Minneapolis and Oregon have led the way, but cities and states across the U.S. are increasingly looking at allowing multifamily units in response to supply shortages.

When David Brauer moved into Minneapolis‘ King Field neighborhood two and a half decades ago, it was filled with starter homes. The city was shedding population at the time and Brauer, a now-retired journalist, chose the area because, well, he could afford it.

Over the years, Brauer raised his family in the area. He spoke glowingly of the neighborhood during a recent conversation with Inman, but said that there’s just one problem: There aren’t good housing options nearby for the day when he and his wife want to downsize.

“I think in general, people who are older than me, who want to get rid of their snow shovels and snow blowers, they’ll want to live in some sort of an apartment-slash-condo type set up,” Brauer said. “Housing options aren’t just about affordability. They aren’t just about density. They are about being able to age in the communities that you love. And the options for us in the area are few and expensive.”

For many years, Brauer would simply have been out of luck. Most American neighborhoods outside of a few urban centers are filled with standalone homes, and those places don’t really change thanks to single-family zoning, or local regulations that limit what types of housing are allowed. Zoning has been ubiquitous in the U.S. for generations, and is the primary reason you can’t tear down your house and build an apartment building in its place. It’s responsible for many of the suburbs that have spread out across the Sunbelt and is a pillar of the American Dream. Think the Brady Bunch or Leave it to Beaver.

Aerial view of planned subdivision near Minneapolis, United States | Credit: Robert Fullerton and Getty Images

But as it happens, Brauer lives in the first U.S. city to take a hard look at single-family zoning and, essentially, abandon it. In 2018, Minneapolis lawmakers adopted a new plan that would allow significantly more housing density in single-family neighborhoods, which Brauer said is a good thing because it’ll make more room for more people.

“I can literally walk four blocks to the food co-op and buy my groceries. My parents are a 10 minute walk. There are a number of restaurants. I put less than 3,000 miles on my car every year and that’s because I bike a lot and because realistically everything I need for daily life is within a mile,” Brauer explained. “I see the plan as being able to capitalize on, and even extend, some of those advantages.”

Minneapolis is at the forefront when it comes to rethinking neighborhoods and building new housing, but the city is far from alone. In fact, there is a growing movement across the U.S. right now that’s pushing to change zoning laws. And while that movement has so far led to only a handful of new policies, it has the potential to significantly reshape everything from home prices to housing types to consumer behaviors.

It will, in other words, be a major part of the real estate industry going forward. Here’s what you need to know:

Why exactly are cities and states trying to change their single-family zoning laws?

The short answer is that home prices are really, really high and in many cases going up. A recent report from the National Association of Realtors, for example, showed that during the second quarter of this year home prices rose in 91 percent of U.S. metro areas.

San Francisco is often touted as the poster city for this issue, and late last year a report showed that the Bay Area metropolis is now made up of mostly $1 million homes. A second report showed that home prices in San Francisco rose an astonishing $561 a day from the first half of 2017 to the first half of 2018.

Similar, if less extreme, versions of this story have played out over the past few years in cities such as Los Angeles, Denver, Austin, Washington, D.C., and many others. And while some metros have seen prices cool down a bit recently, the key is that the growth of housing costs has outpaced the growth of wages — meaning it’s now harder than ever for Americans to put a roof over their heads.

Homes in Los Angeles, which is also facing a housing shortage and soaring prices | Credit: pastorscott and Getty Images.

So what does this have to do with zoning?

The problem is that zoning limits the supply of housing in a given market. If a city will only allow one unit of housing on each parcel, for example, then very quickly a neighborhood is “full” and would-be buyers or renters have to find somewhere else to live. This has, over time, produced a shortage of housing. It’s simple economics: If the supply of housing stays the same as demand goes up — thanks in this case to population growth and millennials coming of age — prices respond by rising.

The thinking then goes that by loosening up regulations and letting people build more housing, prices should stabilize or even go down.

This is a hotly debated concept in the world of housing economics, but there is some evidence that it works. Seattle, for example, has seen rents drop and housing prices fall amid a glut of apartment construction. The Brookings Institute also argued last year that “the only long-term way to reduce housing costs — or at least reduce the rate of housing price growth — is to build more housing.”

Construction cranes are visible amid buildings in downtown Seattle, Washington. | Credit: Sherron L. Pratt and Getty Images

This concept also has some bipartisan support. Though many of the coastal “urbanists” (a term that includes housing advocates, urban planners, economists and others) who push for zoning changes are liberals, Ben Carson — President Trump’s Housing and Urban Development secretary — has also repeatedly expressed support for the idea of moving away from regulations that restrict the supply of housing.

Michael Andersen

The growing consensus is somewhat unique to this moment in time. Michael Andersen, a senior researcher at non-profit sustainability research organization the Sightline Institute, told Inman that in the past, cities have addressed housing shortages by sprawling outwards. And he pointed to places like Houston as evidence that sprawl does actually work, though there is a major caveat.

“Houston and Charlotte and Atlanta show that if you sprawl enough you can reduce the average, metro-wide price of a home,” Andersen explained. “But you have other costs like all the freeways, everybody’s gas costs, traffic. It becomes less efficient as more people use it, unlike public transit. You have the social cost of people not seeing each other and not spending time with their families and friends.”

In other words, sprawl is cheap and easy in the short term, but has a number of economic, social and environmental costs that kick in down the road. And those costs are in some places helping turn the regulatory tide away from sprawl and the single-family zoning that encouraged it.

“The better solution is the one cities around the world have pursued until the advent of modern zoning,” Andersen added, “which is to grow upward.”

The National Association of Homebuilders seems to have come to a similar conclusion. In a report released just last week, the trade organization concluded that “traditional zoning has often been cited as a barrier to affordability.”

Aaron Eisenberg

Aaron Eisenberg, a Keller Williams real estate agent in Minneapolis who often works with younger and first-time buyers, also said that many homebuyers today simply want something other than sprawl.

“There’s a big mismatch between what the next generation of homeowners wants,” he told Inman. “They want walkability. They don’t want a huge yard to maintain. And all their options are a few condos. There are just very few options for people.”

Where are people trying to get rid of single family zoning, and what exactly are they doing?

Two places have already moved to effectively eliminate single-family zoning: Minneapolis, Minnesota, and the entire state of Oregon.

Minneapolis’ policy, dubbed Minneapolis 2040, was approved late last year and effectively “upzones” the city by letting people build triplexes on lots that previously only allowed single-family homes. The Brookings Institute, which referred to Minneapolis 2040 as “the most wonderful plan of the year,” noted that by allowing triplexes in areas that previously only permitted single-family homes the plan “effectively triples the housing capacity of some neighborhoods.”

Medium-density townhome-style units in Minneapolis | Credit: Kubrak78 and Getty Images

Oregon adopted a similar approach, but went even further. In its case, House Bill 2001 requires cities with 25,000 or more people to allow duplexes, triplexes, fourplexes and clusters of small homes on parcels that had been restricted just to single-family homes. Cities with at least 10,000 are now required to permit duplexes in what had been single-family zones.

Lawmakers approved the bill in June.

Condos on the Willamette River in Portland, Oregon | Credit: Dave Alan and Getty Images

Oregon and Minneapolis are leading the charge to move beyond single-family zoning, but they are not at all isolated. In California — arguably the region hit hardest by current housing shortages — state Sen. Scott Wiener has repeatedly tried to pass sweeping zoning reforms focused on boosting density. Though Wiener’s bills have so far failed to become law, his efforts nevertheless garnered significant attention and have helped fuel an ongoing debate about the role of single-family zoning in the Golden State.

Some big California cities, such as Los Angeles, have also created regulations that make it easier to build “accessory dwelling units,” or backyard cottages known as ADUs or “mother-in-law” apartments. Legalizing ADUs isn’t as radical as what’s happening in Oregon and Minneapolis, but is often seen as an incremental step that can theoretically double the amount of housing in a single-family neighborhood.

Andersen said that numerous other cities including Austin, Texas, Charlotte, North Carolina, and Vancouver, British Columbia, are also considering ditching single-family zoning or chipping away at it by allowing things like ADUs.

“I think a lot of cities are working on this sort of thing and there’s certainly a national movement,” Andersen said.

A sample accessory dwelling unit, or ADU, that can be built in the backyard of an existing home, as seen in Salt Lake City | Credit: Jim Dalrymple II

It’s worth noting here that new regulations in both Oregon and Minneapolis have been widely characterized as “banning” single-family zoning. Technically, that’s more or less true, but it’s important to note that banning the zoning does not mean that these jurisdictions have banned single-family homes themselves. Instead, they merely allow other options, which may or may not be built depending on the market.

Case in point: Andersen said that his neighborhood in Portland, Oregon, has long allowed smaller multifamily buildings but the area is still dominated by single-family homes.

“In my own neighborhood, fourplexes have been legal for 30 years now and I think three of them have been built,” Andersen said. “It’s about 1 percent per year. It’s a useful case study.”

So why does any of this matter for real estate agents? 

In the most basic sense, anything that impacts the housing market impacts real estate professionals. A supply shortage, for example, means sellers and their agents stand to make more money, but can also mean fewer sales and thus harder times.

But the types of zoning changes currently being enacted or debated around the country in particular also have the potential to be a low-key game changer for real estate.

Though economists generally believe that adding more housing is beneficial for an overall market, for example, there are many critics who say that on a case-by-case basis adding apartments can devalue nearby homes.

Steve Minn

Steve Minn — a former city council member and the vice president and chief financial office of Minneapolis-based Lupe Development — is among those critics. Minn’s company focuses on building housing, and he told Inman that he would have preferred his city’s new zoning changes to focus on creating denser “transit corridors” rather than trying to increase the amount of housing in existing single-family neighborhoods. And he ultimately expressed concern that zoning changes will negatively impact his city’s real estate.

“If you own a home that’s worth a million bucks,” Minn argued, “and you are now surrounded by rental property, your value will probably decline not increase.”

This is a key point, and a frequently raised objection to zoning code changes. And it has an array of ramifications for real estate professionals. It can mean, for instance, that over time agents will have to help their clients come up with home valuations that are complicated by more architecturally diverse neighborhoods. Or it could mean working in areas that had seemed relatively static, or “built out,” but which begin to see more rapid evolution.

If Minn is correct, it could someday result in agents having to sit down with their clients to give them the hard truth about their homes’ value.

A small multifamily building under construction last year in a Los Angeles neighborhood that includes both single-family homes and apartments | Credit: Jim Dalrymple II

Eric Myers, director of government affairs for the Minneapolis Area Association of Realtors (MAAR), told Inman that his organization ultimately concluded that the density component of Minneapolis 2040 needed additional study. However, he said MAAR is concerned that the new zoning changes could result in more tear-downs and the loss of starter homes — trends that would have obvious impacts on the local real estate market.

Eric Myers

Myers also said that new multifamily housing could end up having higher unit prices than the stand-alone homes that it replaces. Ultimately, Myers also said that his cities zoning changes would likely impact the real estate market, though it would take time to fully see how.

“I would anticipate that this would have a slow, longer burning fuse affect on the market place over time,” he explained.

Still, many of the people who spoke to Inman for this story expressed hope that over the longer term zoning changes could have a positive impact on real estate markets. Eisenberg, the Minneapolis agent, is among them.

“It might be a while before people start taking advantage of this,” he argued. “When a bad house comes on the market, the best option as far as developers are concerned is still to renovate it as opposed to tearing it down. I’m curious to see how long it takes for that to change.”

And when that does change, Eisenberg sees a boon for everyone facing a lack of inventory.

“A lot of people will come to me and say, ‘I’d really like to buy a duplex or a fourplex,’ and they don’t realize how few of them there are,” he said. “There’s just nothing for them to buy.”

Jeremy Rogers

Jeremy Rogers, the political advocacy director for the Oregon Association of Realtors, further encouraged real estate professionals to have an “open mind” about zoning policies that could ultimately reshape neighborhoods. After some initial concerns were resolved, Rogers’ organization ultimately supported his state’s recent zoning policies, and said that agents should remember that the changes mean their clients “have more flexibility and more options.”

“For those who are concerned about their neighbor putting up four units, agents can remind buyers that this is not a requirement, it’s just an option,” Rogers explained. “The likelihood is that it’s going to happen where there’s a dilapidated home, and it’s going to be replaced by a newer, nicer duplex.”

Rogers acknowledged that many people are concerned about what changes to the zoning code could do to their cities. But in the end, he argued that the changes would be a good thing because they make room for more people.

“It provides more housing choices and more affordable options for people,” he said. “And it makes for the best use of the land that’s available.”

Email Jim Dalrymple II

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