The Great Zoning Crackdown on Data Centers

Happy Tuesday, and welcome to another edition of Rent Free. This week’s newsletter includes stories on:

• The growing zoning crackdown on data centers
• The federal rollback of fair housing rules
• New York Democratic Gov. Kathy Hochul’s environmental review reforms

The Kansas City Council voted this past Thursday to pile new zoning restrictions on data center projects. As the local public radio station KCUR reports, prior to the change, data centers could be built “by right”—meaning they needed no special permits or discretionary approvals from elected officials—in most areas of the city.

The new regulations greatly restrict the zoning districts in which data centers can be built. They also revoke the by-right status of larger data centers, meaning new facilities will have to obtain special permits and be individually approved by the City Council.

The country is currently undergoing a data center boom. Companies are expected to pour trillions of dollars into building new facilities in the coming years.

Their rapid growth has produced a predictable backlash from neighborhood activists to Sen. Bernie Sanders (I–Vt.), who’s called for a federal moratorium on new data center construction.

Back in March 2025, the Board of Supervisors of Loudoun County, Virginia, home to the largest concentration of data centers in the world, likewise voted to eliminate data centers’ by-right status in the zoning code. The board will now have a veto over new data center proposals.

Heatmap notes in a recent investigation that the number of data center proposals rejected by local officials or scrubbed in response to local opposition quadrupled in 2025.

As I argue in a feature for an upcoming print issue of Reason, the environmental and neighborhood impacts of data centers are vastly overstated.

They’re not the prettiest buildings to look at, sure. But on everything from noise and emissions to traffic and water use, they’re pretty low-impact facilities. Jurisdictions largely had it right when they regulated data centers like office buildings or TV studios.

Data centers are unique in how much power they use. But the most immediate solution to that would be to allow utilities and data center developers themselves to add power generation capacity.

Modern American zoning codes have made it much too hard to build everything from new homes to new businesses. The rising backlash to data center development could strangle this growing industry as well.

Last week, the Department of Housing and Urban Development (HUD) issued a proposed rule that would eliminate all the agency’s regulations on “discriminatory effect” or “disparate impact.”

The federal Fair Housing Act bans discrimination in housing provision on the basis of a number of protected categories, including race, sex, and disability. Subsequent fair housing case law and federal regulations have widened the definition of discrimination to include facially neutral policies that have a “disparate impact” or “discriminatory effect” on particular racial groups, even if those policies were adopted without any discriminatory intent.

Over the past decade, federal regulations articulating disparate impact liability have see-sawed between administrations. The Obama administration issued a rule that created pretty broad disparate impact liability in 2013. The first Trump administration replaced this rule with new regulations that raised the bar necessary for proving disparate impact claims. Biden reinstated the 2013 rule.

Now, pursuant to an April 2025 executive order signed by President Donald Trump, HUD is moving to eliminate all its disparate impact regulations and instead leave it up to the courts to define disparate impact liability.

“Rather than promoting questionable legal theories to manufacture discrimination where none exists, the Trump administration, with HUD’s Office of Fair Housing and Equal Opportunity in the lead, is proposing to reorient civil rights enforcement to protect real people from actual instances of intentional discrimination in housing,” said HUD Secretary Scott Turner in National Review on Monday.

Proponents of disparate impact liability make a couple of arguments in its favor. Businesses that do adopt discriminatory policies against tenants or mortgage borrowers are usually smart enough to obscure their discriminatory intent, they argue.

Allowing people to make disparate impact claims in lawsuits and administrative complaints leads to a discovery process that then reveals the discriminatory intent behind some real estate policy or practice.

Critics of disparate impact liability argue that the legal theory can be applied to almost any real estate practice, exposing businesses and property owners to uncertain, almost limitless liability.

Private fair housing groups, which are often funded by the federal government, have alleged in lawsuits that landlords’ blanket policies of not renting to people with past evictions or criminal records have racially disparate impacts that violate the Fair Housing Act.

Comments on HUD’s proposed rule are due by February 13. One can expect fair housing groups to sue to block any federal repeal of disparate impact rules.

New York is one of several states that has an environmental review law requiring that government agencies study the impacts of projects they have discretion to approve or deny.

These environmental reviews can take months or even years, open up projects to litigation, and generally raise the costs of building anything. Because New York’s local land-use laws are highly discretionary, the reach of the state’s environmental review law is long indeed.

In her State of the State address last week, Gov. Kathy Hochul proposed reducing the burden of this process by exempting some types of housing projects from environmental review entirely.

Much of Blue America has already made similar reforms. Both California and Washington state have largely exempted urban infill housing from environmental review.

Hochul’s proposal sounds more modest. Details are sparse, but according to written materials released by the governor, only housing projects under a certain size being built on “previously disturbed” land will be eligible for exemptions. New York City will get additional flexibility to decide what types of housing projects will qualify for exemptions.

While environmental review might sound like common sense, it’s important to understand that these laws impose largely procedural requirements on new development. Separate laws regulate air and water impacts. Zoning codes control density and use.

Most states, including many liberal states, have made do without an environmental review law.

• In Oklahoma, critics of zoning reform worry that limiting localities’ ability to reject rezoning requests might make it too easy to build mosques and Walmarts.
• Los Angeles will expand permit waivers for homeowners building accessory dwelling units in the Pacific Palisades area, which was devastated by wildfires last January.
• Despite the objections from New York City Mayor Zohran Mamdani, a federal judge has approved a bankruptcy sale of 5,100 rent-stabilized units from Pinnacle Group to Summit Properties.
• Jay Parsons rebuts 11 myths about institutional investors of single-family homes.
• The Washington House of Representatives has passed a bill that will allow cafes and corner stores on residential lots.