The lack of affordable homes is quickly becoming the next housing crisis, especially in cities in the West where the combination of too many buyers and not enough homes is pushing prices to unaffordable levels.
Much of the blame has been levied on homebuilders who can’t keep up with demand. For instance, the number of housing starts in June was 13.6 percent lower than in 2015, according to the latest government data. But another culprit is slow and cumbersome government bureaucracy, according to a new study from Trulia.
Metro areas with quick permitting approvals are keeping up with rising demand, the study found, while areas with long delays aren’t developing enough homes and are seeing prices rise in an unhealthy way. The length of approval process was a better indicator of an area’s ability to keep up with housing demand than even zoning regulations.
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“Calls to do away with zoning or radically reform zoning may be overkill,” says Ralph McLaughlin, chief economist at Trulia and the author of the study. “Working with how zoning is implemented or carried out is a better first step.”
McLaughlin also noted that factors besides permitting processes, such as such as financing or geography, also constrain an area’s ability to develop more housing. “You can’t add more land to New York City,” he says. “But policy levers are things a society can pull and manipulate.”
The study ranked the “housing elasticity” — how much new housing is built to satisfy demand — of 100 major metro areas over the last two decades. Those areas with higher elasticity historically had a lower difference between home price appreciation and housing stock growth.
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Overall, metro areas in the Southwest and Southeast had high elasticity scores, meaning these places provides enough new homes to meet rising demand. On the flip side, metros in the Pacific West and Northeast largely had low scores.
The ones with the highest elasticity ratio, meaning they could better respond to increased demand, were Las Vegas; Raleigh-Durham-Chapel Hill, N.C.; Albuquerque, N.M.; Charlotte-Gastonia-Rock Hill, N.C.; and Atlanta.
The metropolitan areas with the lowest housing elasticity were New Orleans; Pittsburgh; Los Angeles-Long Beach, California; San Francisco; and Buffalo-Niagara Falls, New York.
McLaughlin did note that some of these areas — such as Las Vegas and Atlanta — experienced oversupply issues during the housing boom that led to rampant foreclosures and short sales during the ensuing recession. Home prices in Las Vegas dramatically skyrocketed and then plummeted when the financial crisis hit.
“We’re not saying those markets with low elasticity should mimic those with high elasticity,” McLaughlin says. “There is a balance. You don’t want to build too many houses, but you also don’t want to build [too few].”
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In the long run, he says, it’s probably better to build more than less, given the affordability issues that are created by a lack of housing.
