Despite the many recent explanations for the rising cost of housing, which point to a variety of factors such as construction material costs, construction workforce shortages (driving up wage costs), cost of land, low interest rates (which keeps demand high, though that is changing now), some sources continue to pin the primary blame on local land use regulation (it’s part of the equation, but according to many sources, not necessarily the biggest one). Case in point – this recent piece from Politico. Writer Katy O’Donnell says:
The main drivers of rising home prices are “land-use policies and permitting costs and zoning restrictions — that’s very much determined at the local level, and to influence that from the federal level is very difficult,” said Moody’s Analytics chief economist Mark Zandi. “The housing crisis we’re in has developed over the last decade, and it’s going to take a decade or two of consistent policy to get us out of this.”
But then O’Donnell goes on to write:
Construction costs are up because of higher lumber and energy prices and the labor shortage. What’s more, the construction time for a typical single-family home, usually about 6.5 months, is taking between four and 10 weeks longer now, according to Robert Dietz, chief economist at the National Association of Home Builders.
“That’s likely to continue — not just the higher price of these materials but delays and availability issues,” Dietz said. “What it means is that home price growth is likely to continue despite the fact that mortgage rates are going to go up.”
Dietz said policies to reduce the cost of lumber — which has more than tripled since February 2020 — would make a difference, since 90 percent of new single-family homes are wood-framed. The rise in lumber prices over the last year alone has caused the average price of a new single-family home to increase by $18,600, according to NAHB. But the federal government isn’t helping: The U.S. in November doubled the duties on Canadian softwood lumber, the latest development in a lengthy trade dispute over the import.
And to the argument that local governments are, if not the primary cause, at least one of the main contributors to the housing affordability crisis by making it difficult to build more housing, take a look at the most recent construction report from the University of Utah. It says, that for 2021:
Breaking the 40,000 mark for the first time, 2021 permitted residential units reached 40,144, increasing by 24.5% over the previous record set in 2020. Single-family activity increased by 12.6 % to 17,528 units. Condo, townhome, and duplex units combined for 7,895 new units, growing by 12.5% compared with 2020, a new record. Apartment activity not only set a record with 14,143 new permitted units, but surpassed its previous record from 2019 by 51.0%, and increased 60.4% from 2020.
Take a look at this chart. Does that look like construction of housing in Utah is being hindered? Of course, this may also reflect the fact that demand for housing is at all time highs as well and maybe not enough housing is being built, but looking at this data, it’s increasingly difficult to argue that local regulation is dampening construction of new dwellings. Just saying…