhoods. But it could also attract developers looking to build high-end luxury properties. Either way, single-family rental property owners may see property values and rental rates impacted in unforeseeable ways. 

When it comes to upzoning, there are still more questions than answers for single-family rental property owners. However, there is evidence to suggest that zoning changes do not always immediately result in decreased property values or rental rates. For investors, this might give you the time needed to assess the situation in your area and make the business decisions that are right for you.