The Urbanist Musings of Pete Saunders

Zoning Reform and Unintended Consequences

Scene from the Miami coastline.  Source: miamiherald.com

There is a fairly common response I usually get whenever I make my assertion that looser land use restrictions, in the form of zoning policy that allows greater residential density, might cause more problems than it solves when it comes to America’s housing “crisis”.  That response is, “where’s the academic research backing your point?”

Fair enough.  I think most urbanists, or even more broadly people with an interest in public policy, want to have an academic foundation to any point being made — a researched and tested hypothesis with findings and conclusions, most often done in the discipline that vets policy analysis, economics.

The fact is, I’ve done a little bit of searching and not found anything — yet — that categorically refutes the general consensus that easing land use restrictions will lead to more units, more affordability, less displacement and less inequality.

There may be research out there that makes my point.  However, I’m willing to admit that my claim has less of an economic foundation to it, and more of a historical or sociological one, supported by my own experience of studying and working in cities.  I make my assertion more through my understanding of the history of public policy implementation, and the individual behaviors that ultimately create collective economic action.

With that in mind, let’s look at Miami, a city that responded to housing demand pressures, largely from overseas investors, by greatly expanding their housing supply.  Miami’s approach to adding housing supply was fairly incremental until the development of its Miami 21 Zoning Code in 2008.  It’s a form-based code that serves as a master plan and development control for the city.  Did Miami’s policies improve affordability?  Did they reduce displacement?  Did they have any impact on inequality?

By one measure, the growth of the Miami Beach luxury housing market contributes to the city and region being one of the most unequal in the nation:

“When it comes to homes in Miami Beach, the “haves” have it all.

The city’s housing market is the most unequal in the U.S., according to a report from national real estate brokerage Redfin. The report covers the third quarter of 2015 and compares the luxury market — which Redfin counts as the top 5 percent of homes — to the bottom 95 percent.

During the third quarter, the report found that luxury homes in Miami Beach sold for an average of $6.3 million, about 12 times as much as the average price ($522,000) of a typical home.

The disparity in other big cities was smaller: Luxury homes sell for between five and six times the price of typical homes in Atlanta, Houston, Los Angeles, Boston, Chicago and Washington, D.C.”

This happens despite the fact that, according to U.S. Census American Community Survey data, Miami had a housing vacancy rate of 17.5% in 2014, far above the 10.5% vacancy rate average for the nation’s 50 largest cities.  And it happens because Miami increased its housing inventory by an astounding 24.0% between 2000 and 2010, driven by investment from overseas buyers.  Furthermore, housing prices in Miami jumped at rates comparable to hot and gentrifying coastal cities.  Between 2000 and 2010, Miami’s median value for a single family home grew 8.2% annually, just a shade less than the 9.1% annually found in San Francisco.

My takeaway?  Increased availability does not always mean increased affordability.  Developers are eager to meet demand at the high end of the income spectrum and are willing to roll the dice, hoping their project is the one that reaps the big profit.  Whether or not increased supply reduces displacement is either unknown at this time, or requires further research.  However, improving affordability and addressing displacement requires that units initially built for the luxury market must filter downward along the income spectrum, and that just hasn’t happened yet.

For the super-hot coastal cities, it makes all the sense in the world to increase supply.  Prices are spiraling out of control. However, cities with a less-hot market might have a different experience.   It’s likely that other cities that relax zoning with an eye toward addressing affordability concerns might experience the same problems as Miami.  They would potentially develop affluent enclaves with a surplus of luxury housing, with little impact on affordability, displacement or inequality at the metro level.

For some cities, proposed reforms make sense.  In the abstract, proposed reforms can make a great deal of sense.  But we owe it to ourselves to look at actual examples and see if the outcomes are what we desire.

Read more here: http://www.miamiherald.com/news/business/real-estate-news/article48489275.html#storylink=cpy

4 Responses to “Zoning Reform and Unintended Consequences”

  1. Alon

    The point people usually make about upzoning and affordability is not that building more housing will make the top 5% of the market cheaper; it's that it will make the market cheaper overall, including the top, the middle, and the bottom. The level of rent inequality, or price inequality, is not really a feature of the model. Is it really in the public interest to focus on reducing the rent paid by rich people? If anything, the main positive feature of rent control is that it creates a dual housing market, in which the rich usually stay in the expensive unregulated market and the rest usually stay in the cheap controlled market (and the main negative feature is that in practice it doesn't stiff the rich to protect the rest, but instead stiffs recent immigrants to protect natives).The second thing, re Miami's growth in housing prices, is the wrong metric to look at, for two reasons: it's price rather than rent, and it's specific to single-family houses rather than to the broader market, which includes apartment. If you look at Vancouver's single-family housing sales, they're incredibly expensive. I don't know what the trend is, but the absolute price is very high.Ad price versus rent, buying a house, or any other asset, is a form of speculation: people buy hoping the asset will appreciate, as a vehicle of savings. It's not in a public interest to make it either cheaper or more expensive, except insofar as large price swings impact the broader economy, and those if anything correlate with tighter zoning rather than with looser zoning. The object of public interest is rent. Areas with inflows of foreign investment can get ridiculous price-to-rent ratios; in Vancouver, ratios of 40 or so are common, especially in the single-family market.Ad single-family houses, upzoning leads to the construction of more apartment buildings, as in Miami and Vancouver, and this should be expressed in lower rents for apartments rather than for single-family houses. Indeed, apartments in Vancouver are cheap by the standards of rich cities in the US and Europe, and my understanding is that the same is true of Miami. This can lead to reductions in detached house rents if it floods the market with housing, but the effect is smaller than on apartments, the kind of housing that's directly provided; moreover, upzoning in Vancouver, and to my understanding also in Miami, focuses on building high density in a few areas, and not on replacing single-family zoning with somewhat higher permissible densities, on the level of semi-detached houses or New England triple deckers, so the single-family neighborhoods are not upzoned at all. Ultimately, creating more single-family housing requires additional urban sprawl into new areas. Houston has that, so its single-family houses are cheap. Miami doesn't, because its urbanized area has a sharp boundary at the Everglades, so population growth puts real pressure on its single-family house prices.

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  2. Anonymous

    \”Miami Beach\” and \”Miami\” are not the same place. Miami is a city with over 400,000 people, Miami Beach is one of its suburbs.

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  3. Charlie Gardner

    The numbers back Alon up about what is going on in Miami zoning-wise. From 2009-2014, the ACS shows that in Miami-Dade County, units in buildings with 50 or more units made up 77% of all new units (+29,000), while there were losses of duplexes, 20-49 unit buildings and mobile homes. New single-family homes are being built in much smaller numbers, but this appears to be somewhat at the expense of cheaper mobile homes (there were +4100 SF homes and -2100 mobile homes). There was a net loss in the 2-4 unit category. The problem with this method of accommodating growth (keep SF zoned for SF, upzone small areas for high-rises) is that steel-framed apartment towers are the most expensive form of construction, whereas the low-rise 2-4 unit apartment and the mobile home are the cheapest (Simon Vallee has written a bit about this). The city is replacing naturally affordable forms with more expensive ones, in many cases most likely because these are the only allowable and profitable development sites, rather than because these buildings are best suited for replacement.

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