How Land Use and Zoning Reforms Can Increase the Availability of Affordable Housing

person A.J. Johnson today 05/29/2023

At present, there is a shortfall of more than 1.5 million affordable housing units in the United States (see Overcoming the Nation’s Daunting Housing Supply Shortage, Urban Institute, 2021).  As a result of the housing shortage, families pay more for housing and have less savings. They struggle to attain homeownership and find it difficult to access jobs. Local land use regulations and zoning rules contribute to the national housing supply crisis by artificially limiting housing construction and increasing costs. This article will summarize the impacts of restrictive land use policies and outline reforms that state and local governments may adopt to increase the supply of affordable housing. Much of the information in this article is taken from a study by The Department of Housing & Urban Development (HUD) and published by the HUD Office of Policy Development & Research.

Relevant Research

 Restrictive land use and zoning laws are major drivers of the national housing shortage. Short-sighted local policies increase the cost of housing, limit economic growth, accelerate climate change, and maintain residential segregation.

According to "The Impact of Building Restrictions on Housing Affordability," (Wharton Real Estate Review 7:  5-14, by Edward Glaeser and Joseph Gyourko), the relationship between restrictive land use and zoning regulations and housing prices is especially significant in areas with higher demand. The greatest impact is on lower-income renters and starter homes for first-time homebuyers.

 Recent research has demonstrated how restrictive zoning limits a worker’s ability to move to regions experiencing job growth, which has stunted national economic productivity and growth. (See "Housing Constraints and Spatial Misallocation"American Economics Journal: Macroeconomics 11 (2): 1-39, by Chang-Tai Hsieh and Enrico Moretti). This lack of affordable housing also limits a worker’s ability to find housing near employment centers.  This creates longer commutes and limits the ability of employers to attract workers. This forced living in car-dependent locations increases transportation costs and carbon emissions. 

Many places use zoning restrictions to limit the types of housing that can be built to keep lower-income, often Black and brown, households from moving in. This forced segregation has well-documented negative outcomes for children, and

 segregation via land use and zoning codes reduces access to neighborhoods that are associated with improved resident trajectories, negatively impacting regions’ household incomes, educational attainment, public safety, and health outcomes. In short, restrictive zoning can have Fair Housing Act implications.

Innovation is Occurring

In response to increasing housing affordability pressures and the widespread recognition of the role that restrictive zoning has played—and continues to play—in driving up housing costs and perpetuating segregation, cities, and counties across the country are taking a hard look at their zoning laws and adopting reforms that can help increase housing supply.

While local governments play the most significant role in regulating land use,  state governments are beginning to play a role in land reform.  Importantly, state governments are more insulated from the "not in my backyard" pressures that often dominate local politics; states typically have broad authority to set the rules by which local governments can regulate land uses, and they can create accountability mechanisms to incentivize local, pro-housing reforms.  When combined with incentives and subsidies to enhance affordability,  land use, and zoning reforms can significantly impact housing affordability. The most common local reforms being used to increase affordability include the following:

  • Increases in Multifamily Zoning: In many parts of the country, it is impossible to build any housing other than single family. A New York Times article in June 2019, "Cities Start to Question an American Ideal: A House with a Yard on Every Lot," by Emily Badger and Quactrung Bui, revealed that as much as 75 percent of land in major American cities is zoned exclusively for single-family dwellings, and this share is likely much higher outside of large cities. State and local reforms that eliminate or reduce the predominance of single-family zoning create more affordable housing in more places. In 2022, HUD and the Census Bureau published "New Privately-Owned Housing Units Started: Units in Buildings with 2-4 Units." This study revealed that there were only 16,000 units started in buildings with 2-4 units across the United States, less than 20 percent of the level of construction of these residential buildings in the 1970s.

After legalizing up to four units of housing, Minneapolis, Minnesota, and Portland, Oregon, both saw increases in permits for duplexes, triplexes, and other newly allowed housing types. Portland also allows developers to build up to six units per lot if a portion of those units is reserved for tenants with lower incomes. Maine and California both legalized building two units on lots previously zoned as single-family, the latter of which could enable 700,000 new market-feasible homes.  Oregon and California have enabled denser multiunit housing in certain areas of cities, including near transit.

  • Development by-Right: By-right development enables housing that complies with zoning and development regulations to be built without discretionary approval. This leads to faster and more reliable development results.  For example, in CT, land zoned for single-family housing almost never requires a public hearing before approval, but almost all projects with more than three units must have public hearings.  CA on the other hand has made available large tracts of land for housing development by approving by-right housing development in any area currently zoned for parking, retail, or office buildings. These developments are exempt from environmental reviews and are required to provide affordable units.
  • Adaptive Reuse: Cities and states can also enable housing production or conversion on land previously zoned for other uses.  Due to the new "work-from-home era, demand for commercial real estate is down, which leads to a decrease in property values and real estate tax collections.  Office-to-residential conversions could help to solve the dual crises of vacant office space and lack of affordable housing, but the number of buildings suitable for conversion is limited due to restrictive zoning and challenges with building footprints (e.g., reconfiguring building systems and the need for windows in every bedroom).  Los Angeles’ Adaptive Reuse Program relaxed zoning and other requirements and streamlined the process for developers, leading to the development of more than 46,000 units since 1999.
  • Eliminate Restrictive and Unnecessary Parking Requirements: Most cities have minimum parking requirements (parking spaces required per residential unit), which often mandate more parking spots than market demand would otherwise bear. An article by Jeffrey Spivak, "People Over Parking," in Planning Magazine in 2018,  found that garage parking drives up rents by approximately 17 percent, and other studies have found even larger impacts of minimum parking requirements on rent. Buffalo, New York; Hartford, Connecticut; and Seattle, Washington, have eliminated parking requirements either near transit or across the city and have seen reductions in parking and construction costs in new projects while avoiding using valuable urban land for parking rather than more productive uses. Washington, Oregon, and California have limited parking requirements near transit, while Connecticut enacted parking reform that affects all housing regardless of its proximity to transit.
  • Minimum Lot Sizes: Minimum lot sizes are common in local zoning codes and require that each household occupy more land than is otherwise necessary, This has been a traditional method for localities to prevent the development of affordable housing. Reducing minimum lot sizes enables the construction of more "starter homes" and decreases the per-household cost of providing water and other utilities. In 1998, Houston, Texas, reduced minimum lot sizes from 5,000 to 1,400 square feet, which facilitated the development of more than 25,000 new units since then. In 2019, Helena, Montana, abolished nearly all minimum lot sizes, and Billings, Montana, moved from minimum lot sizes to a lot width requirement. Several other states, including Vermont and New Hampshire, have introduced bills to limit minimum lot sizes.
  • Transit-Oriented Development:  Equitable transit-oriented development promotes affordable housing options in proximity to transit, encouraging people-centered neighborhoods, and reducing displacement in historically disinvested communities struggling with rising housing costs. Both Chicago and Massachusetts have had success with transit-oriented policies. Chicago has legalized more types of housing near transit and has eliminated onsite parking requirements near public transit. 

A 2021 Massachusetts law incentivized hundreds of municipalities served by the Massachusetts Bay Transportation Authority to create at least one higher-density multifamily zoning district by right within walking distance of public transportation.

  • Streamlining Processes:  Permitting adds costs and uncertainty to the development process. Some states are setting time limits on how long cities and counties have to review permit applications (Florida is an example).  In 2016, 1,200 affordable dwelling units were built in CA. The state then changed the rules reducing permitting time and limiting utility fees and 12,300 ADUs were built in 2019.
  • Bottom Line: HUD plays a vital role in promoting affordable housing in collaboration with other federal agencies. They allocate significant funds annually, including block grants, to support affordable housing. HUD mandates grantees to identify obstacles to affordable housing and is now offering grants to communities for removing these barriers. The American Rescue Plan added substantial funding through HOME-ARP and the State and Local Fiscal Recovery Fund to enhance the housing supply. However, strict land use and zoning regulations limit the effectiveness of these funds in addressing the nation’s housing shortage.  Housing operators and local officials should cooperate in the reduction of these unnecessary regulations in order to enhance the potential for the production of affordable housing.

Latest Articles

HUD Proposed Changes to HOME Program are Comprehensive

On May 15, 2024, HUD published a preview of a Notice of Proposed Rulemaking proposing significant changes to the HOME Program. The proposed rule is expected to be published in the Federal Register before June, and public comments are due no later than 60 days after that publication. The proposed rule would make changes in many areas: Community Housing Development Organization (CHDO) Requirements: Major revisions to CHDO requirements are proposed to streamline processes and improve efficiency. HOME Rents Approach: A new methodology for setting HOME rents is being introduced to better align with current housing market conditions. Small-Scale Rental Projects: Requirements for small-scale rental projects will be simplified, making it easier for developers to comply. HOME Tenant-Based Rental Assistance (TBRA) Programs: The proposed changes will provide greater flexibility in TBRA programs, allowing for more effective tenant support. Community Land Trusts (CLTs): New flexibilities and simplified provisions are being proposed to encourage their use and effectiveness. Tenant Protections: The rule would significantly strengthen tenant protections by mandating a HOME tenancy addendum with a uniform set of protections to be included in leases of all HOME-assisted rental housing units. For tenants receiving TBRA, a streamlined set of protections will be required. Advanced Property Standards: HUD proposes incentives for meeting higher property standards incorporating green building practices, enhanced energy efficiency, and innovative construction techniques for new construction, reconstruction, and rehabilitation projects. Homeownership Housing Resale Requirements: Clarifications to resale requirements for homeownership housing are included to ensure transparency and consistency. Technical Amendments and Simplifications: The proposed rule will make technical amendments and simplifications to align with the changes introduced in the 2013 HOME Final Rule. These proposed changes are part of a broader effort to modernize and improve the HOME program, incorporating updates from the Housing Opportunity Through Modernization Act of 2016 (HOTMA), the Economic Growth Regulatory Relief and Consumer Protection Act, and the National Standards for the Physical Inspection of Real Estate (NSPIRE) Final Rule. Additionally, the rule updates citations to align with recent changes to the Office of Management and Budget (OMB) regulations at 2 CFR part 200. HUD plans to publish further rulemaking to ensure consistency across all regulations. The proposed changes are detailed in the Proposed Regulation, with further revisions anticipated following the implementation of the HOTMA and NSPIRE Final Rules. While all the proposed changes are important, what follows is a discussion of the proposed changes in four specific areas: (1) Small-scale housing, (2) HOME rents, (3) Tenant Protections, and (4) Advanced Property Standards. Small-scale housing. HUD proposes to add the definition of "small-scale housing, which would be defined as a rental housing project containing no more than four units or a homeownership project with no more than three rental units on the same site. HUD proposes this definition to permit these projects to follow streamlined procedures for income determinations, ongoing physical inspections, and written tenant waiting lists. The definition and the streamlined provisions would facilitate the participation of owners of small rental properties (e.g., accessory dwelling units, duplexes, triplexes, or other small rental projects) in the HOME program. For small-scale projects, HUD would provide an exception from requiring a PJ to adopt a more frequent inspection schedule for properties with health and safety deficiencies. If all health and safety deficiencies are corrected, the proposed rule permits but does not require more frequent inspection schedules. HUD plans to develop a specific list of deficiencies for small-scale rental housing that a PJ would inspect. The proposed rule would reduce burdens on landlords of small-scale housing by allowing for the reexamination of tenant income every three years rather than annually. Tenant-Based Rental Assistance: Eligible Costs and Requirements (24 CFR 92.209). The proposed rule would revise 92.209(c)(1) to eliminate the requirement that adjusted income be determined annually for families receiving TBRA. Because TBRA contracts are limited by statute to two years and must be executed every time a tenant enters into a new lease, the proposed rule would permit a PJ to provide TBRA to a family and not redetermine adjusted income during the contract s period of assistance. Tenants will be able to request interims when income goes down, but PJs will not have to conduct interims for increases in income during the contract term. Change in HOME Rent Rules: Unlike the current HOME rule, which permits HOME rents to be exceeded only for low-HOME units when there is project-based rental assistance, the proposed rule will permit HOME rents to be exceeded anytime there is project-based rental assistance. This change would apply to both Low and High-HOME units. Tenant Protections: The Department proposes significant revisions to the tenant protections and selection provisions in 92.253, consistent with the priorities in the Administration s Renters Bill of Rights. These tenant protections are based on the Department s review of existing HUD programs (e.g., the Section 8 PBV and public housing programs). To implement the tenant protections, HUD proposes requiring all tenants in HOME-assisted rental housing units or receiving TBRA to have a new HOME tenancy addendum appended to their lease. Among the proposed tenant protections: Leases will contain more than one convenient method to communicate directly with the owner or the property management staff, including in-person, by telephone, email, or through a web portal. The proposed rule will outline new tenant protections regarding the physical condition of units, including a requirement that owners provide tenants with expected timeframes for maintaining and repairing units as soon as practicable. When a life-threatening deficiency in the physical condition of the unit impacts the tenant, owners are required to relocate the tenant into safe housing, which may be either on or off-site. Families can reside with a foster child, foster adult, or live-in aide in the unit. The revised HOME Lease Addendum will include a section outlining when owners may enter a tenant s unit. Reasons include routine inspections and maintenance, repairs, and showing units to prospective tenants. At least two days' notice will be required, including the purpose for entering the unit. An exception to the notice requirement will be made for emergencies. The proposed rule would require that an owner who enters a unit when the tenant and all adult household members are absent from the unit must provide a written statement to the tenant explaining the date, time, and purpose of their entry into the unit. Properties with HOME funds will not be able to have separate amenities such as gyms, pools, spas, elevators, rooftop gardens, storage areas, and playrooms that only non-assisted tenants can use or access. Tenants can organize, create tenant associations, convene meetings, distribute literature, and post information at a project. The proposed rule would include new security deposit requirements. The security deposit amount could not exceed two months' rent, and surety bonds or security deposit insurance would be prohibited. Owners cannot terminate the tenancy of HOME tenants without good cause, and the rule outlines many examples of "good cause. Advanced Property Standards: All projects built or rehabilitated with HOME funds must comply with all state and local building codes. PJs will be required to perform physical inspections on an annual basis. Property standards and inspections will generally be done per NSPIRE standards. Carbon Monoxide detectors will be required in all HOME-assisted units. Although reconstruction is considered rehabilitation for the HOME program, the property standards for new construction will be applied to all HOME-assisted reconstruction projects. When entering a rental assistance contract, PJs must annually provide physical inspections of all HOME-assisted units. This requirement applies to tenant-based rental assistance only. The proposed rule would require the initial inspection of HOME-assisted rental housing within 12 months of project completion and once every three years thereafter. If deficiencies are observed in any of the inspectable areas, a follow-up onsite inspection to verify that deficiencies are corrected must occur within 12 months. The PJ may establish a list of non-hazardous deficiencies for which correction can be verified by third-party documentation (e.g., paid invoice for work order) rather than re-inspection. Bottom Line These changes aim to modernize and improve the HOME program, incorporating updates from recent legislative acts and ensuring consistency across all regulations. Owners should review these proposed changes thoroughly to understand their implications and provide feedback during the public comment period.

A. J. Johnson Partners with Mid-Atlantic AHMA for Affordable Housing Training - July 2024

In July 2024, A. J. Johnson, a renowned expert in the field, will join forces with the esteemed Mid-Atlantic Affordable Housing Management Association to conduct training for real estate professionals. This session, tailored for those in the affordable multifamily housing field, will be delivered through a live webinar. The following session is scheduled: July 16: Budgeting 101 for Multifamily Housing This comprehensive three-hour course provides a foundational understanding of budgeting and financial management specific to affordable multifamily housing. It will equip property managers with the essential skills to evaluate and manage operating funds, maximize net operating income (NOI), and ensure accurate financial reporting. Key Discussion Areas: Introduction to Budgeting & Financial Management:Importance of tracking income and expenses Overview of cash receipts, expenditures, reserves, and security deposits Evaluation of Operating Funds: Understanding profitability and return on investment (ROI) for rental real estate The Cash Flow Chart:Definition and significance of Net Operating Income (NOI) Owner s assessment of pre-tax and after-tax cash flow Gross Potential Rental Income: Calculation and importance of maximum rent income Vacancy & Collection Loss:Measures of vacancy (physical and economic) Impact of vacancies and collection losses on gross potential rental income Miscellaneous Income: Sources of additional income beyond scheduled rent Effective Gross Income: Calculations involving vacancy and collection loss and miscellaneous income Operating Expenses: Categories of operating expenses, including payroll, maintenance, utilities, and more Net Operating Income (NOI): Importance of maximizing NOI as a measure of management success Debt Service: Explanation of debt service and its impact on financial management Cash Flow: Calculation of cash flow and its importance in financial management Income and Expense Categories: Detailed discussion on various income and expense categories Budgeting:Types of budgets: operating, capital, and long-range Annual budgeting process and importance of quarterly updates Operating Budget: Monthly planning and detailed allocation of income and expenses Annual Budget:Historical vs. zero-based budgeting Review and approval process with property owners Capital and Long-Range Budget: Planning for future capital expenditures and long-term financial forecasting Summary: Key takeaways on maximizing NOI, effective budgeting, and financial management in multifamily housing Learning Objectives: Develop Financial Management Skills: Understand the basics of budgeting, financial tracking, and reporting. Maximize Property Income: Learn techniques to increase NOI and manage operating expenses efficiently. Effective Budget Planning: Gain knowledge on creating accurate operating, capital, and long-range budgets. Improve Financial Decision-Making: Enhance ability to make informed financial decisions to benefit property operations. Target Audience: Property Managers Financial Officers Asset Managers Compliance Officers in the multifamily housing sector Conclusion: Budgeting 101 for Multifamily Housing provides essential training for managing the financial aspects of affordable housing properties. By the end of the course, participants will be equipped with the knowledge and tools necessary to ensure financial health and sustainability for their properties. This session is part of a year-long collaboration between A. J. Johnson and MidAtlantic AHMA designed to provide affordable housing professionals with the knowledge needed to effectively manage the complex requirements of the various agencies overseeing these programs. Persons interested in this training may register by visiting either www.ajjcs.net or https://www.mid-atlanticahma.org.

Navigating Fair Housing in Digital Advertising - Ensuring Non-Discriminatory Ad Delivery

Introduction: The U.S. Department of Housing and Urban Development's Office of Fair Housing and Equal Opportunity has released crucial guidance on how the Fair Housing Act applies to digital advertising in the housing and real estate sectors. With the increasing use of automated systems and artificial intelligence (AI) in ad targeting and delivery, it is essential to understand the potential risks of discriminatory practices and take proactive measures to ensure fairness. Understanding the Risks: It's crucial to grasp how new technologies enable advertisers to target specific audiences while excluding others, potentially leading to discrimination in housing-related ads. The Fair Housing Act prohibits discrimination based on protected characteristics such as race, color, religion, sex, national origin, familial status, or disability. By understanding these risks, you can proactively ensure fairness and avoid potential legal issues. Discriminatory ad targeting can manifest in various ways, including denying information about housing opportunities, targeting vulnerable consumers for predatory products, discouraging potential consumers, and steering home-seekers to specific neighborhoods. Audience Targeting Tools: Ad platforms offer audience categorization tools that segment potential audiences based on various characteristics like gender, age, income, and location. While these tools can be useful, they can also lead to discrimination if used to exclude or target specific groups based on protected characteristics. Advertisers and platforms should be cautious when utilizing these tools for housing-related ads and avoid segmenting audiences based on protected characteristics or proxies. Custom and Mirror Audience Tools: Custom and mirror audience tools allow advertisers to target specific audiences or find similar audiences based on existing data. However, if protected characteristics limit the source audience, these tools can perpetuate discrimination. Advertisers and platforms should carefully analyze the composition of source lists and ensure they are not unjustifiably limited based on protected characteristics. Regular audits of ad delivery outcomes can help identify and mitigate discriminatory practices. Algorithmic Delivery Functions: Ad platforms employ machine learning and AI to determine which ads are delivered to consumers. However, these algorithmic delivery functions can also result in discriminatory outcomes. Ad platforms should ensure their algorithms do not direct housing-related ads based on protected characteristics, leading to steering, pricing discrimination, or other discriminatory practices. Regular testing and adjustments are necessary to minimize disparities and ensure fairness. Recommendations for Advertisers and Platforms: Advertisers need to utilize platforms that actively manage the risk of discriminatory practices to ensure non-discriminatory ad delivery. Ad platforms, on the other hand, play a crucial role in this process. They should create separate processes for housing-related ads, avoid targeting options based on protected characteristics, conduct regular testing, adopt less discriminatory alternatives for AI models, ensure fair pricing practices, and maintain transparency through documentation and auditing. Ad platforms can contribute significantly to fair housing practices by fulfilling these responsibilities. Conclusion: By diligently following the guidance provided by the U.S. Department of Housing and Urban Development, advertisers and ad platforms can contribute to fair housing practices and mitigate the perpetuation of discrimination in digital advertising. This commitment to fairness ensures compliance with the law and fosters a more inclusive and equitable digital advertising landscape. It is crucial to be aware of the risks, implement proactive measures, and work towards non-discriminatory ad delivery to ensure equal access to housing opportunities for all.

Maximize Efficiency and Savings - Sign Up for HUD's Energy and Water Benchmarking Service for Multifamily Properties

HUD recently provided information on its Energy and Water Benchmarking Service, available for sites participating in HUD s Multifamily project-based rental assistance programs. The free service provides participating owners with data on energy and water consumption at their sites. While up to 9,000 properties are eligible for the service, it's concerning that only just over 700 properties have taken advantage of this opportunity. I encourage all eligible property owners to sign up for the Energy and Water Benchmarking Service to ensure they are not missing out on this valuable resource. The Green and Resilient Retrofit Program (GRRP) is a game-changer, offering over $800 million in grant funding and $4 billion in loan commitment authority. It is the first HUD program to invest in energy efficiency, renewable energy generation, climate resilience, and low-embodied-carbon materials in HUD-assisted multifamily housing. This program presents a significant opportunity for property owners to improve their properties and potentially gain financial benefits. Provided Data Leads to Actionable Improvements The service's data is not just numbers but a practical tool that helps owners identify opportunities for energy efficiency improvements. These improvements can benefit residents and promote green investment in individual properties or entire portfolios. Once the data is provided, owners can confidently use it to apply for GRRP grants and loans, knowing they are making informed decisions based on real data. Offers annual property analysis reports identifying usage trends and energy and water savings opportunities. Establishes eligibility for or prepares owners to use federal, state, and utility energy efficiency programs. It supports early compliance with local ordinances as more localities across the country become interested in the energy usage data of multifamily properties. Provides technical assistance, training, and other resources. When an owner signs up for the service, they will receive personalized support in assessing the efficiency of their buildings for up to four years. HUD s contractor, Leidos, will support property owners and management by contacting utilities to access the necessary energy and water use data and provide cost and energy savings recommendations. Registration Information There is no deadline for signing up for the service, but limited funding is available. Owners who delay signing up for the service may miss the opportunity or not be able to take advantage of the full four years of the initiative. Owners and managers interested in the program should email their interest and the property ID(s) to mfbenchmarking@hud.gov.

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