February 4, 2020

Allowing Missing Middle Development Would Contribute to Housing Affordability in Nebraska

Testimony before the Nebraska Legislature, Urban Affairs Committee
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Chairperson Wayne and members of the committee, thank you for inviting us to comment on the important issues of local zoning restrictions and housing affordability. We study housing affordability and land use regulations in the Mercatus Center’s Urbanity Program. Today, we have three key points to make on the issue of preempting single-family exclusive zoning:

  1. Restrictions on the right to build housing in Nebraska have contributed to rising housing costs.
  2. Allowing property owners across the state to build middle housing—duplexes, triplexes, fourplexes, townhouses, and cottage clusters—would be an important step toward permitting a relatively affordable type of housing to be built.
  3. State policymakers have an important role to play in setting limits on how much localities can restrict the right to build housing. Across the state, the majority of land is zoned exclusively for detached single-family housing; and allowing middle housing to be built is one way the legislature can improve housing affordability.

Land Use Regulations Limit Property Owners’ Right to Build Housing and Drive Up Housing Costs

Land use regulations limit property owners’ rights to build housing. When increasing demand for housing meets a market where zoning rules constrain housing supply—as in Nebraska cities with quickly rising house prices—the result is that a limited supply of homes becomes more expensive, and lower-income families are forced to look elsewhere. This outcome harms the state’s most vulnerable residents and undermines Nebraska’s continuing role as a center of economic opportunity.

Cities and towns across Nebraska have many rules that limit the quantity and type of homes that can be built, including minimum-lot-size regulations, height limits, and single-family zoning. In part owing to these rules, many residents across the state are suffering from quickly rising housing costs. From 2012 to 2019, single-family house prices increased 41 percent in the Omaha region and 34 percent in Lincoln. Smaller towns have seen large house price increases as well—in Beatrice to Scottsbluff, prices rose between 31 and 53 percent.

Housing Affordability and Middle Housing

LB 794 would give property owners across the state the right to build up to four housing units anywhere that local zoning rules currently allow only one. Land is a key cost of building new homes, particularly in urban markets, and allowing more than one home to be built on an existing residential plot is a major step toward reducing housing costs.

Nebraska localities suffer from what’s known as “missing middle housing.” Missing middle housing includes any type of home that facilitates population density between that of a detached single-family house and that of a large apartment building. Missing middle housing is cost-effective because it allows multiple households to share the cost of expensive land, and its per-square-foot construction costs are lower than those of large apartment buildings.

Allowing middle housing to be built where currently only single-family homes are permitted is a market-driven approach to improving affordability. The bill would make it feasible for newly constructed homes to be less expensive than they currently are by allowing homebuilders to develop new neighborhoods of townhouses or cottage clusters rather than detached single-family homes.

The State Role in Allowing Middle Housing to Be Built

Zoning and other land use regulations are generally implemented at the local level, but the state has an important role to play in setting limits on how much localities may stand in the way of new housing being built. Because localities are “creatures of their state,” states have the legal authority to set limits on local regulation.

The benefits of new housing are dispersed. Every time a new unit of housing is built, it sets off a chain reaction of households moving, and new vacancies create opportunities for several other households to move into housing that they prefer over where they lived previously. However, the inconveniences of new housing are felt primarily by those living right next to the new units. While many people can agree that Nebraska needs more housing at lower prices, no one wants it to be built near them. This is why local governments tend to allow too little housing to be built.

When a state steps in to limit local land use regulations, it does not ban any type of housing. On the contrary, legalizing middle housing is a restoration of rights to property owners. Setting some limits on the extent to which localities can obstruct housing construction is not a move toward statewide planning; it transfers some control over what gets built from local governments to individual property owners, allowing the housing market to better respond to increases in demand for housing and improving affordability with no new subsidies.