How local zoning laws hurt housing affordability — and what can be done about it

Land, labor, lumber, lending: These four components all contribute to the cost of building a home. But there’s a fifth L that doesn’t get as much attention: local regulation. 

Since the early 1900s, U.S. states and municipalities have regulated housing through zoning laws. These laws restrict builders on things like lot size, maximum structure size and much more. They also incentivize residential builders to build certain property types — namely, single-family homes. 

Single-family zoning laws

According to Bankrate’s Home Affordability Survey, more than three-quarters (78 percent) of U.S. adults say they consider owning a home to be part of the American Dream. And over the past century, single-family housing — that is, freestanding individual homes on their own land — has grown to account for nearly 70 percent of all residential housing in the country, according to data from Statista.

But its popularity is also a major contributor to the housing shortage, as single-family homes are more expensive, and only being able to build one home per lot effectively caps the possible supply of homes. In addition, Bankrate’s Homeowner Regrets Survey shows that, among homeowners who have a regret about buying their current home, a huge 40 percent say the home’s maintenance and other hidden costs are more expensive than they expected. Maintenance on larger single-family properties is inevitably pricier than on smaller properties with less land to keep up.

Changing zoning laws to allow multi-unit properties could open up many cities’ housing supply and create more housing affordability, but in much of the country, progress is slow-going. While some cities welcome new zoning regulations, others have faced opposition from residents who don’t want their communities to change.

This has led to what’s sometimes referred to as the “missing middle” of real estate, meaning that there are few affordable types of homes in-between an apartment or condo and a full single-family home to allow renters to transition to homeownership. Zoning reform could be part of the solution.

Opposition to single-family zoning reform

The history of single-family home zoning is largely about exclusion — not just excluding, say, industrial manufacturing from residential areas, but excluding certain types of people from these areas too. In fact, in Berkeley, when single-family zoning was created, many developments imposed specific racial covenants to keep out people of color. While this practice is illegal now, many homeowners oppose changes that may create more affordable homes in their area for fear that these cheaper homes — including duplexes, high-rise condos, townhomes and more — could decrease their own property value.  

Some typical arguments against zoning reforms are that it will change the character of neighborhoods, it could lead to only pricier units being built and could lead to more gentrification in neighborhoods largely occupied by people of color. However, a 2023 study by New York University’s Furman Center and University of Texas authors found that these concerns can be avoided through reducing minimum lot size and allowing single-family homes to be converted into townhouses. At the same time, this action opens up more opportunity for growth in lower-income neighborhoods.

It’s often a case of those who currently own against those who rent or are looking to buy. Homeowners want their property to appreciate in value, and restrictive zoning can cause quicker home-price growth if demand is high. Renters and would-be buyers typically see prices go up when demand outpaces supply, which can put a hamper on otherwise growing cities that don’t adapt.

Residents who oppose changes to their neighborhood’s zoning can create difficulty for adapting cities. According to Alex Horowitz, project director for housing policy initiatives at the Pew Charitable Trusts, there have been several lawsuits against jurisdictions changing their zoning to increase housing supply. 

“A smaller group of local residents does sometimes stop reforms to allow more homes,” says Horowitz. “At the state level, the cost-benefit analysis is different because it’s a matter of statewide importance, and we’ve seen states recognizing that there are real benefits to allowing more homes.”

States sometimes step in

Because of the opposition to zoning reform in many cities, state governments often step in to make the changes. “Housing shortages are affecting how much the state can attract business, because of housing costs,” says Horowitz. “If one jurisdiction acts to improve affordability, but none of the surrounding ones do, the benefits are real, but limited. But if a state acts, and all of these jurisdictions allow more homes, the benefits are large.”

For example, in 2020 Minneapolis unveiled a comprehensive zoning-reform plan called Minneapolis 2040, but the city was sued by activists who wanted to keep it from being enacted. Eventually, the state of Minnesota passed a law allowing the Minneapolis plan to proceed.

Is rezoning the answer to housing affordability?

The housing supply shortage is the driving force causing governments to rethink their zoning laws, says Nicholas Julian, senior program manager of land use at the National Association of Home Builders. Reducing the barriers for builders could result in more homes being built at lower costs.

“One could argue that land, material and labor costs are all drastically different today versus eras of great housing growth, and they wouldn’t be wrong,” says Julian. “That’s why the low-hanging fruit to induce production is reducing regulatory costs.”

Since land is a finite resource, changing how that land is managed can have a huge impact on housing affordability. “When we’ve seen jurisdictions change their lot-size minimums to allow people to buy less land to buy a home, then the homes cost less, because land is a major component,” Horowitz says. 

For instance, if a city has a minimum lot size of 5,000 square feet, only eight full homes can be built on a single acre of land (1 acre = 43,560 square feet). However, if that minimum lot size is reduced to 2,500 square feet, you could fit up to 17 homes on that same one acre of land. Provisions could be made for current owners to divide their land into multiple plots, building new residences and selling or renting them.

The city of Austin, Texas, just went through a real-world example of this in May 2024, slashing their minimum lot size from 5,750 square feet to 1,800 square feet of land — the first change to lot size in 80 years. The idea is that this will allow for more development, increasing supply and moderating home-price growth. Residents have sued the city in the past over zoning reform and won, so it’s possible that these reforms will be challenged in court.

Other things that could help housing affordability

Beyond restricting lot sizes, there are many other ways governments can grow the housing supply and create more affordable homes. These include:

• Allowing ADUs: Several states have passed laws allowing property owners to build accessory dwelling units on their property. Essentially, ADUs are additional residential units on the same property as a primary residence. These are often occupied by family members, such as aging parents or college-age children, and can also be rented out.
• Allowing duplexes: Cities such as Minneapolis now allow duplexes and triplexes in formerly single-family-only areas. This has opened up the possibility for owners to convert existing single-unit properties into two or three-unit homes.
• Allowing less space for cars: Many cities have minimum parking requirements for new residences, meaning if a 10-unit building goes up, it must have 10 parking spaces to go with it. By reducing or eliminating these parking minimums, less land is dedicated to parking lots so that more land can be dedicated to housing.
• Allowing housing in commercial areas: Many governments and developers are interested in mixed-use developments, where residencies coexist with commercial properties. This can mean having apartments above retail shops, or floors of condos in the same building as office space, for example.

Bottom line

There are many steps city governments can take to increase housing supply and affordability. But cities are often slow to act, and many states are now stepping in to rethink where and how housing is created. 

“Pew’s research has found that policy change to allow more homes is popular with the public,” says Horowitz. “Most of these reforms gain support from a strong majority, but that’s often not how decisions are made.” 

Julian says that builders are ready to meet the demands of the market, whether that’s a single-family home on an acre of land or a multi-unit high rise. It just has to be financially — and legally — tenable.