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How zoning affects housing supply

How zoning affects housing supply
by Brad Cartier, posted in Newsletter

In a recent Zillow Research article, a panel of housing experts discussed the supply shortage in the U.S. Their findings?

Experts say the biggest impediment to increasing housing supply is zoning - Zillow

Source: Zillow

In a March report, Moody’s Analytics reported that the annual supply of new housing units is 100,000 below housing demand, “creating the largest shortfall in nearly a half-century, equal to almost a year of new construction at its current pace.”

One of the major culprits? Zoning. You can’t build more housing units if your local zoning laws don’t allow for it, and the vast majority of zoning laws only permit the less dense single-family home housing class.

The elimination of exclusionary zoning has been a primary policy goal of the Biden administration. The idea is that restrictive zoning laws not only hinder the supply of much-needed housing, but it has been shown to exacerbate racial inequalities. In a recent White House statement, the Biden administration notes that the new American Jobs Plan takes many important steps to eliminate this type of zoning.

“Specifically, the Unlocking Possibilities Program within the American Jobs Plan is a $5 billion competitive grant program that incentivizes reform of exclusionary zoning. The program awards flexible and attractive funding to jurisdictions that take concrete steps to eliminate needless barriers to produce affordable housing and expand housing choices for people with low or moderate incomes.”

Many local jurisdictions are relaxing their zoning rules on accessory dwelling units (ADUs), sometimes called garden homes or granny suites, in an effort to increase supply and improve affordability. Take Charleston, SC, for instance, they not only now allow all residential properties to have an ADU, but they are actually incentivizing residents to build ADUs with compensation. See a recent Next City article for more.

Liz Farmer of reports on the many jurisdictions implementing or studying their zoning rules in an effort to improve affordability and supply. “Berkeley plans to end exclusionary zoning by 2022. The Sacramento City Council approved, allowing up to four units on virtually every residential lot. And Oakland, San Jose, San Francisco and South San Francisco are studying similar moves.”

In a recent article, Deputy Secretary of the Treasury Wally Adeyemo explains the supply/zoning relationship eloquently:

“For far too long, access to affordable housing has been inhibited by exclusionary zoning laws like minimum lot sizes, mandatory parking requirements, and unnecessary prohibitions on multifamily housing. These policies have constrained the housing supply and driven up costs, locking working families out of opportunity.”

Rent increases

Part of the affordability equation is rising rents. With inflation creeping up, this issue will only become more pronounced. According to new data, national rents have reached their highest levels in 27 months.

national rents increase at highest rate over over 2 years - Realtor


Zillow also observed similar trends in their data. “The nation’s rental market is also quickly bouncing back. Typical rents rose 2.3% in May from April to $1,747/month, the largest monthly appreciation since 2015, and were up 5.4% from a year ago. Rent appreciation is especially strong in the Inland West. Of the 100 largest U.S. metros, the top eight for annual rent growth are Boise, Phoenix, Spokane, Las Vegas, Riverside, Stockton, Fresno and Albuquerque — all with increases higher than 15%.”

Felix Salmon of Axios penned a recent article aptly titled Get ready to pay more rent, wherein he notes that “Americans who feel priced out of the surging housing market have until now been able to take solace in one thing: if they can’t buy, at least they can rent. But that might be changing.”

In commenting on the data, Swapna Venugopal Ramaswamy of USA TODAY reports that demographics are playing a large part in rent increases, with younger adults opting to set out on their own and are increasingly willing to return to urban centers.

The burbs

But cities aren’t the only markets seeing renewed interest, the suburbs are now a fan favorite for not only homebuyers, but renters as well. According to Litic Murali of the National Association of Homebuilders (NAHB), Q1 of 2021 saw single-family home building continue its shift to low-density and low-cost markets. “This suburban shift has been even more pronounced in the multifamily sector, which is experiencing growth in 2021 after a slight decline in 2020.”

In a recent Bloomberg CityLab analysis, Patrick Sisson reports that “Much of this recent single-family home building taking place is happening in exurbs and suburbs instead of densifying development near job centers and opportunity.”

Jenny Schuetz, a senior fellow and housing policy expert at the Brookings Metropolitan Policy Program, is quoted in the above article as noting that “the places where you can easily build are greenfields in the suburbs, away from job centers, which lock in car-dependent lifestyles…The rush to produce housing in suburbs and exurbs to meet short-term demand means we’re going to look back at this as a missed opportunity.”

Will Parker of The Wall Street Journal reports on the increasing popularity of suburban subdivisions designed for renters. Demand is increasing for those who can’t afford to purchase a home, but still want the lifestyle of suburban living. “Built-to-rent subdivisions are attractive to some urban apartment renters who want to move to the suburbs but are unable or uninterested in buying a home. Many young professionals and families are less keen than their parents in being tied down by a 30-year mortgage.”

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