The US Apartment Shortage Is Zoning Working as Intended

The United States faces a growing housing shortage, which is driven heavily by the scarcity of available apartments. According to a joint study from the National Association of Home Builders (NAHB) and the National Multifamily Housing Council (NMHC), the US needs to add 4.3 million apartment units to the housing supply by 2035 to catch up to demand.

November 22 marks the 98th anniversary of Village of Euclid v. Ambler Realty Company, the US Supreme Court decision that upheld the authority of municipal governments to enforce zoning regulations. Although zoning is a widely acknowledged contributor to the housing crisis, most reform advocates believe that the scarcity of apartments is an unintended consequence of well-meaning policy.

The reality is that today’s apartment shortage reflects the desired outcome of the Euclid decision.

The dispute involved 68 acres of land zoned for residential use in Euclid, Ohio, a Cleveland suburb. The landowner, Ambler Realty, believed the residential designation would diminish the property value because the land was adjacent to the Cleveland Tractor Company’s gargantuan factory. The only marketable use for the land was industrial, which the village of Euclid wanted to prevent.

When Euclid arrived at the Supreme Court in 1926, Justice George Sutherland authored the majority opinion. To clarify the scope of the case, Sutherland explained that “whatever injury is inflicted by the mere existence and threatened enforcement of the ordinance is due to restrictions in respect of [industrial] and similar uses; to which should be added—if not included in the foregoing—restrictions in respect of apartment houses” (emphasis added).

It is odd that Sutherland would make an unnecessary aside regarding the city’s right to prohibit apartment buildings in a conflict over industrial development. The right to construct apartments was not under dispute—all but 620 square feet of the 68-acre lot was zoned for apartments.

But throughout the 1920s, apartment buildings were a growing national concern. In 1921, Secretary of Commerce Herbert Hoover declared, “Nothing is worse than an increased tenantry and landlordism.” The future president warned that “if the rate of increase in tenantry continues for two or three decades, 75 per cent of the people of this country will be tenants,” and he called on municipalities to prevent this by enacting “wise zoning laws.”

The justices in Euclid, like much of America’s elite, worried that apartment buildings would arrive in their backyards. Sutherland’s opinion, in fact, took multiple detours to ratify the city’s authority to restrict apartments. “The development of detached house sections is greatly retarded by the coming of apartment houses,” he fumed. “The apartment house is a mere parasite,” interfering “with the free circulation of air and monopolizing the rays of the sun which otherwise would fall upon the smaller homes.” Apartments would bring with them noise and traffic, “until, finally, the residential character of the neighborhood and its desirability as a place of detached residences are utterly destroyed.”

Sutherland’s diatribes against apartment buildings were designed to affirm other rulings made by lower courts, such as the Ohio court’s decision to uphold Cleveland’s 1919 zoning ordinance that was enacted specifically to block a proposed apartment development. The state justices determined that the property rights of the developer were subordinate to the city’s right to protect “beautiful residences” from “the incessant, discordant noises, smoke and other evils of apartment houses.” State courts across the country had made many such rulings in the early days of zoning.

Zoning regulations increase the cost of all types of housing, but not equally. The NAHB estimates that zoning alone accounts for nearly 10 percent of development costs for single-family dwellings, but about 27 percent for multifamily projects (when including building and labor codes, regulatory compliance accounts for 24 and 41 percent of total costs, respectively). This is no accident—zoning was explicitly implemented and upheld to prevent multifamily housing.

The apartment shortage, in other words, represents zoning policies operating exactly as intended. If we truly want to address the housing shortage, it is past time to abolish zoning in its entirety.