How Zoning Regulations Affect Affordable Housing

As the country continues to grapple with housing affordability issues, zoning laws are under scrutiny as potential obstacles to building more accessible housing. Zoning and land use policies can either constrain or promote housing production, depending on how they are structured.

Examples of incentives such as density bonuses or streamlined approval processes encourage the creation of affordable housing by promoting more efficient building timelines and a higher number of units to meet demand. Common zoning barriers — including minimum lot sizes, height restrictions and parking requirements — often minimize supply and hinder development.

What are Zoning Regulations?

Zoning regulations govern how land can be used in specific geographic areas, typically within a city or county. A zoning ordinance controls the types of activities that are permissible on a piece of land and sets limits on aspects such as building size, height, density and location. Commonly, local governments will have various types of zoning ordinances for residential, commercial, industrial and other uses.

Zoning regulations emerged in the United States in the early 20^th century as a response to rapid urbanization and industrialization. The first comprehensive zoning ordinance in the U.S. was enacted in New York City in 1916. This law aimed to address issues such as overcrowding, incompatible land uses, and the need to control building heights and density.

In 1926, a landmark U.S. Supreme Court case, Village of Euclid v. Ambler Realty Co., established the validity of zoning ordinances as constitutional under the police power of local governments as long as they have some relation to public health, safety, morals or general welfare. “Euclidian Zoning” — the most common type of zoning in the U.S. — allows one kind of land use per zone.

Zoning laws dictate where housing can be and what type of housing can be built. There is a litany of zoning and land use controls relating to housing, and as cities work to address the country’s housing affordability crisis, different policy tools are often used in an attempt to promote greater affordability.

Unfortunately, many housing policy interventions are complex tools that are not always understood and do not achieve the intended outcome. Inclusionary zoning is a great example, as it often does not result in additional housing affordability and can drive up costs of market-rate units. 

What is Inclusionary Zoning?

Inclusionary zoning (IZ) incentivizes developers to include a certain percentage of affordable housing units in new housing developments. A common example is a 20% inclusionary zoning requirement, where a project must dedicate 20% of the units as affordable (usually tied to a level of area median income).

Various reports have examined the effects of IZ on housing affordability and supply. IZ policies act as an additional tax on developers, and lead them to construct either smaller buildings to avoid this tax or opt to do business in areas without IZ policies. Additionally, IZ requirements can have negative impacts on market-rate unit and total unit housing production.

A study of Los Angeles’s Transit-Orientated Communities (TOC) program, which provides bonuses when units are also restricted to lower-income households, models a decline from 400,000 total units built over 10 years without IZ, to below 250,000 units with a 20% IZ requirement. Raising IZ to just 1% significantly reduces market-rate housing production by around 71,400 units over a 10-year period. For each additional percentage point of IZ between 1% and 16%, market-rate housing decreases by 4,600 to 11,900 units. By the time IZ reaches 17%, market-rate production is reduced by almost half (49%).

A 2019 report from the Mercatus Center at George Mason University found that IZ had minimal effect on real housing supply, with no effect on multifamily starts and a decrease in single-family starts. A study cited within this report also found that IZ caused prices to rise 2% to 3% faster in California relative to jurisdictions that did not adopt IZ.

Incentives for Developers

The term affordable housing means housing that is subsidized by a federal or state program that helps cover the cost to develop units that are less than market rate. Without this subsidy, producing affordable housing would be untenable for builders and developers. The United States lacks both affordable and market-rate housing, and limited supply of either constrains naturally occurring affordable housing.

Regulatory incentives such as density bonuses, streamlined approval processes, by-right development, and reduced or eliminated design standards and parking requirements are tools that municipalities can utilize in a relatively cost-effective way. Density bonuses, which are often tied to IZ requirements, are a tradeoff that allow developers to build more units than zoning typically permits in exchange for affordable units.

Examples:

• Salt Lake City allows missing middle housing types (e.g., townhomes, duplexes, etc.) in areas zoned for single- and two-family homes. These homes are exempt from minimum lot areas, widths and frontage requirements.
• Minneapolis re-zoned the city to allow missing middle housing in single-family zoning districts; from 2020 to 2022, there was a 45% increase in permits issued for 2-4 units, thanks in large part to the reduction in parking requirements.

Overcoming Zoning Barriers

For nearly a century, zoning regulations acted as a barrier to affordable housing; most local governments that adopted “Euclidean Zoning” dedicated most of the residential land to single-family-only zoning. Areas that maintain these zoning districts — legalizing mostly larger homes on larger lots, with little land for dense, affordable units — are utilizing exclusionary zoning practices.

Other land use policy tools that expedite housing development and incentivize affordable housing can be flipped on their heads to maintain the status quo, artificially inflate housing prices and exclude certain populations from moving into a community. Examples include inefficiencies and delays in approval timelines, land use restrictions on building heights, density or types of housing allowed, and subjective design requirements that add costs to construction.

In addition to working to overcome common zoning barriers to housing production, municipalities can enact a host of land use policy reforms to aid the process. Local government can allow by-right housing approvals, or publish pre-approved housing designs that can bypass discretionary approval processes.

Some states are working to override local exclusionary zoning laws:

• In California, laws such as SB 9 and SB 10 allow duplexes and small multifamily developments in areas previously zoned exclusively for single-family homes statewide.
• New York has advanced policies to pre-empt local zoning rules, such as Gov. Hochul's proposals to incentivize higher-density housing near transit stations and penalize municipalities that fail to meet state housing targets.

Both states are leveraging pre-emption to override zoning ordinances that limit housing supply, and aiming to create more inclusive and affordable communities by loosening local restrictions that have historically favored lower-density, higher-cost developments.

Addressing Zoning Restrictions

Zoning regulations play a pivotal role in shaping housing availability and affordability. When designed thoughtfully, zoning law can promote the development of affordable housing, while restrictive policy can inhibit it by limiting density and imposing costly requirements on developers.

To address these challenges, adopting broader zoning laws and offering incentives such as density bonuses and streamlined approval processes can significantly boost affordable housing production. Additionally, implementing zoning reforms that encourage higher-density developments and reduce bureaucratic barriers will create a more accessible housing landscape.

Looking ahead, innovative policies such as statewide pre-emption of exclusionary local zoning law, flexible land use frameworks, and greater public-private partnerships hold promise for further enhancing affordable housing efforts. By embracing these approaches, policymakers can work toward a future where housing is both abundant and affordable for a wider range of residents.

Learn more about how NAHB is working to alleviate the nation's housing affordability crisis.