The national housing crisis is a complex problem in need of a complex solution—but there is no resolution without new construction. The cornerstone of the housing crisis is simply a lack of supply, and to correct it, developers need an incentive to build. The government is stepping up at every level to help provide such an incentive by changing zoning regulations to create more opportunities for housing development.
Zoning regulations—known to developers as restrictions—often stand in the way of opportunities. They are considered a hindrance to new construction by most developers and real estate experts. Ed Chazen, a senior lecturer at Boston College Carroll School of Management, said, “The suburbs have to loosen up their zoning, so they can encourage more high density, multifamily development,” but the suburbs aren’t the only regions with restrictive guidelines. It is a widespread issue.
Zoning rules are being revamped across municipalities, starting with the Biden Administration and trickling down through state and local governments. Here is a look at how zoning has been reconsidered at every level of government to support the construction of new housing.
The Biden Administration Pushes Housing Development
The housing crisis is among the chief initiatives for the Biden Administration. The President released an action plan to help create more housing and reduce rent burden, and zoning reformation is a target of the strategy. This is the first-time zoning changes have been encouraged at scale by the Executive Office. Like many in the housing industry, the Biden Administration believes that the housing crisis has been “in large part driven by state and local zoning and land use laws and regulations that limit housing density.” It has called many current zoning policies exclusionary, resulting in a string of housing-related issues, from inflated prices to segregated neighborhoods and limited economic growth.
To start, the plan gives jurisdictions with reformed zoning and land-use policy higher scores in federal grant applications. Zoning and land-use incentives will be integrated into the Department of Transportation policies with increased funding for projects that include residential development. The DOT has three competitive grant programs totaling $6 billion that will target jurisdictions with land-use policies that promote density, including rural main street revitalization, transit-oriented development, and land-use reform initiatives.
In addition, the Economic Development Administration will include enhanced density within its investment priorities, along with transit-oriented projects and environmental sustainability. Finally, the plan will support the development of manufactured housing and accessory-dwelling units to help encourage the development of alternative assets that can help increase the housing supply.
State and Local Governments Loosen Zoning Restrictions
Although the federal government has created incentives, ultimately, the burden of zoning and land use will fall onto state and local governments, which have extensive control over development and construction guidelines. While the Biden Administration’s action plan will help to encourage the adoption of progressive zoning policy, several states and cities are already ahead of the curve. California, New York, and Massachusetts, in particular, are creating new zoning rules that will help encourage the construction of housing.
Massachusetts set a standard when Governor Charlie Baker signed a transit-oriented development law known as the MBTA Communities Act. The law requires that communities served by the MBTA transit system have at least one reasonably sized zoning district that allows multifamily development. The multifamily development must have a density of 15 units per acre, a transit station within a half mile, and no age restrictions.
As Chazen notes, if a state like Massachusetts, known for its small-town autonomy, can achieve widespread zoning reformation, any state could follow. “This is the ultimate local-rule state,” he says. “We have 352 towns and cities, and they each do their own zoning and permitting. The governor was insistent that the cities and towns loosened up on that, and there was a lot of resistance.”
On the West Coast, California has also been aggressive in reforming zoning regulations. Through a series of bills, the state has transformed single-family zoning, allowing homeowners to build duplexes, triplexes, and fourplexes on single-family lots, and the state has cleared a path for local municipalities to permit multifamily development on small land lots. Moreover, the state has taken action against cities that have failed to fall in line. Earlier this year, California filed a lawsuit against the City of Huntington Beach for banning ADU development. The lawsuit showed the state’s uncompromising commitment to ensuring the development of new housing.
New zoning laws are emerging across the country, and developers should take note of these nuanced and varied changes. Many are opening the door for tremendous opportunity on land sites that previously were not viable.
Redevelopment Opportunities Push Zoning in a New Direction
The Biden Administration and state and local governments have focused on changing existing residential zoning to allow for greater density, but a new wave of zoning changes are also on the horizon. The remote work trend and increased online shopping has created an oversupply of office and retail products. Developers have an opportunity to repurpose this existing space, much of it in prime locations, into housing. However, redeveloping one asset class into another requires that cities change the permitted use or zoning district.
Developers are excited about the potential for these conversion projects, and lenders are fervently exploring the possibilities. That is putting pressure on governments to include change-of-use laws in zoning reformation efforts. California is already pioneering the concept. The state has set aside $400 million for office-to-residential conversion projects, and with it, the state signed two new pieces of legislation to allow for residential development on a commercial site. This zoning trend is still gaining momentum, but there is significant interest in adopting more flexible zoning and allowing for a change of use to reduce the barriers to redevelop obsolete or over-supplied assets.
New zoning is an important feature in driving new development forward, but savvy developers are also investing in technology and automation to reduce costs and create efficiencies that drive profitability. Through software like Northspyre, developers are saving time and money, the two most imperative resources for any construction project. While zoning reformation is creating more opportunity and making more land sites viable, technology is creating a more efficient construction project and increasing profitability. Developers taking advantage of both government incentives and new technology will find a path forward, even through challenging market cycles.
Tag(s):
Real Estate Development