Housing USA: The Future of Zoning After a Pandemic

5 min read

Since the 1930s, nearly all cities and towns have implemented some form of zoning to separate uses. Retail is put apart from housing, which is put apart from offices, and so on. This has contributed to America’s sprawl and the decline of traditional downtowns, causing urban planners to reverse course in recent decades and call for mixed-use zoning instead. But this zoning too has created problems, namely for developers who, amid the Coronavirus pandemic, want flexibility for their properties in a fluctuating office and retail market. Namely, mixed-use zoning hinders these spaces from being converted into housing, which may be their optimum use given the housing shortage in many cities.

Consider, for instance, Baltimore’s 2017 zoning code. It was amended to allow for more flexibility, but still requires that some buildings be used exclusively for residences, while others must have commerce at ground level. The code says nothing about allowing re-adaption of those floors for housing if the property owner can’t find businesses to lease the space. Madison, WI’s regulations encourage mixed-use districts, but require that there be “appropriate transitions between higher-intensity uses and adjacent lower-density residential districts.” This is a vague statement implying that planners get to determine how much housing is “appropriate” for a commercial area.

Many private and nonprofit entities, such as the Urban Land Institute, the Congress for New Urbanism and the Fitwel certification spearheaded by Bloomberg Philanthropies, also stress mixed uses. And as I’ve written previously in these pages, the Qualified Allocation Plans that state agencies use to distribute Low Income Housing Tax Credits tend to view mixed-use projects favorably.

This begs the question, though, of whether this zeal to place retail and offices near housing is causing it to be overbuilt. The answer these last couple decades has (despite the rise in e-commerce) been “no.” Real estate analyst Sharon Woods has rebutted claims about a “retail apocalypse,” noting that retail uses are merely changing towards more “experiential” models.

“The Bureau of Labor Statistics (BLS) reported 1,044,509 establishments for 2018, for a net gain of 2,413 establishments over 2017 (1,042,096),” writes Woods in the journal Public Square. “The 2018 figure also represents a net gain of more than 20,800 establishments since a retail trough in 2011, a low point resulting from the Great Recession.”

The concern about a retail glut may be more legitimate now, though. According to Statista, the retail vacancy rate between Q1 and Q2 2020 skyrocketed from nine percent to 20 percent. Big cities—where mixed-use zoning is most common—are feeling the brunt. Clothing mainstay, Gap just announced a near-total pullout of the San Francisco market, including its flagship store downtown. A number of national chains also have permanently closed in New York City, and this is expected of a whopping one-third of the city’s restaurants.

The outlook may be even more dire for office space. In August, Moody’s Analytics forecast a national vacancy rate of 19.9 percent in 2021, and even higher in New York City. The report covered eight property types in 3,000 submarkets.

“Many companies continue to push back returning to the office, with some already planning to telecommute until 2021,” says Victor Calanog, head of CRE Economics at Moody’s Analytics. “Whether the increased availability of remote working infrastructure will have long-term effects on office demand remains to be seen.”

The rise in co-working space usage, which was occurring before Coronavirus, also could undermine traditional office space. The ability for sole proprietors and employees to purchase individual desks or cubicles in a larger facility has made remote work more attractive.

This doesn’t mean the answer for city planners and real estate developers is to give up on the mixed-use concept. But it may be time to rethink mixed-use zoning. After all, if the market favors housing rather than office and retail, the usage of land should reflect that – unless cities want a bunch of vacant, low-yielding buildings sitting around.

An incremental path to that would be an “adaptive reuse” approach – let developers add housing units into existing buildings, particularly in the tight spaces now dedicated to retail, office, garages, etc. Such renovations are not cost-free, but are still a good way to add affordable housing in cities that are short on this.

There are examples of these adaptations happening nationwide. In Erie, PA, a former department store was converted into a mix of affordable and market-rate apartments, with a large restaurant anchoring the bottom floor. Called the Boston Store Place, the rehabilitation was partially financed by $825,000 in LIHTC issued by the Pennsylvania Housing Finance Agency.

These conversions also are happening to shopping malls, which also were struggling before Coronavirus. A recent article in Bloomberg CityLab points to growing interest in renovating vacant sections of these malls into housing, citing the Alderwood Mall project in the Seattle suburbs. A portion of the mall will become 300 apartment units with underground parking, while 90,000 square feet will remain as retail.

But ideally, cities can just do away with use-based zoning altogether, perhaps regulating only noxious uses, such as heavy industry. This is already being realized in the drive to enact Form-Based Codes, which police the design and density of buildings, but not their use. Such flexibility not only can spur more home production, but in the long-term may help retail. That is, it will let developers adjust to how much retail space is actually needed, and build more housing, which places more people around the existing stores.

Mixed-use zoning, by contrast, may be better than Euclidean separated-use zoning. But it still ascribes to the central planning mindset, dictating the appropriate “balance of uses” whether or not those balances mirror current market trends. This is not a good approach to planning at a time when Coronavirus has put so many uses into flux.