A panel of housing industry experts surveyed by Zillow say that a relaxation of zoning rules would be the most effective way of increasing inventory in the housing market.
Housing inventory is currently at historic lows, and the same panel of experts believes that under current conditions builders will be unlikely to mitigate the problem. They warn that construction is likely to stall due to a combination of materials shortages, high costs for materials and labor, and the lack of suitable land to build upon.
The panel’s findings were reported in Zillow’s latest Home Price Expectations Survey. The experts warn that construction momentum is likely to slow in the coming months, dealing blow to numerous 30-somethings who are already struggling to buy their first home. The panel said it expects housing starts to fall around 2.5% below December 2020 levels by the end of this year.
Zillow Senior Economist Jeff Tucker said the prediction of a construction slowdown might surprise some people given a recent uptick in activity.
"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,” Tucker said. “But builders will need buildable land to close the massive shortfall, and zoning changes could move the needle, with the potential to open up enough building capacity to add millions of homes."
In response to a question on what can be done to increase housing supply, the panelists agreed that relaxing zoning rules is currently the best option. That tallies with previous Zillow research that found that even a slight uptick in upzoning in large U.S. metros would likely add 3.3 million homes to the nation’s housing stock. Around 57% of homeowners in a previous survey said they believe they should be allowed to add housing on their properties, and 30% said they would happily invest money to do so if allowed.
Another recommendation put forward by Zillow’s panel is to ease the land subdivision process by relaxing restrictions on projects of a certain size. They also recommended accelerating adoption of new construction technologies such as 3D-printing homes, and additional funding for training programs to add to the construction workforce.
Of course, new construction isn’t the only way to increase housing inventory. The panelists also said they believe existing home inventory will start to grow again this year as more people put their homes on the market. Earlier research from Zillow found that 14 million U.S. homeowners would be comfortable with moving once COVID-10 vaccinations have been widely distributed.
In the meantime, housing demand is expected to stay at high levels, and so the panel has adjusted its home price growth expectations upward. The average home value growth prediction is now 8.7%, up from 6.2% in the previous quarter. Home value growth will slow down in 2022 though, to just 5.1%, the panelists forecast. That would still be well above the historic average of 4% home value growth.
Pulsenomics founder Terry Loeb told Zillow that he believes the ongoing demand for housing and the consequent value increase is a result of a profound shift in housing preferences, adoption of remote work, low mortgages rates and the ongoing economic recovery.
"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,” he added.