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Strict land-use regulations bring highest home values

by Kyle Scheuring

suburban-houses-homes

Job growth often leads to increased home value, but why are some cities overwhelmingly surpassing others? A new report from Zillow points towards zoning restrictions seem to have an impact on growing home values.

From Zillow’s data, the medium and high restriction zones experienced roughly the same job growth from 2010 to 2017, yet the most restrictive zones experienced a 23.4 percent increase in home value, meanwhile medium restrictive zones only saw 17.9 percent in the same timeframe.

The most restrictive cities when it comes to zoning laws experience a disproportionate growth in home value. For every 10 percentage points in job growth in heavily regulated areas, the city experiences a 25 percentage point increase in home value. This ratio is uniquely high compared to medium and low restriction zones.

Chicago is considered “moderately restrictive” and only experienced a 2.9 percent home value increase from 2010 to 2017. The relatively low zoning regulations may prove useful in feeding the growing demand and dwindling supply of homes.

With the market’s inventory low and dropping, builders are eager for new developments. But jumping through the hoops of restrictive zoning laws has hindered market growth, causing sharp prices in select cities.

“In hot job markets with some of the strictest laws about building new residential housing, home values experience the most pressure. It’s helped home values recover and exceed their previous highs, but leaves many home shoppers unable to break into the market” said Zillow Senior Economist Aaron Terrazas in a press release.

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