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How Upzoning is Changing the Real Estate Landscape of U.S. Cities

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How Upzoning is Changing the Real Estate Landscape of U.S. Cities

Cities around the U.S. are breaking down the invisible walls that once divided them, often segregating neighborhoods by the types and sizes of homes that could be built there. How?  Through a practice called upzoning, where property areas are rezoned to have greater usage ability.

Upzoning presents opportunities for real estate developers and investors because upzoned areas, in theory, have less restrictions on what can be built. Many cities and states are considering upzoning legislation or have already voted to pass such legislation.

The natural question is, “how will upzoning bills impact the overall property values of real estate in these upzoned areas?” Though most upzoning legislation is new, research conducted at The University of Washington found that values of single-family homes with higher neighborhood density had higher values than single-family homes with lower neighborhood density. While the study looks at only one county in Washington, it indicates that upzoning laws could increase property values, as well as property taxes in some states.

Here are some examples of cities who have voted on unzoning legislation, or are considering it, and its expected impact:

  • Minneapolis: In December 2018, Minneapolis voted in favor of upzoning legislation in a proposal called the 2040 Comprehensive Plan. The plan would eliminate single-family zoning by 2040. The proposal will allow duplexes and triplexes to be constructed on lots that are currently reserved for one house. Since 60 percent of the city is currently zoned for single-family housing, the potential impact on Minneapolis’ real estate market is huge.

The 2040 Comprehensive Plan will likely affect property values and property taxes for Minnesota. One of the goals for passing the legislation is to increase affordable housing in the city. If Minneapolis’ proposal achieves its goals of affordable housing, many more cities, and even states, could follow suit.

  • New York City: New York City had 120 rezonings under Mayor Bill De Blasio’s administration, including both upzoning and downsizing (limiting the use of properties instead of expanding them), so the net effect is hard to determine.
  • Seattle: Seattle, a city that had about 65 percent of its land designated as single-family housing, has unanimously voted for upzoning legislation called Mandatory Housing Affordability (MHA). The MHA program will affect 27 neighborhoods and create thousands of housing units. An Oregon State legislation called Bill 2001 would end single-family zoning in cities with a population of 10,000 or more. While not completely approved yet, Bill 2001 has currently passed Oregon’s House Committee.
  • Washington: The State of Washington’s property taxes are partially based on appraised value every six years. So, while the property taxes will be affected by changes in property values created by the upzoning legislation, there will be a delay from when the legislation is enacted and when the property taxes are adjusted.
  • Oregon: Oregon property taxes will likely be unaffected since the assessed values of properties in Oregon do not correlate to their real market values.
  • California: California tried to pass upzoning legislation called Senate Bill 827 in 2018, but the bill was not enacted.

In summary, upzoning will create opportunities for real estate developers and higher property values may encourage real estate professionals to invest in projects located in areas that they have not historically considered. As more cities and states approve upzoning legislation, we will be able to better understand its impacts on the real estate markets in these cities, and the economy overall.

Want to learn more? Contact Steven Gluck at steven.gluck@aprio.com or 404-814-4905.