{"id":157184,"date":"2023-08-23T13:45:05","date_gmt":"2023-08-23T19:45:05","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=157184"},"modified":"2024-02-28T08:31:29","modified_gmt":"2024-02-28T15:31:29","slug":"florida-live-local-act-could-be-the-blueprint-for-housing-affordability","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/florida-live-local-act-could-be-the-blueprint-for-housing-affordability","title":{"rendered":"Could Florida’s Live Local Act Be the Blueprint for Addressing Housing Shortages Across the United States?"},"content":{"rendered":"\n

A new Florida law will limit the power of local governments to impact zoning regulations, requiring them to approve multifamily and mixed-use residential developments in commercial, industrial, and mixed-use zones, provided that at least 40% of units will be affordable to rent for at least three decades. <\/span><\/p>\n\n\n\n

The <\/span>Live Local Act<\/span><\/a>, which was <\/span>unanimously passed<\/span><\/a> in the state Senate and by an overwhelming majority in the House, is not the first state law in the U.S. to preempt local government zoning rules. Oregon, Virginia, Washington, and California have all passed or proposed <\/span>similar laws<\/span><\/a>. Additionally, the city of Minneapolis <\/span>eliminated single-family zoning in 2018<\/span><\/a>, allowing developers to build duplexes and triplexes in every neighborhood. <\/span><\/p>\n\n\n\n

The new laws are an attempt to strike down the obstacles to affordable housing development that strict zoning laws have historically created. The affordable housing crisis is wreaking havoc on the nation. The U.S. needs an additional <\/span>3.8 million<\/span><\/a> units of housing to meet housing demand, and the shortage of affordable rental homes is even steeper\u2014we\u2019re an estimated <\/span>7.3 million<\/span><\/a> units behind. <\/span><\/p>\n\n\n\n

Florida is a prime example of how the shortage of available homes is impacting housing affordability. Zillow\u2019s data shows an increase in average rents in the state of <\/span>nearly 46%<\/span><\/a> between 2020 and 2023, the highest in the nation. And the Tampa metro area<\/a> has seen some of the highest home price increases since 2019. <\/span><\/p>\n\n\n\n

Housing experts<\/span><\/a> see this wave of new legislation as a step in the right direction. But, many challenges with deep historical roots persist, affecting housing development even in areas that have attempted to remove zoning restrictions. <\/span><\/p>\n\n\n\n

The effect on housing affordability so far has been minimal, though statistically significant. And some states have run into barriers when trying to pass similar legislation. <\/span><\/p>\n\n\n\n

What will it take to bring home prices and rents within reach for low and middle-income Americans? Is the new law enough to tackle Florida\u2019s affordability problem? And how will this affect real estate investors? <\/span><\/p>\n\n\n\n

A Brief History of Zoning Regulations<\/span><\/h2>\n\n\n\n

Land use zoning was a practice borrowed from Germany in the early 20th century in an attempt to increase access to low-density housing for working-class families, provide for the health and safety of the public, and defend against the dangers of rapid urbanization. But it quickly became a tool to exclude minorities from white neighborhoods. The first single-family zoning laws were adopted in Berkeley, California after the state gave cities the authority to zone their land. Berkeley was <\/span>zoned<\/span><\/a> to keep minority residents and businesses out of white communities. <\/span><\/p>\n\n\n\n

In the decades following World War II, the mass exodus of urban residents to the suburbs had an outsized impact on single-family zoning. Developers built subdivisions where Black Americans and Jews were explicitly not allowed. <\/span><\/p>\n\n\n\n

The racial segregation continued even after the passage of the <\/span>Fair Housing Act<\/span><\/a> through zoning laws. Municipalities adopted minimum lot sizes and banned multifamily and manufactured housing. Due to these laws, about <\/span>75%<\/span><\/a> of residential land in cities is zoned for single-family housing today. <\/span><\/p>\n\n\n\n

Owners of single-family homes began to view new developments as an imposition on the character of their communities and a threat to their property values\u2014so much so that zoning ordinances weren\u2019t enough. Municipalities began restricting new construction permits, claiming the intent of environmental protection or preventing sprawl. <\/span><\/p>\n\n\n\n

Builders had to comply with increasingly restrictive requirements set by city building departments, fire marshals, and civil engineers. New requirements restricting growth continued into the 21st century, causing housing prices to rise rapidly. <\/span><\/p>\n\n\n\n

Zoning laws are, therefore, only one piece of the puzzle. As Harvard research fellow Alexander Von Hoffman <\/span>notes<\/span><\/a>: \u201cMerely eliminating single-family zoning, history suggests, is unlikely to increase housing stock significantly. To unleash residential development will require peeling back layers of regulations that have accrued over the decades.\u201d<\/span><\/p>\n\n\n\n

Why Some Oppose State Preemption in Zoning Laws<\/span><\/h2>\n\n\n\n

Both individuals and local governments still oppose legislation that limits local zoning authority despite the sordid history of zoning and the clear impact on housing development and affordability. <\/span><\/p>\n\n\n\n

A 2020 <\/span>Redfin survey<\/span><\/a> found that more than half of Americans support incentivizing new housing developments, but only 27% of homeowners support policies that allow multifamily development in their own neighborhoods. A similar <\/span>2019 survey<\/span><\/a> showed that younger Americans and minorities were more likely to support more dense housing. For many individuals, the greatest concerns are changes to the neighborhood and a drop in property values. <\/span><\/p>\n\n\n\n

That said, worries about declining property values may be overstated. It\u2019s true that an increase in the supply of homes without an uptick in demand tends to prevent rapid price growth, but evidence from Minneapolis shows that development potential increases property values, at least initially. Early research comparing houses within city limits to those unaffected by the zoning changes <\/span>found<\/span><\/a> that the removal of single-family zoning caused single-family home sale prices in the area to rise between 3% and 5%. <\/span><\/p>\n\n\n\n

But even if single-family homeowners would be persuaded by the data, which only reveals a temporary effect, local governments are often averse to state preemption attempts. Though the Florida bill passed with overwhelming support, not all state efforts have been successful. <\/span><\/p>\n\n\n\n

For example, Colorado Gov. Jared Polis introduced a bill that would override the zoning power of local governments, allowing multifamily development in certain areas. But Democratic senators were divided due to complaints from city officials and suburban property owners, and the bill was <\/span>defeated<\/span><\/a>. And in Florida, local governments are already <\/span>showing hesitance<\/span><\/a> to comply with the Live Local Act. <\/span><\/p>\n\n\n\n

Still, there is bipartisan support for the removal of single-family zoning. Housing advocates pushing for looser zoning restrictions are known as <\/span>YIMBYs<\/span><\/a>, an acronym for \u201cYes, in My Backyard.\u201d The movement is beginning to change people\u2019s perceptions about new developments in single-family communities, but support for denser housing is far from being popular opinion. <\/span><\/p>\n\n\n\n

Does Relaxing Zoning Restrictions Impact Housing Affordability?<\/span><\/h2>\n\n\n\n

Evidence thus far does seem to indicate that removing zoning restrictions has a positive effect on housing affordability\u2014but not enough to solve the housing affordability problem entirely. <\/span><\/p>\n\n\n\n

Researchers with the Kellogg School of Management at Northwestern University <\/span>used a mathematical model<\/span><\/a> to compare two hypothetical cities and observe the effects of unrestricted growth. The results showed limited impact on housing affordability, particularly rent prices. <\/span><\/p>\n\n\n\n

\u201cIf Boston adopted the regulatory posture of Indianapolis, where it\u2019s easier to build housing, our model shows that would only lower rents by 12%, which is a lot less than rent has gone up in Boston over the last 30 years,\u201d says Charles G. Nathanson, associate professor of finance at the Kellogg School. The impact on housing prices was more pronounced.<\/span><\/p>\n\n\n\n

In the real world, evidence from cities affected by legislation that rolled back zoning ordinances shows that land use reforms have a similarly small impact on housing affordability. A <\/span>study<\/span><\/a> from the Urban Institute that used machine learning to collect data for 1,136 cities in eight U.S. metropolitan regions found that loosening zoning restrictions is associated with a 0.8% increase in the supply of homes after three to nine years. And higher-priced rental homes accounted for much of the supply increase. <\/span><\/p>\n\n\n\n

There wasn\u2019t a significant increase in homes affordable to families with very low incomes. However, the study did find that cities that enacted stricter regulations to reduce housing density exhibited increasing rents. <\/span><\/p>\n\n\n\n

Japan: A Case Study<\/span><\/h2>\n\n\n\n

Part of the problem is that zoning laws aren\u2019t the only hurdle developers face in the United States due to a long history of regulatory burdens imposed on builders. But what if we had begun to undo the regulations years ago? What does development look like in a country that significantly relaxed zoning regulations in 2002? <\/span><\/p>\n\n\n\n

In <\/span>Japan<\/span><\/a>, there are only a dozen zones, and national law dictates what\u2019s prohibited rather than what\u2019s allowed. Industrial zones are kept separate, and density is limited by different ratios for how much land can be covered in floor space and how high buildings can be relative to the road width. <\/span><\/p>\n\n\n\n

But as long as builders comply with these zoning requirements, planning permission is granted. In Japan, you can build mixed-use developments <\/span>almost anywhere<\/span><\/a>, unlike in the United States. Zoning <\/span>doesn\u2019t distinguish<\/span><\/a> between multifamily and single-family housing, and it doesn\u2019t take long for developers to get a permit. <\/span><\/p>\n\n\n\n

Because this allows for plenty of new developments, Tokyo is relatively affordable compared to urban hubs like New York, San Francisco, and London. Home prices in a desirable segment of central Tokyo have <\/span>only risen 45%<\/span><\/a> over the last 20 years, compared to an increase of 231% in San Francisco, though the two areas saw similar population increases. <\/span><\/p>\n\n\n\n

Japan also has one of the <\/span>lowest homelessness rates<\/span><\/a> in the world. But if it weren\u2019t for the Urban Renaissance Law of 2002, Tokyo might be facing housing affordability problems similar to San Francisco. <\/span><\/p>\n\n\n\n

An upheaval of the regulatory barriers to real estate development would be needed to see similar results in the United States. And though most Americans <\/span>support<\/span><\/a> building more affordable housing in theory, they may not want to follow the same trajectory as Japan. <\/span><\/p>\n\n\n\n

After all, the <\/span>bottom half<\/span><\/a> of Americans by wealth distribution has its wealth concentrated in housing. If a rapid increase in the supply of homes were to put downward pressure on home price growth, homeowners would miss out on some of the wealth their homes were expected to yield over time. Americans pour their savings into the dream of homeownership; in Japan, the decision between owning and renting isn\u2019t as significant. <\/span><\/p>\n\n\n\n

As Jerusalem Demsas notes in <\/span>The Atlantic<\/span><\/em><\/a>, housing cannot be both affordable and a vehicle for building wealth, saying: \u201cHow do we ensure that housing is both appreciating in value for homeowners but cheap enough for all would-be homeowners to buy in? We can\u2019t.\u201d<\/span><\/p>\n\n\n\n

In homeownership, there are winners and losers. Some people reap the rewards of appreciation, while others struggle to afford a starter home. <\/span><\/p>\n\n\n\n

That said, affordable housing projects often increase the value of nearby homes in the community, especially in low-income neighborhoods, according to <\/span>some studies<\/span><\/a>. There may be a place for both appreciating home prices and affordable multifamily rental homes within the same neighborhood so everyone can have a roof over their heads, even if homeownership is not accessible to all. And that is the aim of most zoning reforms in the United States. <\/span><\/p>\n\n\n\n

Does the Florida Law Provide Enough Incentives to Developers?<\/span><\/h2>\n\n\n\n

The Live Local Act forces local governments to allow certain affordable housing developments, but it also does more to make it easier for builders. <\/span><\/p>\n\n\n\n

Before the Act went into effect, multiple reviews of project plans and a public hearing meant that it took at least a year for a building plan to be approved. The Live Local Act <\/span>cuts the review time in half<\/span><\/a>. It also provides tax exemptions for builders, including a property tax exemption for plans that include at least 70 affordable units. <\/span><\/p>\n\n\n\n

Sales tax exemptions are also available for building materials used to construct affordable housing developments. And the Act sets aside hundreds of millions of dollars for loan programs designed to help stalled projects and encourage certain developments. <\/span><\/p>\n\n\n\n

However, some question whether developers will be able to make a profit when they must ensure that 40% of the units will be affordable for 30 years. Construction costs are high, and buildings higher than four stories are required to use more expensive materials. What\u2019s more, labor shortages in the industry present an ongoing challenge. <\/span><\/p>\n\n\n\n

While the Act removes some of the barriers to development, it doesn\u2019t exactly give developers freedom. However, critics note that development may be more feasible in some areas of the state than others. <\/span><\/p>\n\n\n\n

Despite the concerns, developers are already proposing affordable housing projects in Florida. A development attorney tells <\/span>Bisnow<\/span><\/a> that he\u2019s seen unparalleled interest from market-rate and luxury developers alike. For some, this is their first try at an affordable housing project. <\/span><\/p>\n\n\n\n

An Opportunity for Investors<\/span><\/h2>\n\n\n\n

As more states and cities relax zoning restrictions, there will be new opportunities for real estate investors to get into affordable housing, which can be a profitable addition to an investment portfolio. Large investment firms, such as <\/span>Blackstone<\/span><\/a> and <\/span>Avanath Capital Management<\/span><\/a>, have made affordable housing part of their strategy due to the large segment of renters that these developments attract. <\/span><\/p>\n\n\n\n

Investors can also take advantage of low-interest financing and tax incentives that make these projects feasible. In addition to improving neighborhoods, investments in affordable housing can be profitable. <\/span><\/p>\n\n\n\n

Unlike luxury housing developments, which often have <\/span>higher vacancy rates<\/span><\/a>, affordable housing is a stable investment, providing a consistent stream of potential tenants. Demand for high-end apartments wanes during an uncertain economy, while affordable housing will always be in demand. <\/span><\/p>\n\n\n\n

If you\u2019re interested in meeting society\u2019s needs while earning profits from a sought-after asset, <\/span>affordable housing<\/span><\/a> is definitely worth considering, especially in areas where there aren\u2019t significant regulatory hurdles. Of course, just as with any deal, it\u2019s important to estimate the marketability of an affordable housing project and <\/span>crunch the numbers<\/span><\/a> to ensure the project will be profitable. <\/span><\/p>\n\n\n\n

The Bottom Line<\/span><\/h2>\n\n\n\n

Zoning ordinances present significant obstacles to building new affordable housing since the majority of land in cities is zoned for single-family residential use. Many states and some local governments hope to relax restrictions with an array of plans that come with their own challenges. <\/span><\/p>\n\n\n\n

Some states are getting pushback from local governments and homeowners that prevent them from lifting single-family zoning restrictions. And even for those that are successful, other barriers may prevent the rapid development needed to meet housing demand. <\/span><\/p>\n\n\n\n

But reversing zoning restrictions is one tool governments have to encourage <\/span>affordable housing<\/span><\/a> development, and Florida\u2019s Live Local Act is already showing signs of success. Housing developers and real estate investors would be wise to keep an eye on these developments as they unfold.<\/span><\/p>\n\n\n\n \n

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