Housing markets with the strictest land-use regulations saw home price appreciation shoot up by more than double the rate of those with lighter regulations, despite similar job growth, according to Zillow.
Nationwide, property values increased 14 percentage points for every 10 percentage point rise in jobs between 2010 and 2017. But in markets with the most restrictive land-use laws, house prices jumped 25 percentage points for the same 10 percentage point increase in jobs.
Typically, job growth in a given area correlates with property price growth, but varying severities in regulations homebuilders face when constructing homes, like density laws and permit review times, also affect house prices.
While tighter regulations have certainly helped home values recover and surpass prerecession peaks, they've also created affordability hurdles for homebuyers, who are sometimes priced out of the market. But sometimes, higher property values create more incentive for builders to add inventory.
Where land-use regulations are more restrictive, homebuilders will still construct, but at a price; builders will typically wait until house values in a local area reach a certain price to justify the regulatory costs and hurdles they will face. Regardless, where demand is high and house shoppers are willing to pay, homebuilders will supply housing stock.
"As the housing market has recovered from the Great Recession and collapse in home values, a new challenge emerged that is driving market dynamics — the shortage of homes for potential buyers. We've seen inventory falling on an annual basis for more than three years now," Aaron Terrazas, Zillow's senior economist, said in a press release.