Zillow: Restrictive land regulations exacerbating tight housing inventory, rising rents

Dive Brief:

A new Zillow report found that a city’s housing and land-use regulations significantly affect whether housing inventory and cost will be available to meet demand. Zillow said there are other factors that contribute to rising prices and low availability, but regulations are a major influencer.
Zillow found that municipalities with the most stringent land-use policies had rents that were three times higher than those areas with looser regulations and experienced a greater decrease in available rental inventory.
The same holds true for homebuilding. Restrictive building regulations lead to less construction and a smaller number of for-sale properties, which drives up home prices, according to Zillow.

Dive Insight:

In the last five years, rents in San Francisco — which has very tight building regulations — increased 42.4%. In contrast, Chicago, which has more builder-friendly regulations, experienced a median rent increase of just 7%. Generally, Zillow said, rents in the cities with the least restrictive land-use restrictions increased 6.1% over that same five-year period, but prices in cities with the tightest regulations rose 16.7%.

As for potential homeowners, Seattle, for example, is regulation-heavy and has seen 8.6% job growth between 2011 and 2014. This growth has caused an influx of residents, and the city is struggling to meet demand. Add to that the difficulty in being able to build new housing, and the combination has driven Seattle’s 1.3% decrease in available homes in the last five years.

This shortening of supply in both for-sale and rental properties has increased the incidences of shared accommodations, or roommate arrangements, according to Zillow. As the available units continue to be in such high demand, the number of roommates per household has increased. That trend isn't just among millennials and young professionals, but it is occurring with older adults and seniors as well. Increased shared living spaces are also the result of a growing desire for a more social environment.

While builders' struggles dealing with regulations are nothing new, Zillow said it believes land-use policies will become more restrictive in the future — meaning that builders and residents will continue to have to come up with ways to deal with the ramifications of a short supply of housing. Zillow’s report echoes the concerns of CityLab’s Kriston Capps, who, in March, wrote that the lion’s share of San Francisco’s housing problems was the fault of the city’s richest residents who have used their money and influence to campaign for land-use restrictions that will keep new housing out of their neighborhoods.