It’s Time to Bring Back Hierarchical Zoning

In recent years, a growing number of states have begun to allow residential construction in commercial zones in an effort to lower rising housing costs. Since 2023, six states—California, Florida, Montana, New Hampshire, Oregon, and Texas—have passed laws requiring local governments to permit multifamily and mixed-use developments in commercial zones (and in some cases, industrial zones). Other states have adopted more modest reforms to allow commercial-to-residential conversions. 

The trend encouraging residential construction in nonresidential zones resembles an early model of zoning known as “hierarchical zoning.” With the country facing rising housing costs and an unprecedented shortage of multifamily homes, it may be time to bring hierarchical zoning back to America’s cities. 

Hierarchical zoning is often likened to a pyramid. At the top are single-family residential zones, followed by multifamily zones, commercial zones, and finally, industrial zones. Structures could be built in any lower zone in the pyramid; residential properties could be built in commercial and industrial zones, and retailers could open shop in industrial areas. Hierarchical zoning facilitated walkable cities—a necessity in the early days of the automobile. Factories, working-class apartments, and shops could all be within walking distance. 

More common today is “flat zoning.” As captured by the popular computer game SimCity, flat zoning strictly segregates residential, commercial, and industrial properties. Berkeley, California, first introduced flat zoning in its 1916 planning code—motivated largely by the desire to price out Chinese immigrants, who frequently lived in small flats above the laundries they operated—but this was not the norm in the early 20th century. 

The broader shift toward flat zoning took place around mid-century as part of the urban-renewal movement that sought to destroy low-income apartments. Ostensibly intended to build newer, affordable homes, the true goal of urban renewal was to make room for more tax-lucrative businesses, which flat zoning facilitated through stricter land-use controls. 

The purpose of flat zoning was to severely limit the amount of land available for residential construction. Apartments were especially constrained due to America’s unique tendency to reserve significant portions of residential land exclusively for single-family homes. In California, for example, single-family zoning takes up a staggering 96 percent of all residential land, leaving little room for multifamily construction. The resulting higher rents hit low-income tenants particularly hard. 

Housing is not immune to the laws of supply and demand, which indicate that the most effective way to bring down prices is to increase the supply. Expanding the area available for residential construction—particularly apartment complexes—would certainly promote this. Although we do not yet have enough data to see the full impact of the recent state reforms, Florida’s Live Local Act helped add more than 3,000 affordable housing units in two years, despite facing considerable roadblocks from local governments. 

Hierarchical zoning would likely also produce more affordable housing options. Economists Paul Asabere and Forest Huffman, who studied the price effects of hierarchical zoning, found that “huge price discounts (over 15%) are associated with apartments that are situated in nonconforming zones.” 

Local reforms promoting transit-oriented and mixed-use developments are growing in popularity. The return to hierarchical zoning would follow the same logic, but offer a far more expansive and flexible model for increasing the housing supply, combating urban sprawl, and reducing dependency on transport.