How Zoning Laws Restrict Development

Takeaway: By tracing suburban Chicago’s zoning codes and land subdivision records from 1921 to 1980, researchers demonstrate that local zoning laws played a decisive role in shaping the modern suburb—drastically cutting the supply of apartments and commercial shops while inflating lot sizes decades earlier than previously assumed.

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Key Points

• Zoning crowded out mixed uses: Areas developed under zoning dedicated over 80% of their land to detached single-family homes and only 5% to apartments, compared to 63% single-family and 18% apartments in unregulated areas.

• Density caps bound early: Minimum lot size regulations actively enlarged suburban properties by roughly 20% as early as the 1920s, disproving the belief that density restrictions only became binding in the 1970s.

• Regulation locked in low density: While private developers were already shifting toward automobile-friendly layouts, municipal zoning codified and magnified this trend, creating a rigid urban form that remains difficult to reform today.

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Why are so many American suburbs dominated by endless rows of detached single-family homes, miles away from the nearest corner store or apartment complex?

For decades, economists and urban planners have debated whether this landscape reflects pure consumer preference—families demanding private yards and quiet streets—or if local zoning laws artificially imposed this low-density layout.

Disentangling market demand from regulation has historically been difficult. City planners often drew zoning maps around neighborhoods that were already built, making it hard to tell whether zoning caused suburban sprawl or simply reflected what was already there.

To solve this puzzle, economists Ryan Gallagher, Allison Shertzer, and Tate Twinam assembled the first comprehensive historical zoning dataset for a major U.S. metro area.

Examining over 120 municipalities in Cook County, Illinois (surrounding Chicago) between 1921 and 1980, they matched digitized zoning maps and bylaws to parcel-level property records. Crucially, the authors tracked the exact dates when open farmland was first subdivided into plots, allowing them to study "greenfield" land that was regulated before any roads or houses were built.

Findings

The researchers found that zoning fundamentally reallocated suburban land. In areas developed prior to zoning, the market produced a diverse mix: roughly 63% single-family homes, 18% apartments, and 11% commercial businesses.

Once comprehensive zoning was introduced, the single-family share surged to 83%—with the median post-zoning neighborhood dedicating nearly 93% of land to single-family homes and completely excluding apartments. The authors estimate that adopting flexible, mixed-use zoning reduced the single-family share by nearly half, redistributing that space evenly to local commerce and multifamily housing.

Zoning also changed neighborhood density far earlier than economic historians previously thought. The conventional view held that minimum lot size rules did not significantly constrain development until the 1970s. However, the data reveals that pre-World War II zoning ordinances expanded average residential lot sizes by 1,619 square feet—a 20% increase over what unregulated developers chose to build.

Limitations and Context

The findings also offer a note of caution for housing researchers. Private developers frequently chose standard lot sizes (such as 5,000 square feet) even without regulation, and local governments often set minimums based on those existing market habits.

Therefore, today’s lot sizes cannot simply be assumed to reflect regulatory mandates without historical subdivision data. Additionally, because this study examines suburban Chicago, the specific magnitudes may vary in regions with different geographic or historical growth patterns.

Why It Matters

Decisions made a century ago continue to dictate modern housing supply. Once farmland is platted into large single-family parcels, reassembling that land for denser, more affordable housing or walkable commercial hubs is legally and financially challenging.

Understanding that zoning actively suppressed multifamily housing and walkability helps explain why high-demand metropolitan areas face severe housing shortages today—and highlights the structural reforms required to build more adaptable communities.

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Learn More

• Paper Title: Zoning and the American Suburb

• Authors: Ryan Gallagher, Allison Shertzer, and Tate Twinam

• Journal/Series: Federal Reserve Bank of Philadelphia Working Paper Series (WP 26-37)

• Publication Year: 2026

• URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=7277539

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Econ Today Explains

Economic Concept: Path Dependency in Urban Form

Path dependency occurs when decisions made in the past restrict the choices available in the future, even if circumstances or preferences change over time.

In real estate economics, urban form is highly path dependent because land is durable and costly to reconfigure. Once an open tract of land is subdivided into individual small parcels, connected to utilities, and developed with detached single-family houses, converting those neighborhoods into multifamily housing or walkable commercial districts requires immense capital, legal approvals, and the coordination of multiple property owners.

As a result, the zoning bylaws enacted in the early 20th century continue to lock modern metropolitan areas into low-density, car-dependent footprints long after the original planners are gone.

This article was written by AI but reviewed by a real human.