America may be about to undergo one of the most vast rezoning efforts since people ran out to stake their claims and settle land almost 200 years ago. What will it mean for investors?
What’s Happening & Why?
There currently appears to be a substantial push to rezone America. Most notably to remove previous restrictions which limited many pieces of land to being exclusively zoned for single family homes. It could really change the landscape in a big way.
Some are proclaiming that the new American Jobs Act is being used to incentivize cities to do away with old zoning that reserved lots for single family homes only. This is done with the intent to allow much more multifamily development in all types of locations, and most notably in the suburbs.
Individual states are also taking their own lead on this. Oregon and California are two which have already done away with single family zoning in most of the state, or are working on legislative bills to expand zoning from single family homes to 6 to 8 units.
According to the University of Idaho, this could see one acre plots go from being used for one single family home to:
- 6 to 8 units with duplexes and cluster housing
- 20 units of 2 or 3 story townhouses
- 50 to 100 units in multi-story apartment buildings
There may be a variety of reasons for this being floated. Though perhaps the most obvious is that tax authorities, cities and counties can bring in a whole lot more revenue for the land they govern. And all that while saving costs on public services they provide in exchange. Builders can also produce a lot more profit if they can put up 6 to 100 units on a property that used to only be zoned for 1.
The Impact of Rezoning
When you change the allowable zoning on a property like this, you also change the highest and best use of a property. The highest and best use (at least the most valuable) would be as apartments. It changes values and value add options for a property. If private property owners don’t step up to the highest and best use, then local government can seize properties by eminent domain, and give them to developers to make the most of them.
In turn, more redevelopment pushes up land prices and comps. At the same time, it may also provide some relief from inventory shortages. This can provide more fuel for growth and alleviate affordable housing issues.
For mortgage note investors this could trigger more early payoffs as owners cash out on new values. Others will be just more motivated to perform better in paying their loans to protect their equity gains.
SFR and small MF owners will see values go up, as well as benefiting from new options to exit or redevelop and add value.
Some will take this transitionary period to piece together larger parcels for even bigger developments before zoning changes.
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