The American dream of owning a home is falling out of reach for many in our state. Home prices continue to rise in North Carolina as we lag pre-recession levels of new construction. Simultaneously, our state welcomed over 100,000 new residents just last year. Both current residents and newcomers to North Carolina will face hardships in affording starter homes or upgrading homes as family needs change, unless reform happens. That reform needs to focus on allowing more homes, and homes of a different variety, to be built.
A review of available data illustrates the case for why we need to build more homes. It also provides a cautionary tale of how other states have failed in this policy area. Lawmakers and local leaders can look to California to see the fate of a state that doesn’t allow supply to match demand. Our state is in a similar position to California’s a few decades ago: steady economic growth and a mass influx of new residents. After years of failing to allow enough housing to be built, California’s housing market has priced out many of its residents, who are now fleeing to lower-cost states.
A recently released paper by Dr. Michael Tanner of the CATO Institute illustrates some parallels between where North Carolina’s housing market is now and where California’s was before it went out of control. Dr. Tanner found many troubling trends in North Carolina’s housing market in the paper. For example, North Carolina will need 900,000 new homes over the next decade to meet projected demand. Furthermore, vacancy rates for homes and apartments have fallen steadily since 2010, further illustrating the point of low supply. Lastly, the inflation-adjusted price of homes is up more than 30% since 2010, while rents have grown by more than 14%. All in all, supply is down, and prices are rising.
What can we do?
This debate of what to do manifests itself on two fronts. First, within local communities: some who wish to prohibit new development or different types of homes are pitted against those who see the need for more housing and density built. Similarly, you have a broader debate about whether localities or the state government in Raleigh should determine zoning and land-use policies.
To address the latter first, North Carolina is a Dillon Rule state, which means, in most circumstances, municipalities get their authority delegated to them by Raleigh. Whether or not that is the proper arrangement between the state and localities is a debate for another day. The General Assembly can rein in most of the power it delegates to municipalities for governance, just like the arrangement between the legislature and the executive agencies whose authority is also delegated by the General Assembly.
On the former, upward mobility and homeownership should be shared goals of all residents of a community. Not every individual or family will always opt for homeownership. Still, we should be promoting markets that are conducive to a high supply of homes and housing that meets the individual needs of families and residents. Housing and homeownership have serious implications for economic growth and individual prosperity, so we should encourage policies that allow developers to meet the community’s needs.
Many municipalities have taken steps on their own to reform zoning. This is good and should continue as cities and towns grapple with a population increase. However, Raleigh can set a statewide policy for how zoning, permitting, and plan approval should happen at the local level.
A good blueprint for the types of reforms that could happen appeared in a Senate bill from 2021, Senate Bill 349. This piece of legislation was a proposed statewide zoning policy that would have significantly reformed the regulations allowing different types of homes to be built on residential property. The bill would legalize “middle housing” — defined as duplexes, triplexes, quadplexes, and townhomes — on all land zoned for residential use. Further, the bill would have allowed homeowners to build and rent accessory dwelling units (ADUs). Lastly, the bill had provisions that better balanced the scales between property owners and local governments. All are worthwhile reforms that will alleviate pressure on housing supply and boost property rights.
Zoning reform is based on free-market principles. Limiting the types of homes that can be built threatens the economic prosperity of North Carolinians and the continued growth of our state. It skews the market towards specific types of houses that may be out of reach for many looking to become homeowners. To combat this, lawmakers in Raleigh should look for ways to reform local zoning regulations and direct municipalities to limit delays in getting construction finished. To continue to grow as a state, we must have the housing inventory to keep up with demand to avoid the fate of California. Simply put: we need to build more houses.