The blog of the Urban Institute
October 27, 2021

Reconciliation Bill Funding Could Help Localities Fight Exclusionary Zoning

October 27, 2021

Communities use zoning policies to determine how land is used. These policies influence where people can live, the types of buildings they can live in, and their access to high-quality schools and other local amenities.

Today, exclusionary zoning policies that limit residential uses and density are associated with decreased housing production, increased housing costs, and higher levels of racial segregation. Wealthier and whiter municipalities often use rules that prohibit multifamily buildings, require large lots, or mandate complicated approval processes to limit the construction of affordable housing, because people who live in such units pay fewer taxes per person but still need access to public services. As a result, many cities use zoning to "hoard" access to high-quality local services.

Local and state governments usually determine zoning laws. Recently, however, there has been increasing interest in the federal government supporting local efforts to break exclusionary barriers that constrain supply and prevent families with low and moderate incomes from finding homes in the neighborhood of their choice.

Congress is currently negotiating a budget reconciliation bill that could include billions of dollars for a new program that could help accelerate these efforts: the Unlocking Possibilities Program. The effort is designed to support municipalities and states looking for ways to expand housing production. If it’s managed effectively, it could facilitate the implementation of land-use regulations that encourage more affordable housing in communities with access to good jobs and well-funded services.

How the Unlocking Possibilities program could work

In recent years, state and local governments have adopted several innovative zoning reforms aimed at unlocking housing supply and reducing segregation. For example, Oregon and California and diverse cities such as Charlotte and Minneapolis have eliminated local zoning restrictions that narrowly limit new construction in many neighborhoods to single-family homes. Louisville, Kentucky, is making comprehensive changes to its zoning code aimed at improving social and racial equity. Tigard, Oregon, now allows accessory dwelling units on residential lots. And Cambridge, Massachusetts, provides special incentives for the construction of affordable housing citywide.

Members of Congress of both parties support legislation to encourage such changes.

In addition to providing much-needed support for existing affordable housing programs like public housing, the housing element of the reconciliation bill being considered by the House Financial Services Committee, and now being debated by the full House, would allocate $4.5 billion to the US Department of Housing and Urban Development (HUD) to support local land-use planning and implementation of local zoning reforms through the Unlocking Possibilities Program (PDF, pages 64–71).

The HUD secretary would direct Unlocking Possibilities funds on a competitive basis, and part of the funding would go to communities that streamline "regulatory requirements and shorten processes, reform zoning codes,” or take on “other initiatives that reduce barriers to housing supply elasticity and affordability." Communities would be expected “to develop and evaluate housing policy plans and substantially improve housing strategies,” following selection criteria established by the secretary.

In other words, HUD could use these funds to incentivize municipalities to alter their zoning processes to encourage more housing development. The program could remove the burden of the sometimes-expensive and lengthy process of revising zoning codes. This builds on the efforts we outlined above that states and localities are already undertaking.

The legislation notes that HUD should prioritize reforms that advance sustainability, fair housing, and location efficiency—meaning good access to jobs and other opportunities. HUD would be instructed to coordinate grants with the Federal Transit Administration, helping further the long-time goal of linked land use and transportation planning.

How the program could fulfill its potential

The approach proposed by the Unlocking Possibilities Program builds on other recent federal competitive grants, like TIGER (PDF) and the National Disaster Resilience Competition, that used discretionary funds to encourage local governments to make more effective planning policy.

Some have noted that the Unlocking Possibilities proposal is inadequate because it relies on communities acting voluntarily. As such, it would not address the most exclusionary communities that would be unlikely to apply for the competitive funds; their local tax revenues are strong already. By giving the HUD secretary wide discretion in awarding grants, the bill may not always directly target localities with the most ambitious reform plans, depending on who is in federal leadership. And it would not directly result in the production of much affordable housing, because most new housing constructed after zoning reform, especially in the short term, would likely be market rate.

But, under the guidance of effective HUD leadership and in combination with other housing programs also potentially funded by the reconciliation bill, Unlocking Possibilities could support community leaders who have not had the resources to boost their communities’ affordable housing supply.

For the Unlocking Possibilities Program to succeed, effective program management would be critical. HUD could consider the following evidence-based strategies to advance the program’s mission:

  • The HUD secretary could ensure grants are as targeted as possible to municipalities that have taken, or are committed to taking, concrete steps that encourage affordable housing development. HUD can consult the latest research to communicate and promote best practices in this area.
  • HUD could develop detailed metrics tracking housing production and housing affordability across localities nationwide to ensure Unlocking Possibilities is improving these trends and housing access.
  • HUD could link Unlocking Possibilities with its other grant programs—such as expansions to the public housing and land trust programs also potentially funded by reconciliation—and work with the Federal Transit Administration to pair zoning reforms with affordable housing and public transportation investments. It could also increase fair housing enforcement to ensure every community is as accessible to everyone as possible—no matter race or ethnicity.

If managed strategically, the Unlocking Possibilities Program could help the federal government lead the nation toward access to more equitable communities.

(RoschetzkyIstockPhoto/Getty Images)

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