In Connecticut, Zoning Reform Is Back From the Dead

Happy Tuesday, and welcome to another edition of Rent Free. With the holiday last week, today’s newsletter is slightly abbreviated.

It does at least include some happy holiday news for zoning reformers: Connecticut’s passage of a controversial, once-vetoed housing supply bill.

We also cover a new lawsuit filed by 20 states against the Trump administration’s restrictions on homelessness funding.

This newsletter also offers some reflections on the West’s “Great Downzoning.”

Lastly, Reason‘s annual webathon starts today. As a scrappy, freedom-loving nonprofit, we depend on the generosity of readers to keep the lights on. If you find this newsletter interesting, useful, informative, or even just enraging, I’d encourage you to donate to support our work.

Anyway, on with the show!

Back in June, Connecticut Democratic Gov. Ned Lamont vetoed House Bill (H.B.) 5002, a sprawling 160-page piece of legislation that included a number of supply-side reforms aimed at getting the state’s municipalities building again.

While not everything in that original bill was deregulatory, much of it was. The governor justified his veto by pointing to the opposition of local governments, which objected to state interference in their land-use powers.

While H.B. 5002 was controversial, so too was the governor’s veto. So much so that he called a special session of the Legislature to reconsider the bill.

The result is H.B. 8002, which the governor signed this past Wednesday. Like its predecessor, H.B. 8002 is a lengthy piece of legislation that includes a grab bag of subsidies, incentives, cuts to some red tape, and a tightening of other regulations.

The Good

The bill includes a number of state preemptions that are now part of a well-worn YIMBY (“yes in my backyard”) playbook. It forbids local governments from requiring parking spaces in developments of fewer than 16 homes. Larger developments must submit a “parking needs assessment” as part of the approval process.

Jurisdictions that have limited or eliminated minimum parking requirements (which can add significant costs to a development) have seen a lot of new multifamily construction as a result.

H.B. 8002 also requires municipalities to approve “middle housing” developments of between two and nine units in commercial and mixed-use zones, effectively a scaled-back version of residential-in-commercial bills passed by states such as Texas and Montana.

Where the law doesn’t directly preempt local regulations, it offers carrots to get municipalities to liberalize their zoning codes in exchange for additional state funds.

Towns that allow more housing construction near bus and rail stops would be eligible for housing growth grants, more school construction funding, and loans for sewer infrastructure projects.

The Questionable

H.B. 8002 also creates a new system of local and regional planning for housing growth.

Already, Connecticut municipalities were required to create 10-year conservation and development plans. Housing advocates criticized this system for giving “little incentive or guidance on how to successfully diversify housing choice in their communities.”

The new law establishes a much more robust planning process. Municipalities will be required to produce their own plans for increasing the amount of deed-restricted affordable housing within their borders, or otherwise participate in a regional plan that likewise lays out where new affordable housing will go.

A new state Council on Housing Development will “evaluate and enforce” these local and regional plans. Localities that meet their housing targets will be eligible for new state infrastructure grants.

A number of states impose similar planning requirements on municipalities, with mixed results. New Jersey’s longstanding fair share housing system has arguably proven the most successful at getting localities to zone for new housing.

California’s similar decades-old system has largely been a bust for its first few decades of existence. Opinion is mixed on whether more recent YIMBY reforms and stepped-up state enforcement have actually pushed localities to sincerely welcome more development.

Connecticut’s focus on encouraging towns to create plans for deed-restricted housing is also conceptually flawed. Housing becomes affordable when a lot of it is built, not necessarily when some additional income-restricted units are planned for.

Time will tell whether the system created by H.B. 8002 actually moves the needle on housing supply.

The Ugly

As mentioned, H.B. 8002 is a big bill. It includes a lot of provisions that enhance regulations on the provision of housing in ways that free marketers won’t like.

Already, Connecticut requires localities of 25,000 people or more to create “fair rent commissions” that hold hearings on individual rent increases and order landlords to lower rents, or phase in or delay proposed rent increases.

The state’s new law will require cities of 15,000 people or more to create such commissions. While this is a relatively flexible form of rent control, it is a system of rent control nonetheless. One can expect it to reduce investment in rental housing on some margin.

Markets, not local councils, should be responsible for setting rents.

H.B. 8002 also bans companies from using property management software to set rents and vacancy rates. Rent-recommendation software provided by companies such as RealPage has become a target of legislation recently. Critics argue that this software encourages landlords to set rents above market rates and hold units off the market.

The economic case for this view is pretty weak. The limited research on rent-recommendation software finds that it produces more efficient pricing: It recommends landlords to raise prices in hot markets and lower them in down markets.

RealPage didn’t stop market rents from plunging in Austin, Texas, in response to a glut of new supply. San Francisco’s ban on this software didn’t lower rental prices in the housing-starved city.

H.B. 8002 also includes new tax credit and subsidy programs for first-time homebuyers.

Twenty states are suing the Trump administration over its decision to shift homeless funding from permanent supportive housing programs to transitional housing assistance, reports Politico.

The lawsuit, filed by mostly Democratic-led states, argues that the Trump administration is attaching novel conditions to homeless housing grants in violation of the Administrative Procedure Act and Congress’ spending powers.

For months now, the Trump administration has been attempting to shift federal homelessness policy from a “housing first” approach—that prioritizes placing the currently homeless in supportive housing—to one more focused on the provision of temporary shelter and public order.

It has also attempted to stop funding from going to jurisdictions that allow safe-injection sites.

The administration has argued that focusing on public order and treatment for the homeless better addresses the root causes of homelessness. Its new grant conditions would shift $3.9 billion away from permanent housing programs.

Critics, including 20 states suing the administration, argue the change in policy will instead lead to a lot more homelessness generally.

“Communities across the country depend on Continuum of Care funds to provide housing and other resources to our most vulnerable neighbors,” said New York Attorney General Letitia James, one of the litigants, in a press release, per Politico. “These funds help keep tens of thousands of people from sleeping on the streets every night.”

Works in Progress‘ Samuel Hughes has a really interesting essay on the West’s “Great Downzoning”—his term for the proliferation of early zoning laws that set density and use restrictions in early 20th century European and American cities.

There’s a lot of rich information in Hughes’ essay, and I encourage people to read the whole thing.

A few of his observations seem particularly relevant today.

The first is that private covenants that attempted to restrict density through various contractual measures were not particularly successful over time. Requiring private parties to bear the costs of enforcement of density restrictions meant that these restrictions often went unenforced, particularly when demands for denser housing were increasing.

Government-enforced zoning codes were adopted as a more robust alternative to weak private restrictions on dense housing.

Secondly, Hughes notes that large landowners of undeveloped land were the most opposed to early zoning codes because they tanked the development potential of their property. While some property owners saw economic benefit in restricting use and density, these restrictions could often come with serious economic costs as well.

Today, it’s likely that most property owners would see a major economic upside to removing restrictions on their ability to develop their own land.

Had the Western world not gone all in on downzoning, one can imagine a world where private covenants temporarily locked in lower-density, purely residential neighborhoods where demand for them was high. As demands for density grew, private covenants would give way to new housing construction.

Instead, we did adopt zoning codes, and the result is the West’s continent-spanning housing shortage.

• President Donald Trump talks up the fact that he doesn’t have to go through any zoning processes to add a big new ballroom to the White House.
• Politico covers landlords’ efforts to organize against incoming New York City Mayor Zohran Mamdani’s proposed rent freeze.
• Texas is the latest state to flirt with substantial cuts to property taxes. It’s a nice idea in theory that would, in practice, likely require massive sales tax increases.
• The Los Angeles Times covers the California Legislature’s efforts to block a single Santa Barbara apartment project. You can read Rent Free‘s coverage of the case here.
• The Wall Street Journal has an interesting visual essay on the innovations making technically difficult office-to-residential conversions a reality in New York City.