Experts: zoning changes are the most effective way to increase housing supply

*Expectations for future home price growth among a panel of more than 100 experts and economists are the most optimistic ever in a quarterly survey dating back to 2010.

*The panel expects new construction to slow in the coming years, with high costs as the main obstacle. In the last quarter, the same panel predicted that total inventory would increase later this year thanks mainly to more existing homes coming up for sale.

*According to the panelists, a relaxation of the zoning rules would be the most productive to increase the supply of new housing.

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According to the latest Zillow survey of home price expectations, relaxing zoning rules to allow more and / or more efficient new home construction would be the most effective way to increase supply in a market. housing currently near historic lows in inventories.[1] On the current trajectory, these experts predict that new construction growth will slow down and house prices will rise, leading to a decrease in the number of today’s 30-something homeowners.

High costs are expected to slow the dynamics of new construction, a blow to homebuyers already facing a fiercely competitive market with relatively few homes available relative to the number of interested buyers. On average, the panel expects new housing starts to end the year 2.5% below December 2020 levels and decline a further 2% by the end of 2022. Panelists have cited high costs of labor, materials and land as the main obstacles to the home. builders.[2] The Zillow Home Price Expectations Survey is a quarterly survey of more than 100 real estate experts and economists nationwide, sponsored by Zillow and conducted by Pulsenomics.

The results are somewhat surprising given the confidence of the builders which has always remained very high levels since last summer, although it has declined somewhat from highs reached towards the end of 2020. Builders appear to be sensing a golden opportunity to help address the shortage of available housing, especially as demand appears to be on the rise. point to remain high for years to come. But this optimism alone may not be enough to make a significant dent in the massive deficit in construction since the Great Recession.

When asked what could be done to increase housing supply, easing zoning rules was the top choice – 56% of panelists chose it as one of the top three to help increase the supply of housing, and it has been ranked as the single most effective strategy. Zillow’s previous research has even found a modest amount of overzoning in major metropolitan areas could add 3.3 million homes to the U.S. housing stock, creating room for more than half of missing households since the Great Recession – one of the main reasons for today’s frenzied housing demand. A majority (57%) of owners previously interviewed by Zillow previously said they believed that they and others should be able to add additional housing on their property, and 30% said they would be willing to invest money to create housing on their own property, if it was allowed.

Other recommendations from the panelists for increasing the housing supply included relaxing the land subdivision process, relaxing local review regulations for projects of a certain size, speeding up the process of land subdivision. adoption of new construction technologies and increased training to strengthen the construction workforce.

Of course, new construction isn’t the only route to more inventory – a majority of the same panel, when surveyed in the first quarter of 2021, said they expect home inventories to start rising again this year, with an increase in the number of existing homes listed as the most likely catalyst for inventory growth. Previous Zillow is looking for has shown that the widespread distribution of coronavirus vaccines could make some 14 million households comfortable moving that don’t necessarily feel that way now.

With housing demand shows no signs of slowing down From a boom fueled by a pandemic in the second half of 2020, the panel of experts again adjusted their expectations for house price growth upwards. The panel’s average home value growth forecast for 2021 is 8.7% – the highest for a year since the start of the quarterly survey in 2010. That’s up from 6.2% the last quarter and more than double the expectations of the survey of the fourth quarter of 2020 (4.2%). Home value growth is expected to slow to 5.1% in 2022, according to the panel – still strong growth from a historic average of around 4%.

“A profound shift in housing preferences, the adoption of remote employment, low mortgage rates and the economic recovery continue to fuel demand in the market for single-family homes and push up prices,” said Terry Loebs, founder of Pulsenomics. “Strict zoning regulations, an acute labor shortage and record material costs are hampering new construction, worsening the imbalance and raising expectations that above-normal house price growth rates will persist in the future. – beyond the short term. ”

The panelists were also asked about their expectations regarding the evolution of mortgage rates and the prospects for homeownership for millennials in the coming years. Average rates on a 30-year fixed mortgage are currently around 3%, and panelists said they expected a slight increase to 3.45% by the end of the year , to continue at 3.99% at the end of 2022. That would add $ 55 to a monthly payment on a typical home at the end of this year and $ 124 at the end of 2022.[3] Still, this would represent a godsend historically. Average rates were close to 5% in 2018, and they started the 2000s above 8%.

Largely due to the affordability concerns of rising house prices, the panel on average expects the number of people aged 35 to 44 to decline slightly over the next five years, when this group will be dominated by millennials. The majority (54%) of experts who expect homeownership to decline in this age group by 2026 cited worsening affordability – via higher mortgage rates and / or real estate prices – as the main cause.

Of the more optimistic panelists who anticipate more homeowners in this age group in the coming years, most (61%) said an increased preference for property over rent would be the main factor. Perhaps this could be the result of how the pandemic and the increase in remote working options have changed what many say they want and need in a home.

[1] This edition of the Zillow Home Price Expectations Survey interviewed 109 experts between May 11, 2021 and May 25, 2021. The survey was conducted by Pulsenomics LLC on behalf of Zillow, Inc. Zillow’s Home Price Expectations Survey and related material are available through Zillow and Pulsenomics. [2] The verbatim response options most often cited by panelists as headwinds were “high labor costs / shortage of skilled construction labor”, “high / volatile material costs ”And“ high land costs / lack of developable plots in desirable areas ”. [3] Assuming a 20% down payment on a home purchased for $ 280,370, the typical home value in April according to the Zillow Home Value Index.

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