Why You Can’t Find the Perfect Home

Regulation versus Variety

Editor's note: The study discussed in this article has been updated from its original version.

Local governments across the US extensively regulate the use of land. Typical zoning codes dictate a narrow set of allowable uses and a strict development code for every parcel. The result is that prospective homebuyers, renters, and businesses face a highly distorted market with little flexibility. Previous studies have shown that extensive land use regulations raise housing prices and decrease economic growth. But land use regulations also make it harder for consumers to find a home that fits their needs.

In the first study of its kind, we put a single regulation under the microscope: single family home minimum lot size. Even though there is no public health or safety justification for minimum lot sizes, they are ubiquitous in American land development and zoning codes.

Rather than looking for extremely restrictive minimum lot sizes—such as the requirement in part of Sharon, Massachusetts that every home sit on a two-acre estate—we look at four Texas suburbs with mild regulatory regimes.

In three of the suburbs, we find evidence that each city’s minimum lot size restrictions are distorting development and leading to excessive uniformity. In Pearland, Texas, however, which has the most permissive regulations of the four, we find no evidence of distortion.

Full study: Do Minimum-Lot-Size Regulations Limit Housing Supply in Texas?

Land Use with Restrictions

The three suburbs where minimum lot sizes restrict and distort the single-family home market are Frisco, Round Rock, and Pflugerville, Texas. In all three, a substantial share of single-family homes are built on lots very close to the minimum lot size. In Pflugerville, for example, a third of all single family homes are built just above the city’s 9,000 square foot minimum lot size.

But many developers have been able to find exceptions to the rules. Up to 40 percent of lots are below the zoned minimum. This reveals that the regulatory process is flexible for some, but not all, developers, and that even regulators recognize that their minimum lot sizes are arbitrary limits on reasonable economic activity.

Land Use without (Much) Restriction

Pearland does regulate minimum lot size. But its minimums are the least restrictive of the four. The result is not a race to the bottom, with developers building the smallest lots they are allowed. Instead, Pearland has the most diverse lot sizes, reflecting a market with diverse demand. We conclude that relaxing minimum lot size requirements will not necessarily lead to dense construction (although it might) but it will likely lead to a greater mix of lot sizes.

Key Takeaway

Land use regulation imposes an unnatural uniformity on the housing market. Relaxing minimum lot sizes and other restrictions citywide will allow more variation in the style, price, and size of homes, and will allow more homebuyers to find the perfect house for them.

Photo credit: Larry D. Moore CC BY-SA 3.0/Wikimedia Commons