Econofact: Restrictive zoning is the main factor squeezing the supply of housing

by | Jul 29, 2022 | Stock Market

The Issue: One outcome of the COVID-19 pandemic was a significant rise in house prices. Prices rose by 13.5% from March 2020 to March 2021 and by an additional 20.6% from March 2021 to March 2022, as measured by the Case-Shiller U.S. national house price index. This has intensified the focus on the lack of affordable housing in the United States. While there are numerous factors driving the rise in house prices, the increasing scarcity of housing units has risen to the top. This problem has been building (or not, as the case maybe) for decades. But the pandemic took it to a whole new level.

Rex Nutting: Home prices have risen 100 times faster than usual during the COVID-19 pandemic The U.S. has been building fewer housing units relative to the number of households over the past three decades than historical trends.

The Facts: The United States faces a housing stock gap. While estimates of the shortfall vary, analysts agree that the available supply of housing in the United States has not been large enough to adequately meet existing demand. An analysis from Freddie Mac, for instance, estimated the housing stock gap to be 3.8 million units in 2020, up from 2.5 million units in 2018. We have been building fewer units relative to the number of households over the past three decades than historical trends. The annualized number of housing starts per 1,000 households was 22.2 between 1960 and 1990, but it dropped to 12.2 housing starts per 1,000 households between 1990 and April 2022 (see chart). It is important to note that this drop predates the significant decline in housing starts during the Great Recession.  A key to understanding this housing supply shortage is the role of local zoning and land-use restrictions. Having ceded the control of zoning to local jurisdictions has meant that homeowners have been able to persuade their local officials to restrict the supply of housing. This is particularly the case for the construction of lower-priced starter homes and multifamily housing in U.S. suburbs. The prevalence of this so-called “NIMBY (No …

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