Posted by: Josh Lehner | December 12, 2018

Reconsidering Single Family Zoning

As policymakers, builders, and the market work to solve the housing supply issues, a key question everybody asks is what type of housing do we need? Aren’t millennials always going to be renters? [No] Should we grow up, or out? Our office’s simple answer is yes. To accommodate recent and expected growth we will need to see housing supply pick up across the spectrum. This includes both an increase in the effective (buildable) land supply and redevelopment opportunities on lands within our existing communities. This is especially true for areas with good access to employment centers, stores, restaurants, transit and the like.

While most housing discussions — at least ones our office are a part of — tend to focus on land supply and new construction on the urban fringes, the redevelopment aspect is also an integral part of the housing supply solution. Despite this post’s title, I don’t want to get bogged down in the zoning weeds here. That said, there are a number of important aspects to discuss and points to consider. Lately I have incorporated more of this work into presentations, including for recent Bend and Portland forecast events.

The crux of the matter is land is the scarce commodity here. Outside of lava flows and seawalls, we’re not making more of it. As a region grows, so too does housing demand which places upward pressure on housing costs. This is great for homeowners as wealth builds, but bad for renters and the economy more broadly. Provided we, as a community, actually want to address affordability and accommodate future growth, increased construction is a must.

The problem is in many places one cannot simply build more housing due to zoning restrictions (minimum lot size requirements, setbacks, parking etc). However, if a community were to allow for more units to be built on a given parcel of land, then better affordability can be achieved, and future growth more efficiently accommodated. This is for at least two reasons. First, one would be dividing high land costs over a larger number of units which both lowers cost per unit and increases supply relative to existing zoning. Second, each unit will be smaller than under current zoning, which also lowers the cost per unit.

Currently the City of Portland is considering making changes to much of its single family zoned neighborhoods. Minneapolis recently passed similar zoning changes and Seattle has been wrestling with the possibility in recent years. Now, the proposed changes are not for high rise construction throughout the city, but it would allow for townhomes, duplexes, and triplexes to be built, the so-called missing middle housing. A recent analysis by Johnson Economics for the City of Portland confirms such changes would greatly increase housing supply and improve affordability relative to the status quo. Full disclosure: Jerry Johnson is a member of the Governor’s Council of Economic Advisors, our office’s main advisory group.

Essentially what the analysis finds is the net increase in new housing units in the City of Portland would triple relative to current policies and rents for the new units would be half the price. How is this possible? As the report says: “the net impact is expected to be a greater proportion of redevelopment being multiple-unit properties, providing greater net unit yield and lower average price points as a result.” Now, these new units are not cheap, as new construction is expensive, but allowing for townhomes and quads instead of just large, detached single family homes does reduce the price per unit. Additionally, this outcome does not result in a big increase in demolitions of existing homes either.

Specifically, the analysis finds the net increase in housing units on the potentially rezoned parcels would be 1,800 per year over the next 20 years. This is both massive for a single policy change and modest from a growing, regional perspective. In looking at population growth and household formation forecasts for the entire Portland region, this proposed change equals 13-15% of the annual increase in housing demand. By simply allowing for — not requiring — townhomes and triplexes to be built on existing lands in the City of Portland, the policy can accommodate 1 out of every 7 new Portland area households in the coming decade. That is a big finding. Now, on a regional scale it is a bit more modest as we still need to figure out where the other 6 new households will live.

Finally, while I believe the most important aspects from an economic perspective are affordability and supply, there are myriad concerns and societal issues that come along with growth and changes. Growing pains are real, even as they are much preferable to the pangs of decay seen through the Rust Belt and elsewhere. That said, as we have discussed before, there are also some real economic and societal benefits to missing middle housing.

All of these benefits accrue to individuals, their households, their communities and help address public policy issues at the same time. Townhomes are more affordable than detached single family homes*. Missing middle housing allows for somewhat denser neighborhoods which supports local businesses, a more walkable neighborhood while also not towering over neighboring buildings as high rises do. Providing housing options within existing neighborhoods also better allows one to age in place, and older residents do not have to leave lifelong friends and relationships to downsize as their housing needs change. Missing middle housing, through better affordability and providing options results in more integrated neighborhoods which is one of the five key characteristics of high economic mobility communities. Finally, missing middle housing reduces the environmental impact and, crucially, makes more efficient use of existing infrastructure.

From our office’s view, addressing housing supply and affordability is key to Oregon’s long-run economic growth. If households cannot afford to live in or move to Oregon, it puts our biggest comparative advantage at risk: the ability to attract and retain young, skilled workers.

* In presentations I like to give a personal anecdote to illustrate this dynamic. A couple years ago a builder tore down an old ranch on a double lot just around the corner from my house (4 tax lots away). It was replaced with two single family homes that sold for about $700,000 and $800,000. Only 10-15% of Portland area households could afford a home in that price range. At the same time this was happening, a builder tore down an old bungalow directly across the street from our house. It was replaced with two townhomes (a duplex) that each sold for about $450,000. While this is still expensive, and above market averages at the time, 30-35% of Portland area households could afford a home at that price point. In this sense, missing middle housing is 2-3 times as affordable as detached single family homes.


Responses

  1. […] Source: Reconsidering Single Family Zoning | Oregon Office of Economic Analysis […]

  2. Reblogged this on Neighborhood Leaders Council .

  3. It seems like there is always this narrative from the state that one of the key issues driving up home prices and rent is the lack of available land to build on. The state makes it sound like we are The Netherlands sitting on a tiny spit of land so we have to “fill in ” and “density”. Oregon is a big state with lots of real estate around every population center to build more homes. You guys got it wrong again. Changing zoning laws to allow for a mishmash of mutli family housing in the middle of single family homes is rearranging chairs on the deck of the Titanic because that is going to have little impact on demand and prices. I find it interesting that nowhere in this entire published article is a mention of the Urban Growth Boundary and that is the root cause of the problem. This is supply and demand 101. Instead of using Minneapolis as a model, instead go to cities where the cost of housing is the least and find out why? Let me help you out. Take a trip to Houston, Texas and you will see they they don’t have restrictions like a UGB. They allow developers to build homes that keeps up with demand, and surprise, home prices are the cheapest in the country. The problem here in Oregon is we have culture problem not a zoning problem. The state is unwilling to mention much less actually grow the UGB’s that will have REAL impact on demand and take pressure off of prices. Anytime there is a limited supply prices increase. When you allow more supply prices decrease and that has been proven in many cities that allow for growth to keep up with demand. I live in Eugene and there is very little land left here to develop and the land that is available the developers don’t want it because it is undesirable for a range of reasons. So, prices continue to climb at 7-10% year over year which is way over wage increases.

    Oregon is generally mismanaged and this is just one example. Not keeping with the population demands in terms of passenger vehicles has caused PDX to be notorious for having ongoing gridlock on the highways everyday. For being “Progressives” it sure seems like your always behind and simply make the cost of living here go ever higher, while at the same time diminishing the quality of life here. Way to burn us from both ends.

    If you really want to see the pressure from the public subside about housing costs then do something that will make a real and long term difference, stop nibbling around the edges and play-pretending like your doing something to help.

    • Hi Brek,

      Thanks for the comment and thoughts. Our office has written quite a bit about housing over the years. This piece is just one part of the discussion. In the first paragraph we mention the need for an increase in the land supply in addition to redevelopment opportunities on lands within our existing communities.

      To your main point, there is no question that sprawl produces more affordable housing. Places that build a lot of housing see lower prices. https://oregoneconomicanalysis.com/2015/07/07/graph-of-the-week-housing-costs/

      That said, we have seen at least two generations of policy makers implement, support and sustain our state’s unique land use system. Our offices view is it does increase costs over the long run for many of the reasons you note. Yet that is not the primary cause behind the affordability crunch today. https://oregoneconomicanalysis.com/2017/04/12/causes-of-the-great-housing-shortage/

      Finally, I’d also note some work we did on the trade offs cities face when it comes to affordability, quality of life, and economic strength. https://oregoneconomicanalysis.com/2016/06/08/the-housing-trilemma/

      Best,
      Josh l

    • I grew up in Houston, Texas, and the quality of life there—on every metric except culture—is low. The city is butt ugly, it sprawls, traffic is horrific. It is polluted. I left Texas because there are more imprtant things than cheap labor, cheap housing and cheap (poisoned) food.
      There are more options than sprawl—rent control springs to mind (full disclosure—Iown my home and I am also a landlord).

      • Hi Angela,

        Thanks for the comments. Houston and the Sun Belt more broadly is interesting in that they, generally, have strong economies and good or at least decent affordability. Those are the 2 main things people move for. While most people would love a high quality of life, places that rank well in that regard tend to cost more to live in. See our Housing Trilemma work for some more on this. https://oregoneconomicanalysis.com/2016/06/08/the-housing-trilemma/

        Best,
        Josh

  4. One very important factor you didn’t consider was parking. All of these households will have a minimum of one car, to think otherwise is putting your head in the sand. If parking isn’t included on the lot (may not be possible) the occupants will be forced to park on the street in front of someone else’s home creating a huge neighborhood shortage. Current residents care more about the additional cars than they do additional people. As a Realtor, I work this issue every day.

    • Hi Jolynne. Thanks for the comment. There’s no question parking requirements add to the cost of housing, making it more expensive. However as you note, it tends to get neighbors interested.

  5. Josh, I appreciate your response and noted. One last comment. When the state deliberates the housing shortage issue I hope they consider average wages in western Oregon and compares that to most of the country, then backs that into the housing costs here. It’s way out of whack in terms of affordability. This isn’t Silicon Valley. Even with low unemployment and growing wages many people are being priced out of the housing market and have to pay an exorbitant rent instead. That eats up their discretionary income. which means less money to support jobs and the economy.

    Thanks.

    • You’re absolutely right. The best way to look at affordability isn’t comparing sticker prices across regions but to look at local prices relative to local income. It’s one reason why Portland’s affordability is every bit as bad as, and in many cases worse then other high cost areas, our incomes are lower. And our rural affordability issues are about the high housing costs compared to pretty average or typical incomes for rural residents across the county. https://oregoneconomicanalysis.com/2018/03/07/update-on-rural-housing-affordability/

  6. What’s barely mentioned is the other side of the coin with rezoning SFH into multi-family units. Allowing the increased # of units/ density will directly result in less parking, more traffic, less greenspace & trees and these changes will drive families with kids out of the city to the suburbs. There simply is not the infrastructure to cope with higher density without significantly lowering the quality of life for the residents. The reality is not everyone who wants to live in Portland may be able to. This is what happens when cities grow and are desirable, people adjust by moving further from city center, taking public transportation, etc. Let’s not make Portland a worse place to live.

    • Hi Bill,

      Thanks for your comments and thoughts. While infrastructure may need to be upgraded to accommodate a few more units, it can be more efficient and cost effective to replace/upgrade existing infrastructure then to extend service and build out new communities, which will then need to be maintained and repaired in the coming decades as well. Additionally there was some recent work noting that new development has increased urban foliage (number of trees I think) relative to how it was before the development.

      Best,
      Josh

  7. Everywhere rent control has been tried or any kind of government intervention in the market it always ends up harming the people it was suppose to help. Los Angeles is a great example. Rent caps were put into place many years ago and the result has been overall much higher rents. That is because the caps are for current renters only. As soon as they move the rent goes up for the next renter, WAY UP. People inherently move and are more transient in rentals than home owners.I can tell you don’t invest in real estate. If you cap the amount of rent owners can collect then less people are going to invest homes to rentals {or sell them} and therefore less rentals avaialble that drives prices up. Let the market decide the fair market value. Once it reaches a crescendo then prices will come down on their own. The LAST thing we need is local governments telling owners of big investments how much they can charge for rent in a free market economy. Other examples of caps that failed was Hawaii capping the price of gas. Guess what happened? Every station on every island charged the maximum allowed everyday and effectively took competition out of the market. They were all the same, so retailers had no customer proposition to draw in customers. The cap law was reversed as have many other similar measures in other states. It does not work. There are many and much better ideas.

  8. […] city, has been working on a similar proposal, Willamette Week reports. State economist Josh Lehner wrote that implementing that proposal — to allow townhomes and triplexes to be built on existing land […]

  9. I agree we need more middle housing and rezoning seems like a good answer to fix this however I’m not sure it’s going to help the older adult population age-in-place because Townhomes come with stairs… which would be problematic for the mobility issues experienced by the many older adults. That being said, ground-level duplexes are great for them.

    • Thanks Ericha. You’re right, stairs are a big barrier as we age.

  10. […] do want single family homes. However, I am also on the record noting that one of the benefits of missing middle housing is it better allows aging in place. The way this happens is more options within existing […]

  11. Here’s the core, unsubstantiated claim:

    “However, if a community were to allow for more units to be built on a given parcel of land, then better affordability can be achieved, and future growth more efficiently accommodated. This is for at least two reasons. First, one would be dividing high land costs over a larger number of units which both lowers cost per unit and increases supply relative to existing zoning. Second, each unit will be smaller than under current zoning, which also lowers the cost per unit.”

    Let’s try Economics 101. When the only factor that changes is allowing increased density, the land becomes significantly more valuable and the ROI for redevelopment of a low-value dwelling becomes attractive. That means that before a single additional dwelling is added to supply speculative investment produces upwards pressure on rents. That often leads to displacement of rental residents of neighborhoods of color or other lower-value single-family neighborhoods close to attractive amenities that were — before being upzoned — not financially attractive to redevelop.
    The, when the market responds, investors will build the housing type and quality that will produce the greatest return at low risk. We already see that in Eugene. No developer is going to build housing that is as affordable as the existing, low-value (and low cost) that is replaced.
    Furthermore, the “trickle-down” theory that any additional housing will help improve “housing affordability” across the spectrum has bee thoroughly debunked because the housing market is not like the soy bean market. Housing is stratified by cost and segmented by type and location.

    • Hi Paul,

      Thanks for the comment. You’re right that the existing landowner will reap much of the benefit of zoning changes. However, subdividing land costs and smaller unit sizes do result in lower prices per unit relative to detached single-family homes. The landowner may make more profit overall, but a lower price point per unit does mean better affordability. And if this is not true, then why is a townhome less expensive than a detached single-family home?

      Regarding the issue of demolitions and new construction. Yes, the new units will be more expensive than the existing one. That’s largely because new construction is always more expensive. But added supply does help with overall market affordability, even if it is not true on that specific parcel. Higher-end housing demand needs to be met, otherwise it will help increase costs for other, existing units, worsening affordability and increasing displacement that way. If new supply and filtering does not help, then why was the existing property more affordable in the first place?

      Best,
      Josh

      • Josh, because of the UGB there is a finite amount of land to develop in the population centers. The results is all of the new development is high-end / “luxury” homes and apartments because the ROI is much higher than 1,500sf track homes. Until that changes there will continue to be a “middle housing” shortage. The state is nibbling on the periphery of the issue and banning SFH zoning will not do anything to have real impact on the issue. Force the cities to grow the UGB and we will have the only true solution to the problem: organic growth of new housing.

      • Hi Jim,

        Please see some previous comments for links to our previous work. Our office does believe the state’s unique UGB policy raises long-term housing costs. It also provides benefits too, but they are not costless. That said, it is not likely that land use policy is a primary issue behind the overall lack of supply, or low levels of new construction in recent years given this is a nationwide issue, even in places with few land use policies.

        Regarding HB 2001, it does not ban single-family homes, rather it legalizes the opportunity for other types of housing to be built. Single family homes, particularly outside of the Portland region, will continue to be the dominant type of construction. And, as always, if an owner wants, or if the demand is there, single family homes will be built on parcels that allow for other types of construction too. Now, and I think more to your point, these changes will be seen over the long-run. Such a policy will not change neighborhoods or even development patterns overnight. By re-legalizing more types of housing, it will likely provide a number of different benefits in the years and decades to come.

        Best,
        Josh

      • Josh, the state may not want to call it a ‘ban’ but many articles have been written about the issue in national publications and they are referring to it as “essentially banning single family zoning”. Put whatever spin you want on it here are the facts: right now there is SFH zoning; in June 2021 there will not be SFH zoning. Any objective person would view that as a ban. Read this article in NPR.

        https://www.npr.org/2019/07/01/737798440/oregon-legislature-votes-to-essentially-ban-single-family-zoning

        This article in Redfin predicts the banning of SFH will triple the costs of housing here.

        https://www.redfin.com/blog/oregon-upzoning-bill-impact-housing-supply/

        The only people who think this is a good idea are the politicians in Salem because they don’t have any real solutions. Now they can say they did something that only will exacerbate the situation. As usual.

      • It is a ban on single-family only zoning. That is true. And yes, folks can and do call it what they want. But at the end of the day, it does not ban single-family homes themselves, rather it allows for different types of housing to be built. Those decisions will be based on market factors. And as I noted, most new construction (particularly outside PDX) will remain single-family homes. The legislation simply allows for other types of units to be built if the demand for them is there.

        And, just to be clear, the Redfin article — I hadn’t seen that one, thanks for passing along — notes that housing supply will triple, which is a good thing! It notes that townhomes sell for lower price points as well, improving affordability. The article does not say housing costs will triple.

      • For market-rate housing, building two or more new dwellings on a lot MAY cost less than building one new dwelling, but that doesn’t in any way mean the price of each of the two new dwellings will be “affordable” or less than the price of any demolished dwelling.

        If you read the research, you’d find that the “trickle down” theory” has been debunked. However, there is a “trickle up” effect when you build housing (typically subsidized) for the lowest HHI categories. That occurs because it reduces the displaced demand from some of these households who consume housing in the upper categories. Note that in Eugene (and nationwide), there’s a surplus of “affordable housing” for upper categories of HHI and a deficit for the lowest categories.

        Start reading the actual research literature, e.g.,from National Low Income Housing Coalition. https://nlihc.org/

      • Thanks.

        I agree that the price point of a townhome may not be “affordable” because new, market rate construction is expensive. However, it is more affordable than a new, detached single-family home. That is where the affordability discussion comes into play.

        And I also agree that filtering does not reach the lowest rungs of the income distribution. That is clear. It can reach down to 60% AMI or so, if I recall correctly offhand. But that is also a long-run process. That said, if you build more housing, you get more filtering. For example, the Portland region today has more affordable units today build in the 2000s than those built in the 1980s because the region overall built more housing in the 2000s than during the 1980s. A larger share of 1980s construction is affordable today, but given the region did not build much, there aren’t that many units overall.

  12. Josh, where did the benefits list that is included in your article come from?

    Thanks

    • Hi Mark,

      The list is my own. That said, it draws from previous work from City Observatory a few years ago, plus thinking through the implications of the Chetty et al economic mobility research, and my own digging into Census and housing data.

      Best,
      Josh

  13. Let’s separate out the issue of “housing types” and the blanket upzoning of land dictated by HB 2001.

    I would think it’s inarguable that almost all housing types can be beneficial in the right context. (Including SF detached, SF attached, ADUs, plexes, apartments and “single-room-occupancy.”

    The problem with HB 2001 — the so-called “Middle Housing” bill is that it upzones land to allow more intensive development, but does nothing to ensure appropriate use, based on context (e.g., built-out neighborhoods vs. greenfield; geography; infrastructure; transit availability; etc.)

    One cannot present an evidence-based argument that “Middle Housing” is beneficial and not harmful without a) identifying the context, and b) supplying actual evidence — both lacking in this opinion piece.

    The evidence and legitimate analysis of “supply and demand” is that blanket upzoning established single-family neighborhoods will increase, rather than reduce housing costs.

    Further, the Census Data and other research makes clear that in many cities, there is adequate “affordable housing” available for all households with household income (HHI) of at least $25,000. The deficit in housing is for households with HHI levels that can afford only rental apartments; and in many or most cases, only if the rent is subsidized.

    Market-rate housing is constrained by what’s known as the “Barbell Effect” in that “Middle Housing” forms have to high a risk-to-return for most large-scale developers. On one side, SF detached is low-risk, moderate return, while 20+ apartments is higher risk, high return. Consequently, any developer building “Middle Housing” is going to build for the highest return market, which is more expensive housing.

    It’s frankly counter to substantial evidence and rational analysis to think the “Middle Housing” is going to help in any significant way with housing affordability.

    DLCD staff should step out of the “Missing Middle” echo chamber and start doing credible analysis based on the facts.

    • Hi Pete,

      Reasonable people can disagree with policies. I would suggest you bring up your considerations to DLCD directly. Our office is not part of the agency. https://www.oregon.gov/lcd/Pages/index.aspx

      As for the substance of the discussion, I agree that new construction is expensive. However, I would appreciate answers to my two questions about whether or not subdividing land costs and smaller unit types are more affordable than detached single-family homes, and if filtering and new supply do not help with affordability, why are the existing units that may be replaced lower priced in the first place?

      Additionally, I’d appreciate it if you could flesh out for me the “ensure appropriate use” and why one may consider new construction to be harmful.

      As for evidence regarding different housing types and affordability, the proof is in the pudding. Prices are lower and affordability is higher.

      Best,
      Josh

      • In regards to the following opinion:

        [HB 2001] is a ban on single-family only zoning. That is true. And yes, folks can and do call it what they want. But at the end of the day, it does not ban single-family homes themselves, rather it allows for different types of housing to be built. Those decisions will be based on market factors.

        The theory of zoning is that it protects the interests of a property owner against negative impacts of uses of other owners’ properties.

        So, this whole “HB 2001 doesn’t REQUIRE anyone to build middle housing” is a disingenuous claim.

        The questions that must be answered are: “What, if any are the benefits of upzoning single-family areas?” and “What, if any are the detriments of upzoning single-family areas?”

        The legislative record is pretty clear on the evidence and credible analysis.

      • I’m confused. Why is it disingenuous? It is not an opinion that single-family homes can still be built. Single-family homes are not outlawed. What has changed is that zoning can no longer only allow for detached, single-family homes.

        As for the questions that must be answered, yes, it is always helpful to have a fully fleshed out conversation! I would suggest you discuss this with DLCD and your local legislators.

  14. I appreciate Josh being willing to be so responsive to my and other critical posts. I’ll need to let him have some peace without me pestering him further, and I have to attend to other responsibilities.

    So, in taking my leave, I just hope Josh and his colleagues will take a more critical and thorough look at the actual economics of upzoning, specifically the economic impacts related to effects on the inventory of housing that is affordable to households in HHI categories where there is a deficit.

    My assessment of the evidence and properly applying “Economics 201” is that in many cases, such an upzoning (without subsidies) will not produce a significant increase in that inventory.

    Paul Conte

    • Thanks Paul and will do. I, too, have other issues to attend. However, we’re always happy to discuss issues related to the economy.


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