"Strict zoning laws provide stability in a volatile market space"

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"Strict zoning laws provide stability in a volatile market space"

Austin WolffPro Member

Rental Property Investor · Los Angeles, CA · Member since 2024 · 101 posts · 134 votes

After I posted the image above on LinkedIn and mentioned how zoning strictness doesn't affect price growth as much as people think, a "Planner" (pro-zoning) commented:

"Enforcing strict zoning laws provides a level of predictability and stability in an otherwise speculative and volatile market space."

To which I provided the following data:

Compare Los Angeles with Houston, which has (practically) no zoning laws. If his statement is true, we should expect Los Angeles's home price volatility over a period of time to be less than Houston's.

So I took 25-year monthly data from Zillow for the Los Angeles MSA and Houston MSA, calculated the monthly change in price for every month (300 months), then calculated the standard deviation of price changes for both metros.

Los Angeles had a volatility of 4.07%
Houston had a volatility of 3.91%

There is practically no difference in volatility between Los Angeles, a market with tight zoning restrictions, and Houston, a market with (practically) no zoning restrictions. I'd say their comment (null hypothesis) is false.

Am I wrong here?

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Bruce WoodruffPro Member

Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes

1y

Quote from @Austin Wolff:

Quote from @Bruce Woodruff:

I don't think you're necessarily 'wrong'.....but I don't think you can/should compare 2 cities that are so different in so many ways. Just the weather factor in LA will sway those stats hugely.....

However, I don't agree completely with the planner either. I beleive in some zoning....but, when applied strictly, it also creates a boring bland community or city. I've seen cities fight the 'mixed use' concept (Residential living above, commercial below), when in the right place it can make a city come alive....

IME, city planners are blah and boring with no imagination and a dislike of risk....

Oh man. Mixed use is such a wonderful concept. Should be implemented more across urban cities.

Implemented as in 'allowed', not as in 'forced'....

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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
1y
I don't think you're necessarily 'wrong'.....but I don't think you can/should compare 2 cities that are so different in so many ways. Just the weather factor in LA will sway those stats hugely.....
However, I don't agree completely with the planner either. I beleive in some zoning....but, when applied strictly, it also creates a boring bland community or city. I've seen cities fight the 'mixed use' concept (Residential living above, commercial below), when in the right place it can make a city come alive....
IME, city planners are blah and boring with no imagination and a dislike of risk....
1 Reply
- Austin WolffPro Member
  OP
  Rental Property Investor · Los Angeles, CA · Member since 2024 · 101 posts · 134 votes
  1y
  Quote from @Bruce Woodruff:
  
  I don't think you're necessarily 'wrong'.....but I don't think you can/should compare 2 cities that are so different in so many ways. Just the weather factor in LA will sway those stats hugely.....
  However, I don't agree completely with the planner either. I beleive in some zoning....but, when applied strictly, it also creates a boring bland community or city. I've seen cities fight the 'mixed use' concept (Residential living above, commercial below), when in the right place it can make a city come alive....
  IME, city planners are blah and boring with no imagination and a dislike of risk....
  Oh man. Mixed use is such a wonderful concept. Should be implemented more across urban cities.
  0 Reply
- Bruce WoodruffPro Member
  Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
  1y
  Quote from @Austin Wolff:
  
  Quote from @Bruce Woodruff:
  
  I don't think you're necessarily 'wrong'.....but I don't think you can/should compare 2 cities that are so different in so many ways. Just the weather factor in LA will sway those stats hugely.....
  However, I don't agree completely with the planner either. I beleive in some zoning....but, when applied strictly, it also creates a boring bland community or city. I've seen cities fight the 'mixed use' concept (Residential living above, commercial below), when in the right place it can make a city come alive....
  IME, city planners are blah and boring with no imagination and a dislike of risk....
  Oh man. Mixed use is such a wonderful concept. Should be implemented more across urban cities.
  
  Implemented as in 'allowed', not as in 'forced'....
  1 Reply
Alan AsriantsBusiness Member
Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
1y
This is a really interesting map, can you please share link for the original?
Im in the PHILA metro and our zoning laws especially in surrounding suburbs are incredibly strict making building expensive, land expensive, and small multi family construction basically impossible.
Our multi family market is so HOT and appreciation is pretty much guaranteed month over month at this point. the last time any major multi family project was in mid 80s. thats over 40 years of ZERO major multi family construction. (2-4 units).
So when a duplex hits the market - whatever condition it is in - its selling.
2 years ago one in poor condition sold for high 300s - low 400s. Today that duplex is being sold as a package of 4 for 560k each in the same kind of condition. And now it is under contract.
Strict zoning laws certainly do play a role...
Also, you can't compare too much what the data says over the course of 20 years, because there has been natural growth in a lot of the cities due to other economic factors. I'd be curious to see this data over a shorter term period - like 3 years. Im pretty sure these less strict areas that allowed a lot of construction are now under appreciating from the conversations I've had with others about other markets.
But the NE market is booming still... Nothing to build, growing population with nothing to buy
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Alan Asriants - New Century Real Estate 590 Reviews
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- Austin WolffPro Member
  OP
  Rental Property Investor · Los Angeles, CA · Member since 2024 · 101 posts · 134 votes
  1y
  Quote from @Alan Asriants:
  
  This is a really interesting map, can you please share link for the original?
  Im in the PHILA metro and our zoning laws especially in surrounding suburbs are incredibly strict making building expensive, land expensive, and small multi family construction basically impossible.
  Our multi family market is so HOT and appreciation is pretty much guaranteed month over month at this point. the last time any major multi family project was in mid 80s. thats over 40 years of ZERO major multi family construction. (2-4 units).
  So when a duplex hits the market - whatever condition it is in - its selling.
  2 years ago one in poor condition sold for high 300s - low 400s. Today that duplex is being sold as a package of 4 for 560k each in the same kind of condition. And now it is under contract.
  Strict zoning laws certainly do play a role...
  Also, you can't compare too much what the data says over the course of 20 years, because there has been natural growth in a lot of the cities due to other economic factors. I'd be curious to see this data over a shorter term period - like 3 years. Im pretty sure these less strict areas that allowed a lot of construction are now under appreciating from the conversations I've had with others about other markets.
  But the NE market is booming still... Nothing to build, growing population with nothing to buy
  
  Great points! Here's an article I wrote that goes into this topic a little deeper: https://www.biggerpockets.com/blog/do-democratic-states-or-r...
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