Super low mortgage rates and a healthy jobs market have supported housing demand.
But there aren’t enough affordable houses in the US to go around, especially for first-time buyers.
The unresponsiveness of housing supply to demand and price changes is blamed in part on restrictive zoning laws.
Economists measure this responsiveness as elasticity; in markets with higher elasticity, homebuilding responds to higher demand and prices at a relatively faster pace compared to places that are more inelastic.
A Trulia study published on Tuesday found that while zoning laws are a real burden for homebuilders, the bigger culprit is local-government bureaucracy, measured by building approval delays.
“Metros with longer administrative delays in rezoning and lot approvals are strongly correlated with lower long-run housing supply elasticity than metro with fewer delays, while restrictive zoning is not,” said Trulia chief economist Ralph McLaughlin, based on the University of Pennsylvania’s Wharton Residential Land Use Regulation Index.
Cities are zoned to cater for a mix of building uses, including residential and recreational. And to make housing more affordable, local governments use inclusionary zoning, which requires builders to place a certain percentage of all new developments in a lower-priced range. But it’s been controversial because it appears to shift the burden of addressing affordability from the government to the private sector, among other reasons.
“We shouldn’t necessarily be eager to eliminate zoning as a tool as a way to increase supply,” McLaughlin told Business Insider.
“Maybe there is a middle approach that can be taken in many markets, which is: increase the speed at which local governments process permits, to help with increasing supply.”
The least elastic markets Trulia found included New Orleans, Pittsburgh, Los Angeles-Long Beach, and San Francisco.
There are some caveats, however. For example, Hurricane Katrina erased a lot of housing stock and caused a flight from New Orleans. And in some cities, a high vacancy rate reduces the need for new homebuilding when demand rises.
But in places like San Jose and New York where affordability has worsened, there’s lots of red tape that can be removed to increase the rate of homebuilding, although these changes could take many decades to implement, according to McLaughlin.
“Local governments aren’t developers, and I don’t think they can be expected to be perfect in their implementation of zoning,” McLaughlin said. “But where they can potentially get better is being more responsive to when the market is demanding an increase in the intensity in the use of land.”
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