“Yes, And” In My Backyard

Urbanists Should Embrace Commercial Zoning Liberalization

What if we could make Americans 3% richer and end commercial real estate’s woes?

In his recent Bloomberg column, economist

Tyler Cowen

argues we can. All we have to do is deregulate commercial property restrictions across the country. Highlighting a recent study, Cowen argues that expanding the freedom to build—that is, easing restrictions around commercial building heights, floor area ratios, setbacks, and most importantly, location—could create huge economic output gains of 3% to 6%. As he puts it, “Think of it as Americans getting a lifetime raise of at least 3%.”

Far be it from me to disagree with Tyler Cowen on sensible, pro-growth policy.

However, Cowen laments the absence of a “Yes In My Backyard” (YIMBY) constituency for commercial real estate, noting that it lacks the political and, I’d add, emotional appeal of providing much-needed housing. That’s part of it. But there is also a strong bias against mixing commercial uses into residential neighborhoods—and it’s not hard to see why. As Cowen writes:

Freedom to build for commercial construction would also mean more neighborhoods where office buildings, shops and residences stand next to each other, as is so frequently the case in East Asian cities such as Tokyo.

While this vision is appealing to those of us who choose to live in urban cores that already have a mix of uses, not everyone would appreciate the “Tokyoization” of their neighborhoods. Cowen concedes that “many people may not enjoy living in this new, less regulated world.”

And therein lies the problem. 

Across America, from Austin to Albany, the foremost challenge cities are facing is to simply make it easier to build more housing in places where we already allow housing to be built. In Austin, City Council is set to increase the number of housing units allowed on a single-family lot from two to three. This modest reform is being characterized in apocalyptic terms by opponents who argue that it will literally eliminate residential neighborhoods, as if a handful of new neighbors were an invasion of catastrophic proportions.

In this context, liberalizing residential zones to allow even modest commercial establishments like corner stores might be too much of a heavy lift given where the politics are today, to say nothing of full-scale reform. From the perspective of political strategy, getting more housing legalized is a precondition to any longer-term commercial reforms. Indeed, if neighborhoods are allowed to become denser over time, then in time the demand for more convenient commercial amenities in neighborhoods might naturally arise. But density precedes desire.

So does that mean urbanists should ignore Cowen’s call to action? Quite the contrary.

While a dearth of housing is the source of many urban ills, abundant housing is a necessary but not sufficient requirement for a thriving city. So, Cowen is right to highlight the economic case for the YIMBY movement to “go commercial.” That said, the major economic problem facing cities with respect to real estate is an undersupply of housing and an oversupply of commercial real estate. The problem is especially acute for office parks and business districts, which have been hollowed out by work-from-home, threatening property values and tax revenues. As I argued in “The City of ‘Yes, And’,” cities should respond to these challenges by embracing both residential, yes, and commercial reform—but by flipping the script that Cowen presents. Rather than pushing to deregulate residential zones to allow more commercial uses, urbanists should pursue the liberalization of existing commercial zones to allow for a plethora of other uses, including housing. 

Call it the “‘Yes, And’ in My Backyard” movement.

Commercial zoning in its current form is unnecessarily complex and depresses economic activity. Indeed, office buildings in particular are suffering from significant vacancies and depressed occupancies—and they will continue to do so, so long as their uses are limited by zoning restrictions.

In Austin, the city already has thirteen zoning categories that regulate the shape and size of commercial buildings. These rules, for example, encourage skyscrapers on scarce downtown land while limiting skyscrapers in zones abutting low-density, low-rise neighborhoods—understandable in a city that’s not Tokyo. 

But these zones also delimit what you can do there “by right.” In some zones, all manner of commercial activity, from apartments to administrative offices to art galleries, is allowed without special permission—that is, by right. But in other commercial zones, only a much narrower range of uses is permitted, requiring expensive and time-consuming conditional use permitting processes or even more cumbersome rezonings to change the allowed uses.

While it makes some sense to regulate the location of skyscrapers, it makes far less sense to regulate what kinds of commercial activity can happen within those skyscrapers. For instance, why do universities, restaurants, and hospitals need to obtain a conditional use permit to occupy some office space but not others? Or why are bed-and-breakfasts, single-family homes, and multifamily apartments allowed downtown, but only bed-and-breakfasts are allowed in office parks? Or why is it okay to start a therapy practice in an office on Lady Bird Lake—but not a software development company? 

These distinctions seem arbitrary at best. 

Austin and other cities should liberalize commercial zoning—not in residential neighborhoods but in existing commercial zones—by eliminating these arbitrary distinctions and expanding the types of by-right uses as much as possible. Properties would still be subject to the same shape and size regulations, but, for instance, software developers would now be allowed to do their work on the placid shores of Lady Bird Lake.

To wit, Austin already did this for childcare centers earlier this year, making childcare a by-right use in nearly every zoning category, a reform that will make childcares cheaper to build and more readily available for families. What’s stopping Austin from doing this for every other commercial use arbitrarily limited by the code?

By-right reform would also be a lifeline for struggling commercial properties everywhere. Underutilized office parks, strip malls, and parking lots could be transformed into vibrant, mixed-use neighborhoods, while new businesses and homes could bring new life to old ones. By expanding economic opportunities for over-regulated properties and reducing the costs and time usually associated with zoning changes, these reforms could unleash a greater supply of housing and commercial activity alike, helping cities alleviate both their housing shortage and empty office problems.

Saying “‘Yes, And’ in My Backyard” to commercial zoning liberalization might not make cities 3% richer, but it would certainly help a lot. Urbanists everywhere should embrace it.