Housing starts won’t reach the historical average of 1 million new units per month until at least 2022 or later, with the latest estimates stretching to 2029, according to a Pulsenomics survey of more than 100 economists, investment strategists and real estate experts commissioned by Zillow.
When asked to name the best solution to boost inventory levels, 56 percent of survey respondents said “relaxing local review regulations for projects of a certain size” would be the first course of action, followed by reducing mandatory minimum lot sizes (38 percent) and easing the land subdivision process for landowners (38 percent).
“The American housing landscape was shaped in a big way by the drive for the classic American dream; swaths of cities were set aside solely for single-family, detached homes, with big minimum lot sizes and slow local review processes,” Zillow Director of Economic Research Skylar Olsen wrote in the report. “Jump ahead three decades and housing affordability is a major issue across the country.”
“Those same practices now arguably limit the ability of the next generation to become homeowners,” she added.
Over the past year, some of the nation’s biggest metros have been reviewing and revising their zoning laws in order to bolster for-sale and rental inventory while improving affordability.
Most notably, Oregon became the first state to eliminate single-family zoning when Governor Kate Brown signed HB2001 in August. The bill requires cities with more than 10,000 residents to allow duplexes to be built on land originally zoned for single-family homes. Brown said the law would bring back affordable housing for middle- and lower-class Oregonians.
“This session, we committed to significant investments that will help every Oregon family have a warm, safe, and dry place to call home,” she said during the signing of the bill.
Minneapolis has also ended single-family zoning, with Austin, Seattle, and Berkeley, Calif. considering similar moves.
“Without new homes to meet population growth and replace an aging housing stock, home buying is expected to move further out of reach,” Olsen concluded. “The most-popular solutions among experts all ultimately suggest rolling back these rules to increase flexibility and get more projects through the process faster.”
If cities are willing to relax their zoning laws on a widespread scale, it could help slow annual home value growth, which currently stands at 5.2 percent. On average, the experts expect home value growth to slow to 2.5 percent in 2020, and then take another 0.3 percent dip in 2021 to 2.2 percent. But home value growth is predicted to jump back up to 2.6 percent in 2022.
“Overall, the outlook for U.S. home prices remains positive in both nominal and inflation-adjusted terms. But it continues to soften, despite diminished mortgage rates and a low supply of entry-level homes,” said Pulsenomics founder Terry Loebs.
“Appreciation expected through 2023 has fallen to an average annual rate of 2.9 percent – the most subdued five-year panel-wide projection in the past seven years – and experts who believe there is downside risk to their forecast outnumber those who see upside by a ratio of more than four-to-one.”