September 16, 2021

Housing Reform in the States: A Menu of Options

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As state legislatures reconvene under the shadow of a lingering pandemic, it remains abundantly clear that housing supply is insufficient to meet demand. Although some of the supply issues, such as lumber prices, are beyond states’ reach, states play a vital role in setting the rules and incentives that influence whether localities decide to permit new housing construction. Overly restrictive local zoning is the fundamental cause of America’s housing shortage, and states can place limits on local zoning as well as reform the processes that make land use regulation a source of frustration for so many local officials and citizens.

In recent years, the highest-profile housing legislation has largely fallen into three categories:

  • Legislation that removes barriers to the creation of accessory dwelling units (ADUs), such as California’s AB 68 (2019–2020)
  • Legislation that allows duplexes, townhouses, or fourplexes in most residential zones previously reserved for detached houses, such as Nebraska’s LB 794 (2020)
  • Legislation that allows small areas of dense development around transit stations, such as Massachusetts’s H.5250 (2019–2020)

These policies have much to recommend them and have been widely written about. However, Nebraska’s LB 794 failed to pass, as did similar bills or provisions in at least seven other states. In states where the housing crunch is less acute, lawmakers have preferred narrower or indirect solutions.

This policy brief offers a menu of other housing policy reforms that lawmakers around the country can consider in the upcoming legislative sessions. They fit into four categories:

  • Direct limits on local regulation
  • Procedural reforms
  • Adjustments to zoning authority
  • Fairness in construction standards

Direct Limits on Local Regulation

Cities and counties receive their regulatory powers from their states. States often direct and limit the exercise of those powers. The following suggested limitations, like the three categories of reform mentioned in the introduction, would tend to make new housing construction simpler, more widespread, and more affordable.

Option A: Allow Residential Uses in Commercial Zones

States can pass legislation allowing residential uses in any site zoned or used for commerce, with exceptions for physically unsafe locations. The COVID-19 pandemic has accelerated the decline of some forms of retail commerce and may result in long-term office vacancies. Most commercial buildings are poorly suited to residential conversion, but many commercial sites—or their parking lots—can easily be redeveloped. States can adapt this policy by limiting its scope so that it covers, for instance, only vacant commercial sites or sites with connections to side streets.

Option B: Create Floating “Starter Home” Zones

Recently, new homes have become skewed to the high end of the market. States could allow floating zones—i.e., zones that a developer can claim in any residential district—to build moderate-sized homes on small lots. To protect municipal finances, such zones would require developers to fund any new utilities, streets, or school capacity. Adding too many strings, however, would make this solution unworkable, as was the case with Massachusetts’s Starter Home Zoning District program. This approach could be combined with the previous idea to create a floating residential zone that can be claimed in commercial-zoned areas, as the Town of Brookhaven, New York, has done.

Option C: Preempt Nonconforming Zones

In older areas of many cities, zoning does not conform to the built environment, making it difficult to redevelop vacant sites. States can preempt any restrictions on siting, use, or bulk that do not conform to the existing conditions on at least four-fifths of a street block.

Option D: Cap Parking Minimums

Unnecessary parking spaces cost money, worsen stormwater runoff, and prevent adaptive reuse. In 2021, Connecticut’s legislature limited parking minimums to one or two spaces per apartment, depending on apartment size. States could also eliminate parking requirements for adaptive reuse of buildings at least five years old or for areas served by state-subsidized transit.

Procedural Reforms

Every builder knows that approval delays can add costs and kill projects. Discretionary review procedures can improve outcomes, but they also introduce bias and potential corruption. Bringing reform to procedural rules requires detailed conversations with city employees, builders, developers, and lawyers who know the formal and informal rules that determine how building is done in each state.

The payoff to all that research is that, unlike zoning preemptions, procedural reforms can have a significant effect on housing market outcomes without raising controversy. The following ideas would not apply in every state and would need to be adapted to fit the existing institutions.

Option E: Eliminate Some Environmental Reviews for Infill

A perverse result of rules intended to protect the environment is that they can encourage sprawl by delaying infill development. Several recent California bills, including SB 10, have narrowed the scope of the powerful California Environmental Quality Act with respect to nonsprawl projects.

Option F: Curtail Filibuster by Study

The best study of contemporary land use process, Neighborhood Defenders, by Katherine Einstein, David Glick, and Maxwell Palmer, points out that well-heeled neighbors can require a builder to pay—and wait—for one traffic (or stormwater or soil) study after another. The threat of repeated studies can induce builders to make concessions, which usually involve shrinking the project and raising the prices. The authors suggest that local planning boards should define in advance which areas are subject to potential study and disallow dilatory or repetitive study demands.

Option G: Introduce the Baker Majority

Governments ought to begin with the presumption of liberty and restrict liberty only when they have a compelling reason. Massachusetts Governor Charlie Baker brought this principle to zoning. Previous law required a two-thirds majority for any zoning change. Owing to Massachusetts H.5250, however, certain deregulatory actions are now subject to approval by a bare majority. States, which set voting rules for land use decisions, can require a narrower majority for actions that loosen or remove restrictions than for those that tighten or introduce restrictions.

Option H: Allow Neighbors to Waive Setbacks

Zoning reasonably places buffers, or “setbacks,” around the edges of property to protect neighbors. States can allow abutters to waive those protections in covenants or contracts, either for compensation or mutual benefit. Under current law, abutters’ rights are murky; a Maryland court case that might have helped clarify the status quo was instead decided on narrower grounds.

Adjustments to Zoning Authority

Municipal zoning relies on authority granted by the state to achieve specific, enumerated goals. Without changing any specific zoning designation, states can move local zoning regimes onto foundations that reflect a respect for property rights, environmental conservation, and individual dignity regardless of class and race, values that did not characterize the central planners who popularized zoning in the 1920s.

Option I: Rewrite the Zoning-Enabling Language

On its own, updating zoning-enabling statutes to reflect current priorities and values accomplishes little. But as part of a comprehensive reform effort, as in Connecticut, doing so can frame and unite efforts, showing that the state takes its role in zoning seriously.

Option J: Adopt the Property Ownership Fairness Act

Arizona’s 2006 law requires municipalities to compensate landowners if a new restriction lowers their property’s value. Restrictions that preserve public health and safety are exempt, as are preexisting restrictions. Landowners are responsible for demonstrating any decrease in property value. The act places citizens and cities on more equal footing before the law, without changing any existing regulation.

Option K: Narrow and Strengthen City Planning

Most states require cities to maintain updated comprehensive plans in order to engage in zoning. But in most states, those plans are powerless documents and are often little more than expensive brainstorming exercises. States can instead allow municipalities to plan for all, some, or none of their land, as they see fit. If, however, a city publishes a plan with a land use element, the plan ought to have the force of law, trumping zoning where the two are contradictory, for a decade.

Fairness in Construction Standards

Where the developer’s work ends, the builder’s begins. In states where land is inexpensive, construction costs are the key determinant of new home prices. State legislatures can ensure that smaller, simpler homes are legal throughout the state.

Option L: Give Equal Treatment to Factory-Built Housing

A concerted effort to discredit factory-built housing succeeded in stigmatizing and sidelining it in the 1970s. As a result, home buyers have missed out on cost-saving innovations. A few states already guarantee that houses are subject to equal standards regardless of building methods in every residential zone. Others can follow and specify that aesthetic or procedural requirements that effectively ban factory-built housing are also disallowed.

Option M: Eliminate Aesthetic Mandates and Materials Bans

Neither zoning authority nor building code enforcement should extend to home aesthetics. Materials bans should be justified only by unique climate or health and safety conditions. States can follow the lead of Arkansas and Texas and eliminate aesthetic requirements, except in historic districts, which can continue to require period aesthetics in a few locations.

Option N: Eliminate Minimum Home Sizes

Cities should not require developers to build large homes or apartments. North Carolina preempted minimum-home-size restrictions in 2019.

Conclusion

As the economy continues to recover and reconfigure itself to meet new needs and evolving preferences, state legislatures can ensure that their states’ housing markets are a source of economic strength and opportunity. Limiting the scope of local zoning authority preserves local leadership in land use planning and allows cities to creatively approach their own situations while averting abuses of regulatory power.