City planners consider shrinking lot sizes to make housing more affordable | News

Financial Planners

American homebuyers watch their buying power dwindle as interest rates continue to increase. But public officials in cities like Austin, Texas, are tackling the affordability crisis by letting developers build houses on smaller lots. Will other cities follow suit?

Property prices have cooled slightly in recent months, with the median home sales price in May down by 3.1% from last year, yet housing remains unaffordable. Most headlines flash news about market fluctuations, but legacy zoning laws that created less visible barriers to entry for nice neighborhoods may better explain inflated prices.

With many American cities barring multifamily units on most residential land, housing prices in affluent neighborhoods keep soaring, denying newcomers the chance to settle and start in the city. This locks out whole swathes of the population from enjoying access to centrally located resources and reaching their potential as diverse urban areas.

That’s the core thesis of Richard D. Kahlenberg in his new book on the issue, “Excluded: How Snob Zoning, NIMBYism, and Class Bias Build the Walls We Don’t See.” The book takes aim at the systemic discrimination embedded within exclusionary zoning laws and mounts a call for change.

The Dark Side of Zoning Laws

While most metropolitan areas in the United States have zoning laws, the level of regulation and the specifics of these laws can vary significantly from one city to another.

In his book, Kahlenberg writes that coastal cities have particularly exclusivist policies, especially those that are home to the most competitive economic opportunities and prestigious schools in the country.

“The worst cases are on the West Coast, California up to Washington, and on the East Coast, D.C. to Boston,” Kahlenberg says. “These are highly productive areas with strong jobs, but zoning policies artificially limit the supply of housing.”

Some financial advisors concur that policy limitations lead to a lockout effect.

“I agree with Kahlenberg’s view that restrictive zoning laws in many U.S.’ blue coastal’ cities can contribute to inflated housing prices and class segregation,” says Jorey Bernstein, CEO of Bernstein Investment Consultants. “When multifamily units are limited, the supply of affordable housing decreases, leading to higher prices and reduced opportunities for lower-income families to live in desirable areas with access to good schools and jobs.”

Single-family homes have long been considered the norm for American city planners, and breaking that mold will take time. As recently as 2019, it was illegal on 75% of the residential land in many American cities to erect anything other than a detached single-family unit.

Multifamily units are often more affordable due to shared costs, but many want to ban them. This can hinder socioeconomic diversity and perpetuate inequality, as low-income individuals are forced into lower-quality housing, limiting their upward mobility and exacerbating urban sprawl.

Everything is Bigger in Texas – Except Shrinking Lot Sizes

Some rapidly growing cities are trying to thread the needle and find a way to accommodate waves of newcomers that are palatable to existing residents.

Austin, Texas, is the fastest-growing of all large metropolitan areas, and last year became the 10th largest city in the US. Many media influencers and Silicon Valley entrepreneurs have moved there recently, including Elon Musk, Joe Rogan, and Tim Ferris.

Austin city leaders recently voted for controversial legislation to allow developers to build more homes on smaller lots despite vociferous outcry from some residents. The plan would allow for subdivisions, including row houses, townhomes, and triplexes. Yet opponents dispute whether density will bring affordability. At the same time, some Austin residents said they never want to see their city “become San Francisco.”

Could a New Zoning Strategy Offer a Solution?

Yet just as zoning can erect barriers, better policy can create fertile ground for positive urban renewal. The US is built upon the ideal of economic opportunity, and with buying a home being central to the American dream, the crisis is a stark wake-up call of the diminishing opportunity for upward social mobility in the country today.

It is key to look deeper than the headlines when delving into the property market and to select zoning jurisdictions that match your personal values. For many Americans, this includes feeling empowered by a local community that promotes long-term upward social mobility for all.

“Zoning can help create more inclusive communities with various housing options catering to different income levels,” explains Bernstein. “This could lead to more equitable access to resources and opportunities for all residents. Additionally, it’s important to consider the broader economic conditions and government policies that can influence housing prices.”

Zoning may be hard to see, but watching for those laws when scouting out a house is vital. Bernstein recommends that those in the market for a home should research appropriately and keep zoning front of mind as its impacts are pervasive.

“Consider proximity to job opportunities, schools, and public services,” he explains. “Clients should be informed about the potential impact of zoning laws on property values, neighborhood demographics, and long-term investment potential.”

In the ongoing debate over the housing crisis, the importance of zoning laws is finally gaining attention. Reimagining zoning laws may foster inclusive communities with diverse housing options.

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