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February 2020

Seattle among cities with toughest laws for home builders

February 6, 2020

Regulations imposed on homebuilders are generally getting worse across the country, and they're driving home prices higher, according to researchers at the University of Pennsylvania and Harvard University. Their comparison of metropolitan areas ranked Seattle tied at #4 among cities with the most expansive zoning regulations.

Researchers noted the cities that are most highly regulated received that distinction "not because they were highly regulated regarding one facet of their local real-estate," but because they tend to have at least three different entities that must approve - and thus, can veto - a project.

One exception in the prevalence of land-use regulations was the relaxing of impact fees imposed on developers. While three of every four communities (75%) surveyed in 2006 reported imposing such fees, only 50% did in 2018.

In determining areas with the most stringent regulations, researches used an aggregate measure comprised of 11 subindexes pertaining to different aspects of the regulatory environment. Nine of the metrics focus on local characteristics with the remaining two reflecting state court and legislative/executive branch behavior. The study compared changes from 2006, when the regulation index was unveiled, to 2018.

The research showed more highly regulated places have more intense community and political involvement in the land use control process. Geographically, the coastal states tended to have the most highly regulated communities on average.

RANK
METROPOLITAN
AREA
WHARTON RESIDENTIAL
LAND USE REGULATION
INDEX VALUE
1
San Francisco-Oakland-Hayward, Calif.1.18
2
New York-Newark-Jersey City, N.Y.-N.J.-Pa.1.04
3
Providence-Warwick, R.I.-Mass.0.93
4
Seattle-Tacoma-Bellevue, Wash.0.73
5
Los Angeles-Long Beach-Anaheim, Calif.0.73
6
Riverside-San Bernardino-Ontario, Calif.0.68
7
Washington-Arlington-Alexandria, D.C.-Va.-Md.-W.Va.0.66
8
Miami-Fort Lauderdale-West Palm Beach, Fla.0.66
9
Phoenix-Mesa-Scottsdale, Ariz.0.64
10
Portland-Vancouver-Hillsboro, Ore.-Wash.0.60


The most recent research indicated it takes 3.4 months, or 111 days, on average across the country for a developer to submit a project and receive a decision from local authorities. In the more highly-regulated areas, the average timeframe jumps to 8.4 months, or about 252 days.

Strict zoning was also a factor in rising prices and shrinking supply, according to researchers. "Land-use regulation has made it more costly for developers to build new homes. In turn, many home builders have focused on constructing upper-tier homes rather than entry-level properties to guarantee better margins."

The report noted such shifts by builders have contributed to a shortfall in home-building activity, and therefore exacerbated a shortage of homes for sale nationwide. With high demand for housing, the supply shortages have caused prices to escalate. Findings show affordability concerns extend to middle class, not just low income, households.

The Land Use Regulation Index was developed from a nationwide survey of more than 2,600 communities using 15 questions. The working paper of the process and findings was distributed by the National Bureau for Economic Research.

The authors of the 64-page working paper note some observers have argued that the U.S. needs to relax (of fully get rid of) its zoning laws in order to make the housing market more accessible.

For example, in an opinion piece for Market Watch published in December, two individuals from the American Enterprise Institute suggested abolishing single-family zoning as a solution to the problem of unaffordable entry-level housing.

"A lack of adequate new supply has driven up prices and rents above sustainable levels. The problem may only continue to worsen as demand pressures from population growth and preferences for medium- and large-size metro areas continue to build," wrote Edward J. Pinto and Tobias Peter. Pinto is a resident fellow at the American Enterprise Institute and the director of the AEI Housing Center. Peter is the Center's director of research.

The duo proposed three steps to ease the housing crisis:

  1. Develop a simple way to track unaffordability across metros.
  2. Correctly pinpoint the key causes of the supply shortage.
  3. Policy changes.

"We estimate that returning to the same level of Light Touch Development (LTD) as in 1950 has the potential to add as many as 12.5 million housing units over time, or an additional 10% to today's existing housing stock," stated Pinto and Peter.