As house prices rise, builders in the U.S. are providing less housing today than they have in the past. But don’t look to zoning rules as the main culprit, said Ralph McLaughlin, Trulia chief economist, in a recent report.
“Our research finds that local bureaucracy, measured by building approval delays, affect housing supply elasticity rather than restrictive zoning,” McLaughlin wrote. Housing elasticity is a basic measure of new housing construction relative to demand—the higher the elasticity number, the more housing that gets built to meet the demand. “For every month delay in approving new building permits, long-run supply elasticity drops by 0.03,” he said. “We also find no statistically significant evidence that restrictive zoning reduces elasticity.”
Currently, the national long-run housing supply elasticity is 0.17, three points below the 30-year average of 0.2, Trulia said. However, the long-run elasticity varies considerably by location. In Las Vegas; Raleigh-Durham-Chapel Hill, N.C.; and Albuquerque, N.M., it’s more than 0.8, while in San Francisco, Los Angeles and New Orleans, it’s less than 0.05. In San Jose, CA, with an elasticity of 0.07, middle class households need to spend roughly 13% more of their income on a median priced house than just four years ago.
Despite academic and industry research pointing the finger at restrictive zoning in preventing new housing supply, Trulia notes that most local governments allow landowners or developers to apply for zoning changes that allow more units to be built than existing zoning code allows. However, applying for such a zoning change can add more cost and risk to a project as it may take months to years to secure.
“In fact, we find that 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,” McLaughlin said. Metropolitan areas in the Southwest and Southeast tend to provide more housing units as demand rises, while those in the Pacific West and Northeast do not.
- Nicholas Stern, editorial associate