This piece first appeared in Forbes.com.
Local governments regulate land use extensively: height requirements, parking requirements, and floor area ratios are just a few examples. Another—and one of the most common—is a minimum lot size. A new study from the Mercatus Center at George Mason University shows that minimum-lot-size regulations in Texas force people to buy more land than they otherwise would, which limits population density and ultimately drives up housing prices.
As defined in the study, a “minimum-lot-size regulation is a requirement that every individual parcel of land in the regulated area be equal to or greater than a specified square footage.” Researchers have found that such regulations increase the cost of housing by requiring people to purchase more land, exacerbate segregation by income, and encourage sprawl. While these effects are more pronounced in high-demand areas such as Seattle, New York, and other large coastal cities, they exist anywhere the regulations bind or force people to buy more land than they want.
To examine whether minimum-lot-size regulations limit housing density in cities often considered pro-growth, city planner Nolan Gray and economist Salim Furth examined four Texas cities: Frisco, Pflugerville, Round Rock, and Pearland. The authors create lot-size ratios (LSR) for the parcels in each city. This is the ratio of actual lot size to the regulated minimum lot size. A LSR of 1 to 1.1 is an indication that the minimum lot size is binding and thus limiting density. The figure below shows the LSR distribution for Pflugerville.
lot size ratio for Pflugerville GRAY, NOLAN AND SALIM FURTH. “DO MINIMUM-LOT-SIZE REGULATIONS LIMIT HOUSING SUPPLY IN TEXAS?” MERCATUS CENTER AT GEORGE MASON UNIVERSITY. 2019.
As shown, many of the lots in Pflugerville have LSRs between 1 and 1.1. This clustering at the regulated minimum, which is 9,000 square feet, is an indication that many people would prefer smaller lots if they could get them.
The figure also shows there are many lots below the regulated minimum, which are called noncompliant lots. Such lots exist for two reasons. First, minimum-lot-size regulations typically don’t apply to parcels surveyed before the regulation was put in place. Second, lot owners can apply for variances granted on a discretionary basis that allow smaller lot sizes.
The authors note that the sharp drop in lots with LSRs below 0.5 “…provides a glimpse at the unofficial constraints that developers encounter within the variance and discretionary review process.” Some lot owners in Pflugerville have successfully negotiated lot sizes down to 4,500 to 5,400 square feet (LSR of 0.5 to 0.6), but it seems nearly impossible to get a lot size below 4,500 square feet (LSR less than 0.5).
There’s good reason to believe that variances are disproportionately granted to people with connections since land-use regulations as a whole are often controlled by people with local political and economic influence. This is because real estate is a larger proportion of Americans’ wealth and many people worry that too many variances or the wrong kind of variance might lower home values. So even if the variance process reduces the adverse effects of a minimum-lot-size regulation, it probably doesn’t reduce the harms equally for everyone.
The LSR figures for the other three Texas cities are similar to Pflugerville’s: There’s clustering near the minimum-lot size cutoff, indicating that minimum-lot-size regulations affect development in all four cities and often force people to buy more land than they would absent the regulations.
The big takeaway from all this is that local governments across the country, not just those in big coastal cities known for strict zoning, are limiting housing density and increasing the cost of housing via minimum-lot-size regulations. Several cities have begun to address the adverse effects of various land-use regulations—such as Cincinnati’s reform of parking requirements and Minneapolis allowing denser development—but as this new study shows much more is needed.
Ultimately, the only way to keep housing affordable is to increase supply in high-demand areas. Minimum-lot-size regulations are just one of many regulations standing in the way.
Adam A. Millsap is the Assistant Director of the L. Charles Hilton Jr. Center at Florida State University and an Affiliated Scholar at the Mercatus Center at George Mason University.
The feature image is from Forbes.com.