Why Lot Size Requirements Make Neighborhoods More Expensive
America’s housing affordability crisis stems from an unexpected source: minimum lot size requirements. These are local laws that dictate how much land every new home must sit on. When a city says “every new house needs at least half an acre of land,” they’re essentially banning smaller, more affordable homes from being constructed. These regulations now exist in over 16,000 towns and cities across the country.
In “The Effects of Residential Zoning in U.S. Housing Markets,” University of Colorado at Boulder economist Jaehee Song conducted a comprehensive study of how these lot size rules affect housing costs and neighborhood demographics nationwide. Song analyzed property records from 52 million homes across 16,217 municipalities to detect these zoning constraints and measure their real-world impact on American families.
Key Takeaways:
- Lot size drives up housing costs: When cities double their minimum lot size requirements, home prices jump 14% and rents rise 9%, primarily because families are forced to buy larger homes than they actually need.
- Amplifies segregation: Neighborhoods with stricter lot size rules see increases in white homeownership (by 2%) and household incomes (by 11%). This indicates the rules create exclusionary barriers for families of color and working-class households.
- Distorts markets: About 18.5% of new homes cluster right at minimum lot size thresholds instead of showing natural variety, proving these regulations override normal market choices.
Song faced a research challenge: how do you prove that zoning rules cause higher housing costs, rather than just happen to exist in expensive areas? She developed computer algorithms to detect places where you’d expect to see homes built on smaller lots based on local conditions, but don’t. She then validated this approach by checking her estimates against actual zoning laws from 228 districts, achieving a 96% accuracy rate. To isolate the exact effects of zoning from other factors, she compared similar homes on opposite sides of city borders where lot size rules differ. The research reveals how these regulations create barriers for families trying to build wealth and stability.
Housing costs spiral because larger minimum lot requirements force developers to build bigger, more expensive homes. Imagine if the government required every car buyer to purchase a luxury SUV – that’s what happens when cities mandate large lot sizes. When Song separated the effect of home size from other cost factors, she found that 78% of the price premium is attributed to this forced upsizing. For a median-priced home of $185,000 studied in the sample, this represents approximately a $26,000 increase
Residential segregation is amplified by zoning through both economic barriers and racial preference patterns. Doubling minimum lot size requirements increases home prices by 14%, creating affordability barriers for lower-income households. Non-Hispanic white homeowners show disproportionately strong preferences for strictly zoned neighborhoods across all income levels. This suggests zoning functions as a “socially acceptable” segregation mechanism.
The regulations distort what buyers actually want. Homes bunch up at regulatory minimums at rates three to four times higher than at comparable non-regulatory thresholds, providing proof that zoning overrides what builders and buyers would naturally choose based on their actual needs and budgets.
The evidence shows that zoning reform is a concrete tool for addressing both housing costs and the residential segregation patterns that continue to limit opportunities.
Photo by Eric Fischer, CC BY 2.0, via Wikimedia Commons