Seattle has an instructive history of innovation - sometimes to the extreme - as it has grappled with its housing shortage. Some city policies have been enormously successful, others undoing years of progress almost overnight, leaving behind a fairly clear record of what works and what doesn’t.

The first experiment started during the 1990s when Seattle experimented with upzoning residential areas from single-family to low-rise multifamily. Imagine lots that supported single houses converted into lots supporting townhomes. Gone were the yards and detached garages, enter many more conditioned square feet and a significant increase in total available homes in the city. Years of increased housing supply growth followed, right up until 2019, when Seattle famously imposed an inclusionary zoning mandate that crushed the home-building market.

What were the home-price appreciation impacts of these changes? How did the development community respond? Did affordability problems improve? A new study analyzed these questions and found results worth examining closely.¹

The 1990s-era experiment was a significant success. The zoning change effectively set a new standard for the “highest and best use” of a residential lot by enabling by-right upzoning, allowing higher density in popular, walkable neighborhoods, and making permitting fast and building standards easy to understand.

In some ways this was a response to the earliest days of Seattle’s zoning, one aim of which was to “promote segregation of neighborhoods by income and consequently by race.” Single-family zoning skews a neighborhood to high-income buyers as single-family homes are much more land-intensive than multi-family housing. Low-density zoning drives up costs per built square foot and compounds scarcity.

The new zoning allowed townhomes, rowhouses, duplexes, triplexes and small apartment buildings, all by right. Notably, the policy was investor-focused, designed to drive private capital to these upzoned lots to create new housing. It worked. Density in these newly zoned areas increased quickly.

The study estimates that since 1994, 20,000 new townhome units replaced approximately 5,000 single-family homes. This equates to a 2.5% annual increase in housing supply attributable entirely to this policy, without any public investment or subsidies. The new homes averaged 1,500 square feet with 2.7 bedrooms and 2.4 baths.

These two photos are a (gloomy) before and (sunny) after of two lots that were upzoned and redeveloped. The first was from 2007, the second 2023, and the total housing count goes from two to seven.

Pricing is perhaps the most compelling part of this story. When a traditional single-family home is replaced by a new, larger single-family home, the new home “sells for approximately double the price of the original.” But if the original house is replaced by a four-story townhome project, “each unit sells for roughly the same price as the original home,” the study noted. That outcome is great for affordability, for the developer, and for the eventual new homeowner, and those market forces have made this the dominant form of housing construction in Seattle. You can see the rise in density in the overall city statistics.

At the same time, owners in neighborhoods zoned exclusively single-family did not suffer at all; price appreciation for them was consistent. “Townhomes, despite being more affordable and higher in density, do not depress home price appreciation in surrounding neighborhoods,” the study reported. By most any measure, this policy felt like the rare example of a true win-win (and maybe more wins).

Now let’s talk about how this all fell apart. In 2019 the city’s new Mandatory Housing Affordability program (Haystack got nervous just reading that) was implemented “with the goal of creating thousands of new subsidized housing units made affordable through fees on development, while also boosting overall housing production.”

Under MHA, builders working on multi-unit projects can designate up to 11% of their units as income-restricted or pay a fee of nearly $33,000 per townhome. The result? New townhome permits dropped 80% while single-family permits didn’t change. According to the authors, “This new program is on track to destroy Seattle’s [prior] progress.”

And as an unfortunate aside, the federal Department of Housing and Urban Development awarded Seattle $5 million as a “Removing Obstacles to Housing” grant for imposing its 2019 restrictions.

Some of this slide toward zero new net density was lessened by new regulations in 2020 allowing Accessory Dwelling Units, and you can see a related bump in the blue line, but the offset was modest against the damage done by the 2019 laws.

In all, Seattle’s experience offers lessons about how housing markets respond to incentives. When the city made it straightforward and financially viable to build more units on existing lots, private capital responded. Development opportunities were clear and abundant, supply increased steadily for decades, new ownership options emerged at lower price points, and existing homeowners did not see their appreciation impaired. The reform did not rely on public money or large-scale redevelopment; it worked because it aligned zoning with economic reality and reduced friction in the development process.

The reversal is equally instructive. When additional fees and mandates were layered onto that same framework, private capital disappeared. The response was not gradual or theoretical; it showed up immediately in permit data. The implication is not that affordability mandates are inherently flawed, but that poorly calibrated changes at the margin can determine whether incremental supply occurs at all.

For investors, the broader takeaway is that zoning and regulatory structure directly shape supply elasticity, product type, absorption patterns, and ultimately pricing dynamics. Markets that allow by-right, small-scale density can create durable incremental supply without destabilizing asset values. Markets that introduce complexity or cost at the margin can just as quickly constrain that supply. Regulatory risk, in other words, is real. But so is regulatory opportunity.

Who: Orbital Studios

What: One of several cutting edge virtual media production firms.

The Sparkle: Orbital is not a real estate firm… not yet. The company and others at the cutting edge of virtual production are experts at putting real people inside environments that don’t exist. That capability is increasingly finding its way into real estate.

Already today firms can render unbuilt projects — retail centers, apartment buildings, master-planned communities — with a level of realism and interactivity that makes previous high-end rendering tools look like rough sketches. We’ve had higher-detail alternatives to Google SketchUp and other low-resolution renderings for years, but nothing like what is becoming the norm in Hollywood. Pretty soon you will be able to walk through and see every nook and cranny of a real estate project before a single permit is pulled.

Jericho has been continuously inhabited for roughly 11,000 years. Damascus, by some measures, even longer. The zoning codes governing most American cities were written within the last hundred years — and most of the cities themselves have not yet had a 200th birthday.

Jericho was a walled settlement with organized communal life before pottery, writing, or metal tools existed. Damascus survived the Greeks, Romans, Byzantines, and Ottomans, each of whom reshaped it without erasing it.

The rules we treat as fixed features of urban life in the US are, on any reasonable historical timeline, a very recent experiment — and if history is any guide, temporary ones.

Link: List of oldest continuously inhabited cities – Wikipedia

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