Relaxing zoning rules would be the most effective way to increase supply in a housing market near historic inventory lows, according to economists and real estate experts who took part in a recent Zillow Home Price Expectations Survey. Otherwise, the panel anticipates new construction growth to stall and home prices to rise.
On average, the panel expects new housing starts to end the year 2.5 percent below December 2020 levels, and to fall another 2 percent by the end of 2022. The experts cited the high costs of labor, materials and land as the biggest hurdles for homebuilders.
“A prediction for a construction slowdown is surprising given recent positive readings, but it’s clear the panel believes rising costs will drag down the pace of construction from its impressive speed this spring,” Zillow Senior Economist Jeff Tucker said in a release. “Builders have been firing on all cylinders to meet the excess demand from buyers left unmet by the existing home market, and demand appears poised to stay high for years to come. But builders will need more than willing buyers to close the massive shortfall since the Great Recession. They need buildable land, and the panel overwhelmingly pointed to zoning changes as a leading way to move the needle, with the potential to open up enough building capacity to add millions of homes.”
Zillow research indicates even a modest amount of upzoning in large metro areas could add 3.3 million homes to the housing stock. Other recommendations by the panel to increase housing supply include easing the land subdivision process, relaxing local review regulations for projects of a certain size, accelerating the adoption of new construction technologies and increasing training to build up the construction workforce.
With housing demand still red hot, the expert panel adjusted its home price growth expectations upward. Its average home value growth prediction for 2021 is 8.7 percent, up 6.2 percent from last quarter and more than double the expectation from the fourth quarter (4.2 percent.)
“A profound shift in housing preferences, adoption of remote employment, low mortgage rates, and the recovering economy continue to stoke demand in the single-family market and drive prices higher,” Pulsenomics founder Terry Loebs said. “Strict zoning regulations, an acute labor shortage, and record-high materials costs are constraining new construction, compounding disequilibrium, and reinforcing expectations that above-normal rates of home price growth will persist beyond the near-term.”