Could zoning changes help boost supply and balance the market?

by Liz Hughes

With high costs slowing construction and potentially lowering homeownership for many, a recent Zillow survey of economists and real estate experts found easing zoning rules to be the most effective way to increase the supply of new housing. 

Expert panelists from Zillow’s Home Price Expectations Survey say if changes aren’t made, new construction growth will stall, home prices will continue to increase, and fewer of today’s 30-somethings will have the ability to own a home.

Today’s market continues to be highly competitive, as home prices remain historically high, and inventory levels at historic lows. 

Experts surveyed said they expect new housing starts by Dec. 31 to be 2.5% below last year’s level and fall another 2% by the end of 2022, citing high labor costs, materials and land as the biggest barriers they’re facing. 

When asked how to increase the housing supply, survey respondents chose relaxing zoning rules by a wide margin. Citing previous research, “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,” according to the report. 

While a prediction of a construction slowdown is surprising, rising costs may drag down the pace of construction from the speed seen this spring, Zillow senior economist Jeff Tucker said in a release. 

“Builders have been firing on all cylinders to meet the excess demand from buyers left unmet by the existing home market, and demand appears poised to stay high for years to come,” Tucker said. “But builders will need buildable land to close the massive shortfall, and zoning changes could move the needle, with the potential to open up enough building capacity to add millions of homes.”

Other recommendations for increasing supply include easing the land subdivision process, relaxing local review regulations for certain size projects, accelerating adoption of new construction technologies and increased construction workforce training.

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