Housing inventory is an ever-increasing problem, especially when it comes to starter homes, but Trulia says the problem may not lie where you would think.
Trulia studied the rate of homebuilding and the market prices for the nation’s biggest metros during the last 20 years to determine how housing policy affected what economists call elasticity, how much new housing is built relative to demand. Markets with greater elasticity build more housing relative to price changes than markets with lower elasticity.
Housing inventory has grown very little compared to the demand for it. In fact, builders are providing less homes now as prices rise than they did in the past. Currently, elasticity is at 0.17, about three points below the 30-year average of 0.2.
Home prices continue to increase nationwide, even hitting new highs in several large housing markets in April, according to S&P Dow Jones Indices Case-Shiller Home Prices Indices.
While land use regulation and zoning have been blamed recently for the shortage of supply, Trulia disagrees.
“Our research finds that local bureaucracy, measured by building approval delays, affect housing supply elasticity rather than restrictive zoning,” the report states.
Of the 100 largest metros, Las Vegas has been the most elastic housing market in the U.S. over the past 20 years. Prices over this period increased 71.4%, but the housing stock increased 87.8%, leading to an elasticity estimate of 1.17.
Other relatively elastic markets in the U.S. include Raleigh-Durham-Chapel Hill, North Carolina; Albuquerque, New Mexico; Charlotte, North Carolina and Atlanta, Georgia where supply elasticity ranges from 0.77 to 0.82.
On the other hand, New Orleans tops the list of least elastic housing markets, where housing prices increased by 77.8% over the past 20 years but the housing stock only increased 1.7%. While New Orleans has the lowest elasticity in the U.S., much of the reason is due to the major loss of housing that occurred in the city from Hurricane Katrina.
Other markets struggling to meet the demand include Los Angeles, San Francisco, and San Jose, where home prices have tripled over the past 20 years, and affordability has fallen dramatically.
For example, in San Jose, with an estimated elasticity of just 0.07, middle-class households have to spend about 13% more of their income for a median-priced home compared to just four years ago, according to the report. Supply is not keeping up enough to moderate affordability.
The Trulia report says that zoning is not to blame for these housing inventory problems. Although zoning can restrict the number of housing units that can be built in a certain area, homebuilders can petition to have those zoning restrictions changed. Zoning does have its hold-ups, such as the cost to petition for a change, and the time spent waiting for a decision.
That being said, Trulia’s research shows that it is actually the building permit delay that causes the most hindrance.
“While it is tempting to blame the most popular tool of local land use regulation, zoning, we find that it is actually delays in the building permit approval process that is affecting the ability of builders to meet demand,” the report states. “This is because zoning can formally be changed, while uncertainty over building approval cannot.”
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Many places in the Southwest and Southeast actually provide a decent number of new housing units when demand rises, but others in the Pacific West and Northeast don’t.
This shows a list of the least affordable places to live in America.
Whatever the cause, about 76% of Americans who are likely to vote in the 2016 presidential election say they are more likely to support candidates who make housing affordability a focus of their campaigns and a priority in government, according to a national public opinion poll by Make Room, a nationwide campaign giving voice to American renters.