Why minimum lot sizes are a growing affordability problem

New studies show how these rules restrict housing options — and that they’re on the rise. But California is pushing back.

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On January 1, in response to its continued housing crisis, California enacted a new set of state laws aimed at encouraging the creation of accessory dwelling units — also known as ADUs, backyard cottages, or even “granny flats.” The state laws supersede any local laws, and one of their key provisions is to prohibit any requirements on minimum lot size. In other words, Californians can now build an accessory dwelling on their property no matter how big their yard is.

That seemingly small detail is a very big deal. A cornerstone of single-family zoning, minimum lot size provisions state that a certain type of home or dwelling can only be built on a certain size property. Minimum lot size requirements reduce affordability by making it more restrictive — and thus more expensive — to build new homes. And while such rules tend to impact suburban development more than urban cores, they alter the regional housing market in ways that limit options for all.

In part thanks to this change, backers of the new laws hope to see California’s biggest cities create tens of thousands of new backyard dwellings. That optimism is well founded. A 2017 study — conducted by the San Francisco chapter of the Urban Land Institute and the Terner Center for Housing Innovation at UC-Berkeley — found minimum lot size requirements to be the single biggest factor in determining whether or not someone builds an accessory dwelling unit.

Focusing on three cities that have tried to encourage small dwellings — Portland, Seattle, and Vancouver — the researchers asked 86 property owners what motivated them to pull the trigger on building an ADU. The number one response, from 42 percent of respondents, was “easing of land use rules.” And among respondents who gave this answer, the number one specific rule that had the greatest impact on their decision was minimum lot size.

In other words, if you want to produce more small homes, you reduce or eliminate minimum lot size. The study authors conclude (emphasis added):

That’s encouraging news for California, but it’s concerning for the U.S. as a whole, which seems to be heading in the opposite direction. According to a new economic working paper, released in December, minimum lot sizes are actually on the rise in American metro areas.

Led by urban economist Joseph Gyourko, the research team surveyed local residential land use regulations across 2,450 U.S. communities — dubbed the Wharton Residential Land Use Regulatory Index — and compared these regulations to a previous survey conducted back in 2006. In the earlier survey, 84 percent of communities had a minimum lot size provision; in the recent one, that share had jumped to 94 percent, making such provisions “almost omnipresent.”

A 2006 survey of nearly 2,400 U.S. communities found that 84 percent had minimum lot size requirements (shown as the“1” column on the right; the “0” column indicates no such rule). A recent follow-up of more than 2,500 communities shows adoption has grown to 94 percent. (Image via NBER)

What’s more, the minimum lot size seems to be getting … less minimal. Over a third of communities now have a minimum of at least one acre, up from a quarter in 2006. That means there are now more places across the country where, if you don’t have an acre of land, you can’t build a home.

Same goal, different policy direction

Even in places that ostensibly share California’s goal of encouraging people or developers to build more small homes, minimum lot size can interfere in critical ways. Take the case of Boulder, Colorado.

This week, Boulder was reportedly set to adopt a land use provision of its own aimed at encouraging people to build “tiny homes.” Though technically distinct from accessory dwelling units, Boulder’s tiny homes would offer a similar promise: a smaller and thus more affordable place to live. But unlike California’s new law, Boulder’s tiny home provision didn’t explicitly provide any relief around minimum lot size, according to Shay Castle of the Boulder Beat blog.

As a result, after speaking with several local officials, Castle fears the new regulations “won’t change much” about housing development. In key residential areas, accounting for 19 percent of the city, Boulder residents and developers would need a minimum lot size of 7,000 square feet for each tiny home, in line with existing single-family regulations. As one official told Castle: “You can’t take a 7,000-square-foot lot and plunk down five tiny homes.”

Given the cost of land, that minimum lot size means tiny homes can’t compete with more traditional single-family housing options. Here’s Castle:

That’s not to suggest that Boulder and major California cities face the same affordability challenges, nor that changing minimum lot size alone can ease the housing crisis. Rather, the larger point is that a seemingly minor provision — tucked within new rules motivated by the same goal of expanding housing options — might nevertheless lead to divergent outcomes.

A latent demand for density

Defenders of minimum lot size requirements offer a range of arguments, some more persuasive than others, ranging from the need to protect local planning rights, to the preservation of neighborhood character, to the simple fact that big lots are just what people want.

The counterpoint to these concerns is that eliminating minimum lot requirements doesn’t force people to build accessory dwellings or compel developers to build on smaller lots. Developers, in particular, will tend to build whatever the market prefers. But other recent evidence suggests that, given the option, many people would actually choose a smaller lot than the requirements allow.

That finding comes from a 2019 Mercatus Research paper by M. Nolan Gray and Salim Furth, who studied housing development patterns in four Texas communities with minimum lot size requirements. To get a sense of what might happen if such regulations didn’t exist, Gray and Furth looked at the concentration of lot sizes in these communities. A high concentration near the minimum would suggest that developers likely used the legal requirement — not some other market preference — as their guide.

Their study found just that. In three of four study areas — two Austin suburbs and a Dallas-Forth Worth suburb — Gray and Furth discovered that most lots hovered right around the zoning minimum. A Houston suburb showed less evidence of being bound by the legal minimum, but that area had smaller minimum lot sizes than the other test areas to begin with, making the rule there less restrictive in the first place.

In other words, many developers build to the minimum lot size because it’s the law, not because it’s what people want. Even in car-oriented Texas suburbs, the residential market seems to want more density than developers are legally allowed to provide. Simply put, in the absence of minimum lot size regulations, developers would build on smaller lots. Summarizing their findings at the Strong Towns blog, Gray and Furth conclude:

A call for state action

Findings like these support the notion that minimum lot size policies have perhaps “the greatest impact on how we physically construct our communities” — a case made by legal scholar Paul Boudreaux in a 2016 Maine Law Review article that takes direct aim at such rules. That physical impact goes beyond lot sizes themselves, altering the urban environment. By forcing homes onto larger and larger lots, the rule encourages sprawl and all the road and utility infrastructure that come with it.

There’s a significant social impact, too. By making it harder for new or lower-income households to enter a neighborhood, the rule reduces opportunities for economic advancement and, ultimately, promotes segregation. For that reason, Boudreaux calls minimum lot size regulations “perhaps the most significant, and underappreciated” form of exclusionary zoning.

As the harms of minimum lot size become clearer, communities that value inclusion may instead turn to emerging tools capable of protecting legitimate issues of neighborhood character. Planning simulations can help architects and developers prioritize shared amenities like open space. On-demand mobility options make it easier to get around without owning a car, and thus to convert a garage into an accessory dwelling. And low-cost sensors make it possible for local officials to monitor noise levels, air pollution, or other quality-of-life factors impacted by denser development.

But given the long legal legacy of minimum lot size — stretching back to 1942 — Boudreaux doubts that communities will change on their own. Instead, his law review article raises a more forceful approach (his emphasis): “using state law to compel local governments to abandon, or at least moderate, their minimum lot size laws.”

California reached a similar conclusion, at least when it comes to accessory dwelling units. Whether that opens the floodgates to wider change, or rather strengthens the resistance, is something cities everywhere will be watching.

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January 24, 2020