skip navigation

Friday, September 19, 2014

[ – ] Text Size [ + ]  |  Print Page

Cascade: No. 73, Winter 2010

Spotlight on Research: Do Land-Use Regulations Constrain Rental Housing Development in Suburban Areas?

The recent meltdown in the housing market not only has a deleterious impact on scores of homeowners who lose their homes through foreclosure, but it also has an adverse effect on numerous renters who are displaced when their building becomes a casualty of foreclosure. Many renters are low- and moderate-income families with limited options for alternative housing within their price range. The housing crisis has exacerbated the existing concern about the adequate availability of affordable rental units. In addition to the stock of multifamily housing in urban localities, rental units in suburban areas might possibly provide an additional source of housing for those renters who are forced to relocate. Moreover, access to the suburbs might provide the doorway to improved employment prospects, high-quality schools, and better public amenities. However, a concern has been raised that local zoning and other forms of land-use regulations are being used to curtail the supply and increase the cost of rental housing in suburban areas. In a recent paper, Jenny Schuetz of City College of New York investigated this issue by focusing on several cities in Massachusetts.1 The following is a summary of her findings.

Marvin M. Smith, Ph.D., Community Development Research AdvisorMarvin M. Smith, Ph.D., Community Development Research Advisor

Previous Studies

Schuetz pointed out that the literature is replete with theoretical and empirical studies “on the effects of zoning and land-use regulation on land values, housing prices, and housing supply” that cross several disciplines (economics, public policy, and urban planning). When it comes to rental housing, the literature suggests that land-use regulations “contribute to lower levels of construction, higher rents, and a decrease in the supply of low-cost, low-quality rental housing that constitutes the unsubsidized portion of the affordable housing stock.” However, the author hastened to note that most of the theoretical literature treats regulation as monolithic and does not distinguish between rental and owner-occupied markets. In addition, the empirical research “has paid little attention to the difference between formal ‘on-the-books’ regulations and informal policies or variations in implementation of regulations.”

Methodology

Schuetz examined the impact of zoning and land-use regulations on the rental market by studying the local zoning and other forms of local land-use regulations in 187 cities and towns in Massachusetts as of 2004. Since zoning ordinances seldom make a distinction between owneroccupied and rental housing, the author used zoning that was specific to multifamily structures as a proxy for regulation of rental housing.2

The author noted that there are numerous ways to regulate rental housing, but the most common means used in Massachusetts are restrictions on the amount of land zoned for multifamily housing, procedural barriers to development (i.e., requiring a special permit), dimensional requirements (i.e., minimal lot size), and resident age restrictions (i.e., minimum age requirement — usually 55 — which restricts multifamily housing to retirement community development). Moreover, the state has an affordable housing law that allows builders to supersede local zoning, but it is rarely used for rental/multifamily housing.

Schuetz indicated that the development of most multifamily housing in Massachusetts requires a special permit. However, single-family structures are generally allowed “as of right.” According to the author, local government agencies and residents have considerable discretion in issuing the required permits for multifamily housing. Schuetz further explained that the special permit-granting process can vary across communities and may include any of the following:

  • The process may be relatively straightforward.
  • The process essentially results in a negotiation between the local government and the developer over infrastructure upgrades or design concessions in exchange for granting the permit.
  • The complexity of the process may discourage developers from even applying for permits.

Since local jurisdictions have varying tools to regulate rental housing, the author was faced with the challenge of measuring regulation in a consistent and objective manner across jurisdictions so as to permit a systematic analysis of its effects. To solve this dilemma, the author “developed measures that reflect the three dominant tools affecting rental housing: the amount of land zoned to allow multifamily housing, the procedural requirement of special permits, and the minimum lot size.” Thus, for each jurisdiction used in the analysis, Schuetz constructed a measure of zoning that depended on the regulation tool most relied upon in the area. Then the author estimated a two-stage regression.

In the first stage of the regression analysis, Schuetz estimated three separate equations that predicted the number of lots zoned for multifamily housing (1) “by right,” (2) by special permit, and (3) by either process as a function of historical municipal characteristics.3 In the second stage, the author estimated “housing market outcomes (number of permits, rents, and prices) as a function of the predicted values of regulation obtained from stage one, as well as standard controls for housing demand and supply.”4

Results

The author’s analysis revealed that the “relationship between multifamily zoning and rental market outcomes is suggestive that regulations constrain the development of new rental housing, although the effect of zoning on rents is less clear.” There was a differential impact on the development of new multifamily construction when communities allowed more potential multifamily lots by special permit versus allowing lots “by right.” In the former case, more new multifamily housing was constructed, whereas in the latter case there was a less significant effect on new construction. The author noted that the result pertaining to lots by right is probably because the land zoned for multifamily construction is already developed to capacity. However, “the results on rents are more mixed; it appears that allowing more multifamily lots by right is associated with decreased rents, but the size of the effect is very small, and there is no significant relationship between rents and multifamily zoning by special permit.”5

According to the author, these results do not bode well for the “likelihood that traditional demand-side or supply-side subsidies will allow lower-income households in the Boston area to relocate to more affluent suburbs.” Consequently, low-income households with Section 8 vouchers (a demand-side program) will be hard pressed to find low-cost housing to rent in the suburbs. Similarly, while production subsidies (supply-side) might lower a developer’s cost, the barriers to multifamily housing will render them ineffective.6

New Developments

According to Schuetz, however, there is reason for hope given Massachusetts’ adoption of two new laws: Chapters 40R and 40S. These laws offer an alternative to the supply-side versus demand-side conundrum. They “offer local governments a variety of incentives from the statewide Smart Growth Housing Trust Fund, if the localities increase the density allowed by zoning in designated ‘smart growth districts.’”

  • 1Jenny Schuetz, “No Renters in My Suburban Backyard: Land Use Regulation and Rental Housing,” Journal of Policy Analysis and Management, 28:2 (2006), pp. 296-320.
  • 2Zoning ordinances traditionally “regulate development by use and structure type rather than tenure.”
  • 3The characteristics used in the estimations are the housing density in 1940, a dummy variable for city council form of government, educational attainment, existing stock of multifamily housing in 1970, and a dummy variable for Worcester (since it has a “population approximately four times larger than the next largest community and allows roughly six times as many potential multifamily lots as the number allowed by the next in line”).
  • 4See the study for a list of the various controls for housing demand and supply.
  • 5The author notes that this is probably due to technical problems encountered when estimating the rental regressions. See the study for a discussion of these complications.
  • 6This is particularly true since “most subsidies do not allow developers to override zoning restrictions on density and structure type.”

E-Mail Notification

Find out when information for community development publications and events is released.

Contact Us

Federal Reserve Bank of Philadelphia
Community Development Studies and Education Department
Ten Independence Mall
Philadelphia, PA 19106-1574

(215) 574-6458 – phone
(215) 574-2512 – fax
info.communitydevelopment
@phil.frb.org

View All Contacts