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Are Looser Zoning Laws the Housing Shortage Solution?

The shortage of housing—especially of the affordable variety—is on many minds, it is a forefront issue for housing-policy decision-makers, and is at the center of endless recent studies.

One such survey comes courtesy of Zillow Research, which published, "Zoning Changes Most Effective Path to Boosting Housing Supply,"  for which authors considered insight from a panel of one-hundred-plus subject-matter experts and economists.

Zillow's panel expects home prices to continue rising and construction to slow in the coming years, with high costs as the main barrier. They deduced that relaxing zoning rules to allow for more and/or more efficient new home construction would be the most effective way to increase supply.

On average, the panel of experts told Zillow they expect new housing starts to end the year 2.5% below December 2020 levels and to fall an additional 2% by the end of 2022.

Zillow researchers address the fact that builder confidence has consistently stayed at very high levels since last summer, making the prediction seem a little inconsistent, however, Zillow points out, "optimism may not be enough on its own to make a meaningful dent in the massive shortfall in construction since the Great Recession."

Less restrictive zoning was the single most effective strategy to help increase inventory; it is the No. 1 route chosen by 56% of the respondents.

Zillow expounded on that:

"Previous Zillow research has found even a modest amount of upzoning in large metro areas could add 3.3 million homes to the U.S. housing stock, creating room for more than half of the missing households since the Great Recession—a major reason for today’s frenzied housing demand. A majority (57%) of homeowners previously surveyed by Zillow previously said they believe they and others should be able to add additional housing on their property, and 30% said they would be willing to invest money to create housing on their own property if allowed."

Other recommendations for increasing housing supply included easing the land subdivision process, relaxing local review regulations for projects of a certain size, accelerating the adoption of new construction technologies, and increasing training to build up the construction workforce.

Researchers add that, of course, new construction is not the only way to increase inventory.

A similar panel, when surveyed in Q1 2021, said they expect housing inventory to begin growing again in 2021, with an increase in existing homes being listed for sale being the most likely path to inventory growth.

Previous Zillow research has shown widespread coronavirus vaccine distribution could make some 14 million households newly comfortable moving that don’t necessarily feel that way now.

Terry Loebs, the founder of Pulsenomics, lays out the many situations congealing to create the current environment.

“A profound shift in housing preferences, adoption of remote employment, low mortgage rates, and the recovering economy continues to stoke demand in the single-family market and drive prices higher,” Loebs said. “Strict zoning regulations, an acute labor shortage, and record-high materials costs are constraining new construction, compounding disequilibrium, and reinforcing expectations that above-normal rates of home price growth will persist beyond the near term.”

The full Zillow Research paper is available at Zillow.com/research.

About Author: Christina Hughes Babb

Christina Hughes Babb is a reporter for DS News and MReport. A graduate of Southern Methodist University, she has been a reporter, editor, and publisher in the Dallas area for more than 15 years. During her 10 years at Advocate Media and Dallas Magazine, she published thousands of articles covering local politics, real estate, development, crime, the arts, entertainment, and human interest, among other topics. She has won two national Mayborn School of Journalism Ten Spurs awards for nonfiction, and has penned pieces for Texas Monthly, Salon.com, Dallas Observer, Edible, and the Dallas Morning News, among others. Contact Christina at [email protected].

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