Mar 22, 2021
Does legalizing multi-family homes (a.k.a. “upzoning”) just boost asset values for speculative real estate portfolios, or does it produce a tangible benefit with new housing supply? Some research has already explored the nuances around this question, but a new study on zoning reform in Portland, Oregon by Hongwei Dong (2021) finds a strong effect of increased supply in recent decades.
Zoning reform efforts in this city, which faces a severe housing shortage and high prices, offer rare conditions for a natural, quasi-experiment. Here are the key takeaways:
- From 2000 to 2017, Portland legalized more homes on nearly 1,400 acres of its parcels, and saw just over 62,000 new homes built—69.9% of them in new, multifamily housing. Only 20% of new homes were single-family, and 9.5% were accessory dwelling units.
- Not only was most new housing construction in multi-family structures, but a slight majority of new housing (51.3%) was built in commercial or mixed-use districts, rather than strictly residential zones.
- The changes in the built environment aren’t drastic or uniform. While two-thirds of new housing construction was infill development, less than a third occurred on vacant parcels.
Dong’s study uses Portland as a case study to test three propositions that underpin the way economists look at cities today. Given what we know about housing markets in high-demand, supply-restricted cities like Portland, upzoning — or increasing the number of homes that are legal on a given property — should have the following effects:
- Increases in both the number of new homes built and the speed at which they are built;
- Promotes more infill housing production on vacant parcels; and
- Promotes more infill housing production on underutilized parcels.
The data from Portland in the past two decades finds merit to all three of these ideas, adding that city to a long list of examples where removing constraints on home building leads to more supply — and better outcomes.
Given a large number of parcels early in the study period from 2001-2002, Dong was able to compare development patterns on parcels that were upzoned against parcels that kept the same zoning. Control parcels resembling the upzoned parcels were matched “based on baseline characteristics,” allowing a comparison of the effects of the zoning changes under conditions similar to a randomized control experiment — the gold standard for research design.
Upzoned parcels had a shorter average “lag time” in development — an upzoned parcel took, on average, 7.8 years to see new development, one year less than the control group. Perhaps unsurprisingly, the upzoned parcels also produced more housing, at nearly twice the density. Per Dong, these results “suggest that upzoning not only sped up housing developments, but also increased housing production at higher densities.” Upzoned parcels were also more likely to be developed in multi-family zones that permitted more density. Finally, upzoning under-utilized parcels in low-rise, multifamily zones saw construction at nearly twice the density of new housing as single-family zones.
While Dong cautions readers that the sample size is relatively small (this is one city, after all), the data nevertheless “confirms that upzoning and higher density zoning have the effects of speeding up housing developments and increasing housing supply.”