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Medical Economics

Why Hospitals Should Pay Attention To Zoning Laws

This week, Columbus Mayor Andrew Ginther submitted a plan to the City Council to completely revamp the city’s zoning laws and this could have a huge impact on regional hospitals. Columbus, Ohio is not unique – many U.S. cities are changing zoning laws to increase housing density in urban areas with the effect that we may see significant shifts in population growth.

For decades, the American dream was to own a house with a yard, and a 2-car garage in the suburbs. This led to urban sprawl – low density residential developments on the outskirts of cities and towns. Americans’ preference for automobiles over mass transit helped to fuel urban sprawl. In order to maintain housing low density homogeneity. communities adopted zoning laws that restricted building height, restricted the number of housing units per land parcel, and mandated a certain number of parking spaces per multi-family residential buildings. Over the past 100 years, our metropolitan areas rapidly grew outward and the demand changed from townhouses with no yards to quarter-acre lots and then to half-acre lots for single-family homes. As a result, previously rural towns became suburbs, highway outer belts became inner belts, commute time to work increased, and previously affluent communities close to downtown became low-income communities.

And then came COVID and working from home.

Zoning changes in Columbus, Ohio

Cities like Columbus rely on its tax base to support services and maintain infrastructure. As upper and middle class families moved outward into suburbs, cities were often left with a population of relatively lower income residents and lower property values. The result was lower city revenue from property taxes. Cities could still rely on income taxes from those workers who live in suburbs but commute to work in the city and income tax comprises the largest source of revenue for Columbus. As an example, the 2022 Columbus city revenue sources are as shown in the figure below:

Columbus, Ohio 2022 City Budget

Some states and cities do not have an income tax. In these cities, alternative sources of revenue fund the city budget, such as higher property taxes, sales taxes, and higher charges for permits and licenses. For example, there is neither Tennessee state income tax nor Nashville city income tax so Nashville’s city revenue comes from other sources, mainly property tax and sales tax. This gives Nashville a strong incentive to encourage residential high-density housing within the city since that translates to higher revenue from property taxes. Because those city residents tend to make purchases close to home, it also translates to higher city revenue from sales taxes.

With COVID came a shift in white-collar jobs from working in centralized offices to working from home. In many cases, the income taxes previously collected from the cities hosting business offices are now collected by the suburbs where work-from-home employees live. One strategy for cities to maintain revenue from income taxes in a work-from-home world is to grow the number of people living within the city limits. But city limits are generally land-locked by the surrounding suburbs making geographic expansion impossible so the only option is to increase population density within the city. And that is where zoning law changes become necessary.

Many of the land parcels close to downtown Columbus are zoned for commercial use only. Those zoned for residential use generally have a height restriction of 35 feet tall and require 1.5 parking places per residential unit. The Mayor’s proposal would designate certain areas along major transportation corridors as “urban core”. These areas would no longer be restricted to commercial use and would be permitted to be up to 12 stories tall (16 stories tall if affordable housing units are included). A second group of areas would be designated as “urban center” and would permit buildings up to 7 stories tall. Neither the urban core nor the urban center areas would have any requirements for off-street parking. Instead, residential parking would be left up to the free market, with developers determining the amount of parking necessary to provide in order to compete for occupants to fill those residential units.

The Columbus metropolitan region is growing and expected to have a shortage of 110,000 housing units by 2032. Without the zoning changes, the affected land parcels could be converted into 6,000 housing units but with the zoning changes, these parcels could become 88,000 housing units. By limiting the zoning changes to corridors with mass transit availability, there will be less need for households to own multiple cars. In fact, currently 30,000 Columbus households do not own a car and rely on mass transit, instead.

So, what does this have to do with hospitals?

People need healthcare and they want those healthcare services close to where they live. These services include inpatient hospitals, outpatient physician offices, urgent care centers, rehabilitation centers, and diagnostic centers. For the past 40 years, there has been economic pressure for hospitals to relocate services from city centers to suburban areas because that is where the patients are (and in particular, the well-insured patients). Many downtown hospitals closed while new hospitals were built in the outlying suburbs. The same has happened with multi-specialty outpatient clinics.

But as cities like Columbus change their zoning laws, there will be a reverse population migration that will return to the downtown areas. There are several reasons why our hospitals need to begin planning for this population change.

  • Emergency squads go to the closest hospitals. One of the main drivers of the relocation of hospitals to the suburbs is that EMS squads typically take patients with medical emergencies to the nearest hospital – having a cardiac catheterization lab at a downtown hospital doesn’t do you any good if EMS squads take heart attack patients to suburban hospitals. In the future, there will be a need for emergency hospital services closer to downtown areas.
  • Patients prefer to see primary care doctors who are close to home. All other things being equal, parents prefer a pediatrician office that is 1 mile from home rather than 10 miles from home. In the near future, we will need more physician outpatient practices located near downtown areas.
  • Patients usually go to the closest urgent care center. When a person is sick and cannot get in to see their PCP that day, they go to an urgent care center. Unlike primary care where patients have allegiance to their usual PCP, patients have no allegiance to urgent care centers. They just look on Googlemaps to see where the closest urgent care center is located. Urgent care centers will be needed in new areas of increased population density.
  • Access to mass transportation will be increasingly important. Buses, light rail, and commuter trains are only economically feasible if there is sufficient population density to support mass transit. As population density increases, so does the availability and frequency of mass transit services. Hospitals and outpatient services need to be located along main mass transportation corridors to optimize patient access.

There are several tactics that hospitals should be taking when city zoning regulations change:

  1. Project the effect of zoning changes on residential housing construction. An increase of 500 housing units may not have much impact on local healthcare utilization but an increase of  50,000 housing units can make expansion of healthcare facilities more financially viable. This means speaking not only with city officials (who are prone to being overly optimistic) but also developers (who are the ones who will be making actual construction decisions).
  2. Determine the demographics of population growth. Single room apartments will primarily attract young singles who have less need for inpatient care but will need outpatient primary care providers. On the other hand, condominiums may be more attractive to retirees who are more likely to use inpatient services. Multi-bedroom apartments and single-family homes will attract families with children and urgent care facilities will be in demand. It is not simply the number of people moving into a re-zoned area but the ages of those people that dictate the type of healthcare services to be anticipated.
  3. Buy property parcels. Re-zoned areas in cities are currently relatively inexpensive but as developers began to move in, the cost of those parcels will go up dramatically. Hospitals should purchase land now in anticipation of building facilities in 5 – 10 years. Even if the hospital ultimately decides against new construction, those parcel purchases will likely be excellent long-term investments as they can later be sold at a premium to developers.
  4. Stake your claim early. A primary determinant of whether to build a new hospital or outpatient facility is what the competition is in the immediate area. The first health system to publicize building plans in a re-zoned area can often ward-off other health systems from building competing hospitals.
  5. Plan outpatient expansion. Unlike a new hospital that costs hundreds of millions of dollars and requires many years of construction, office space can be rented and renovated for outpatient medical services in a matter of months. One of the first things a person does when moving into a new community is find a new primary care provider. A health system would be wise to grow primary care services as the population density in rezoned city areas increases. Early on, the population growth in a re-zoned area may only require 2 primary care providers but as additional housing units are built, the need may increase to 8 primary care providers. Inevitably, the initial outpatient office will outgrow its space so it is better for the hospital to buy or lease more space than they initially need so that they can grow into it.
  6. Don’t forget about parking. In the zoning changes proposed for Columbus, the decision about how many parking spaces will be left up to the developers. Parking lots are very expensive – a large surface lot consumes a large and expensive land parcel. A parking garage requires less land but is very expensive to build. In most urban hospitals, scarce (and expensive) parking is a major complaint by patients, visitors, and staff. By locating a healthcare facility along a major mass transit corridor, hospitals can reduce the need for parking. Innovative strategies can include providing free mass transit vouchers for patients and constructing bus and train stops inside of buildings (or at least with roofed protection from weather). Strategies for staff can include charging for on-site automobile parking but providing free mass transit vouchers, providing free bicycle parking, promoting work-from-home when feasible, and providing free remote parking with shuttle bus service to hospital facilities.
  7. Not all cities are the same. Different metropolitan areas have different growth potentials. Currently, many midwestern cities are often losing population while many southern cities are rapidly gaining population. A zoning change in a city losing population will have little impact on healthcare resource allocation whereas a similar change in a city gaining population can have a big impact. The best information about changes in city populations comes from the U.S. Census Bureau data. The graphs below show the change in populations in metropolitan areas in the United States between April 2020 and July 2023. In all, there are a total of 393 different metropolitan areas listed. For the purpose of simplicity, the areas in the graphs below include only the largest city in the metropolitan areas. So, for example, the Dallas, TX metropolitan area actually includes the Dallas-Ft. Worth-Arlington region. The top graph shows the 32 metropolitan areas with the largest population gains. Zoning regulation changes have the greatest potential impact on healthcare delivery in these metro areas. The bottom graph shows the 32 metropolitan areas with the greatest population losses. Zoning regulation changes will likely have minimal impact on healthcare delivery in these areas. It is important to note that the period 2020 to 2023 was affected by COVID with work-from-home initiatives causing many workers to relocate from some cities – it is unclear if these trends will continue as work-from-home opportunities level off and as many workers return to offices.

And back to Columbus…

With an increase of 41,330 population between 2020 and 2023, Columbus had the 32nd greatest growth in population out of the 393 U.S. metropolitan areas. Future projections are for this population increase to continue over the next decade with several large manufacturing and corporate building projects underway. Therefore, apartments and condominiums creating denser urban populations will likely come from net population growth rather than relocation of existing populations. So, hospitals in Columbus would be well advised to start planning for how to provide healthcare services to this expanding urban population now. The same holds for other metropolitan areas with high population growth and recent zoning reform.

In most communities, the zoning commission is not on the public’s mind, unless you are trying to build an addition on the back of your house. But zoning regulations can have an enormous impact on our nation’s health systems by affecting urban population density and growth.

April 10, 2024

By James Allen, MD

I am a Professor Emeritus of Internal Medicine at the Ohio State University and former Medical Director of Ohio State University East Hospital