Zoning Restrictiveness and Housing Foreclosures: Exploring a New Link to the Subprime Mortgage Crisis

In this article, we present an empirical analysis of the relationship between zoning restrictiveness and the risk of foreclosure in six metropolitan areas of varying regulatory frameworks across the United States. We measure zoning restrictiveness using the diversity of housing units allowed by right under different density types and by the proportion of low- and very low-density housing units allowed. We measure the risk of foreclosure as the percentage of total households in a geographic area that entered the foreclosure process during the period 2005--2008. Using local zoning maps, geographic information data, and multiple other sources, we develop two separate data sets—one at the municipal level and the other at the zip code level. Using ordinary least squares and spatial autoregressive methods and controlling for other factors, we find that at the municipal level, zoning restrictiveness is significant and positively related to a higher risk of foreclosure. We conclude that one strategy for municipalities to reduce the risk of foreclosure is to promote a diverse housing stock through zoning where all income groups can find affordable options.