Policy Essay: Reducing Policy Barriers to Housing Abundance

The Charlotte region is not building enough new housing.

That reality helps explain why the people of greater Charlotte confront a growing affordability challenge. According to Canopy Realtor Association, the average sales price in the Charlotte region was $417,430 in January 2023, up nearly $150,000 from an average sales price of $268,271 in January 2019—a 56% increase. And a presentation by Mecklenburg County Tax Assessor Ken Joyner updating county commissioners on the most recent property tax revaluation showed that residential property values have increased most rapidly among homes at the more affordable end of the distribution.

Our region—long seen as a place to escape the high costs of living in other parts of the country—is starting to experience problems of unaffordability more typically associated with metropolitan areas in California or the northeast.

The good news is that it’s easy to say what needs to be done: build more housing. The bad news is that our existing policies and political institutions make it difficult to build more housing. Ameliorating the housing affordability crisis, then, might require changes—perhaps significant changes—not just to our policies, but our entire approach to policy making.

Despite Growth and Development, Not Enough New Housing

“Wait a minute!” you might exclaim. “How can you say ‘we’re not building enough new housing’? There’s construction everywhere!”

It’s obvious to anyone who has spent time here that the Charlotte region is growing and changing. During Panthers television broadcasts, shots of Charlotte’s skyline invariably include multiple cranes building fancy office towers. From Cramerton to Kannapolis, drugstores have sprouted like mushrooms after summer storms. The region’s old textile mills are being reborn as condos and breweries. And farm-to-market roads’ fields of cows and cotton have been replaced by sprawling subdivisions.

Charlotte is building new housing. It’s building more housing than most big cities in the U.S. But the key fact is that Charlotte is not building enough.

In his 2022 State of Housing in Charlotte Report, Dr. Yongqiang Chu, Director of the Childress Klein Center for Real Estate at UNC Charlotte’s Belk College of Business, noted that the Charlotte MSA added 166,009 housing units from 2014 to 2021. That’s a big number and confirms the constant-construction narrative. But Dr. Chu also found that the number of households increased by 188,743 during the same time period—leaving a deficit of nearly 23,000 housing units.

As an analogy, think about the Carolina Panthers and their losing ways of late. The Panthers are scoring points in games, but their opponents are scoring more. Likewise, the Charlotte region is indeed adding new housing units. But our supply of housing is increasing at a slower rate than demand for housing is increasing. And when supply does not keep up with increases in demand, prices go up.

As long as the Charlotte region fails to build enough new housing to meet its residents’ demand for units, the cost of housing—home prices and rents—will continue to rise. And the affordability problem will continue to worsen.

Land Use Policy’s Barriers to Building

Why aren’t we building enough housing? As with any phenomenon, it’s complicated. There’s no singular cause. Supply-chain bottlenecks have presented challenges to construction. Rising interest rates have made capital more expensive. Some landowners want to hold out for higher profits they hope and expect to realize in the future.

But one of the most significant obstacles is local land use policy, including the way it empowers incumbent residents to veto new housing. Land use regulations—most notably zoning laws—restrict what owners can do with their property. The vast majority of zoned land in the Charlotte region is limited to detached single-family housing. That is, even if you as the property owner want to build something else with your own land, you may not do so.

[Read More: Creating a Charlotte Region Zoning Atlas]

For decades, urban economists have been researching the costs of overly restrictive land use policies (for an excellent overview of the economics of housing supply, see “The Economic Implications of Housing Supply,” by Edward Glaeser of Harvard and Joseph Gyourko of the University of Pennsylvania).

In a widely cited 2019 paper, Chang-Tai Hsieh of the University of Chicago and Enrico Moretti of the University of California, Berkeley, estimated that 2009 U.S. GDP would have been 3.7% to 8.9% greater if high-wage, “superstar” cities like New York and San Francisco had more permissive land use policies. In fact, those dramatic percentages were actually underestimates—the correct calculations result in an estimated increase in GDP of 14% to 36% (for reference, the Bureau of Economic Analysis estimates the 2022 U.S. GDP to have been $26.1 trillion)!

The material consequences of housing scarcity have fallen disproportionately on residents with low income and wealth, which is not surprising given zoning’s discriminatory origins. Housing scarcity keeps housing prices high, and highest in areas with the greatest economic productivity—and thus highest wages. Housing scarcity is a barrier to economic opportunity.

The alternative to housing scarcity is housing abundance. And to achieve abundance, we need to build more housing.

Who will do this building? The same entities that are already doing most of the building—private entities responding to market forces. They already would be building more housing units but for policy-imposed restrictions on how much they can build. Liberalizing these restrictions will mean they create more housing.

To be clear, a freer market for housing construction is not a panacea. Low-income households will require our assistance to afford adequate, safe, stable housing even with perfectly free and competitive markets. And the existence of growing material wealth does not necessarily mean such gains will be distributed fairly. But fewer restrictions on housing will mean lower prices for market-rate housing in all segments of the housing market.

Skeptics sometimes express fears that permitting developers to build more freely will simply create more profits for corporations and landlords. That is, people worry that any and all surpluses created by new supply will be captured by already-wealthy actors while homebuyers and renters remain stuck with rising costs. There’s certainly a logic to that theory, and it seems plausible based on individual stories we’ve heard (or experienced ourselves) of particular households being priced out of a home or neighborhood. But when social scientists have gone looking for evidence of this phenomenon as a driver of rising prices overall, they have not found it. In fact, the data suggest the opposite.

Study after study after study after study after study after study finds that increasing housing supply helps keep prices and rents down—even the construction of “luxury” apartments with higher-than-average rents for the neighborhood. (For more, see this report on “Supply Skepticism” from New York University’s Furman Center or this “Research Roundup” from UCLA’s Lewis Center for Regional Policy Studies).

To understand why, think about the counterfactual where such housing doesn’t get built. The absence of such housing doesn’t mean that demand for units disappears—it still exists. So those would-be buyers for never-built housing go looking for other options, bidding up the price of available units. People who can’t quite afford the rising prices of the very most expensive housing turn to slightly less expensive (but still expensive) housing, bidding up prices in that submarket. This dynamic cascades down through all segments of the housing market, crashing hardest on the least expensive segment of the housing market. Housing scarcity disproportionately harms low-income households. Housing abundance benefits low-income households.

Yes, developers and property owners will also make profits—that’s why they do what they do, after all. But the alternative of scarcity makes those profits higher (corporate property buyers are attracted to places where they believe housing scarcity will cause their investments to appreciate and generate increasing profits). A world of abundance still includes difficult discussions and decisions about distribution, but those conversations and choices are much easier in the context of a growing pie compared to a static or shrinking pie.

Zoning puts a hard legal cap on how much can be built. When market forces demand greater supply than what is allowable, the resulting pressure gets expressed in part via rising prices. These effects will hit hardest at the lowest price points, as prospective buyers who have been bid out of higher-end options look for more affordable alternatives. The result is a housing affordability crisis.

To be clear, the academic literature has long contrasted the land use regimes of places like California and the Northeast with the more permissive regulatory climate of Sun Belt cities like Charlotte. Until recently, housing prices in places like the Charlotte region remained affordable. Despite the existence of zoning—even single-family-only zoning—developers could increase housing supply in response to demand from new residents. There was always another farm that could be converted into a subdivision.

But as more of the region’s undeveloped land is built out to its legal limits, zoning’s restrictions on new development are starting to bite. We see evidence of that in rising home prices and rents.

The Veto Power of Incumbent Residents

To the extent local policies contribute to the shortage in housing, the resulting problems with unaffordability are a self-inflicted wound. Why would we do this to ourselves?

The affordability crisis does not affect everyone equally. For instance, from the perspective of an incumbent homeowner, the phenomenon I’ve been calling an “affordability crisis” can be reframed as something completely different—the rapid appreciation of their most important financial asset.

If they already own property, they have a material interest in seeing property values increase. Sure, they may feel some sympathy for renters, young families, and newcomers to the region who struggle to access adequate housing without breaking the bank. But their pain is a property owner’s gain.

The interests of incumbent residents systematically differ from those of prospective residents in critically important ways. Incumbents often seek to preserve the status quo of their immediate surroundings. They selected a particular home in a particular neighborhood—they don’t want to see it change. Change inevitably involves disruption, and new development brings more people, which means more traffic, more crowds, and more noise. The demographics of the newcomers are likely different too. And if on top of all that additions to the housing supply also prevent home values from appreciating, then why would any incumbent resident support new development?

Prospective residents, by contrast (at least until they themselves become incumbent residents), want new places to live. They want those places to be affordable. The construction of new housing units is thus in their interests.

So who wins in this political contest between the very real incumbent residents and the theoretical, hypothetical future residents? The incumbents win nearly every time because our policymaking processes privilege them.

Our land use policymaking gives power and priority to incumbent residents of neighborhoods. Public hearings regarding rezonings and area plans are open to all in theory, but in practice the participants are far from representative of the full population that will be affected by the decisions—they are disproportionately wealthy, old, educated, White, and homeowners.

Current homeowners (sometimes called “homevoters” or “neighborhood defenders” in the academic literature) will show up and express their opposition to change. But someone currently renting in another part of town or a nursing student in another city won’t find it worthwhile to attend and advocate on behalf of development that might house them in several years’ time. Many future buyers of proposed starter homes that might eventually be finished in ten years’ time are today only children, more concerned with Marvel movies than mortgage rates. Those voices and interests won’t be heard, so they’re less likely to be considered.

In effect, incumbent residents enjoy veto power over new construction in their neighborhoods. Their frequent exercise of vetoes is a major factor in the under-production of new housing supply. Blocking housing development doesn’t release housing market pressures, it displaces them. Just as with a balloon, pushing down in one place produces bubbles elsewhere. In the context of growing demand, squeezing supply means prices rise.

And in places experiencing population growth, like greater Charlotte, the incumbent residents of different neighborhoods or municipalities sometimes act as if they are in competition with each other to prevent growth and change from occurring within their borders. They may not oppose the growth of the region more generally, in fact—and this is crucial—they probably support it because of all the prosperity regional growth brings, but they don’t want it happening near them. A chorus of “not in my backyard!” reverberates across the region.

In the past, Charlotte’s development pressure could be pushed from existing neighborhoods to undeveloped farmland or forests without incumbent residents and their vetoes. But as more of the region’s land is built out and occupied by incumbent homeowners, that release valve is no longer available to the same extent. Without change, housing prices will continue to increase or—worse still—the region’s economic growth will stagnate.

Charlotte’s Future: Abundance or Scarcity?

It’s fair to say that the region’s residents and leaders have a stated (and sincere) collective goal of equitable, sustainable growth. We must then question whether our current policies and policymaking procedures are those best suited for promoting that objective. I would argue that they are not. I see two key problems. First, our land use policies are overly restrictive. Second, these excessively restrictive policies are due to policymaking processes biased toward limiting what property owners can do with their land.

So how can we loosen the constraints on housing supply in the Charlotte region? We can approach this challenge from several different angles.

At the personal level, individual residents—especially those who own homes—can educate themselves about these dynamics and assess whether their actions are consistent with their stated principles and values.

The population of the Charlotte region roughly doubled from 2000 to 2020. Has your neighborhood doubled its number of housing units during that same period? If not, then there’s a case to be made that your neighborhood has not borne its fair share of the very real costs of growth. To what extent has neighborhood activism (perhaps with your participation) contributed to that? There’s an incongruity between expressing support for diversity and inclusivity while opposing new development that would welcome new, diverse households to one’s neighborhood.

A common sight in Wallingford during Seattle's HALA debate over upzones: households that espouse both arch-liberal views and housing obstructionism. Photo by Rick Mohler, used with permission.

A common sight in Wallingford during Seattle’s HALA debate over upzones: households that espouse both arch-liberal views and housing obstructionism. Photo by Rick Mohler, used with permission.

At the municipal level, local governments can liberalize their zoning rules and allow by-right construction of dwelling types they currently outlaw. Municipalities across the country are exploring ways to eliminate bans on the so-called “missing middle” housing types—duplexes, triplexes, and other smaller-scale multi-family housing. In 2016, Auckland, New Zealand, engaged in a significant citywide “upzoning” that produced an estimated 5% increase in the housing stock over and above what would have otherwise been built.

Charlotte’s Unified Development Ordinance (“UDO”) is similarly designed to allow duplexes, triplexes, and accessory dwelling units (ADUs) “by right” (that is, without requiring special government permission) across the city’s residential zones.

This proposal has sometimes been misunderstood as an abolition of detached single-family housing—that is not an accurate description. Instead, the change would give landowners more property rights by eliminating current prohibitions on building anything except detached single-family housing. If the property owner wants to have a detached single-family home, they can still make that choice—but they can also choose among additional alternatives. But the city is already backing away from this policy change (even before the UDO goes into effect) by adopting a variety of overlay districts (most particularly the “Neighborhood Character Overlay District”) that will create new ways for incumbent residents to block new housing in their neighborhoods.

In addition to reevaluating the content of specific policies, municipalities can reflect on their policymaking processes and how those procedures distribute the powers of voice and veto. Who is invited to the table? (Often prospective residents are not, if they’re too young or geographically remote.) Who can afford to attend? (Often residents who have less means cannot.) Policymaking that appears neutral at first glance can nevertheless produce biased, undemocratic outcomes—even if it includes numerous opportunities for public hearings (indeed, often because of the reliance on public hearings).

But even citywide changes may not adequately ease the pressures on housing supply if municipalities within the Charlotte region use their land use ordinances to compete with each other for the amount and type of development. That is, local governments may face an incentive (in the form of pressure from local voters) to adopt zoning codes that restrict new development in the hope of preserving their current built environment while nevertheless enjoying the substantial economic benefits of being located in a region that is otherwise growing.

In a context of intraregional competition, the state government may need to step in to limit the ways in which municipal governments are permitted to use their zoning authority to push the costs of growth onto their neighboring towns and cities.

Reform at the state level has been modeled elsewhere as well. In recent years, the state governments of Oregon and California (1, 2) have adopted legislation that limits the ability of local governments to enact restrictive, exclusionary land use policies. And though both of those states’ politics skew Democratic, this is not a partisan issue. Montana’s conservative Republican Governor Greg Gianforte commissioned a Housing Task Force that has proposed a similar list of reforms for the Treasure State. (This research report from the Terner Center for Housing Innovation at the University of California, Berkeley, and the national Urban Institute (no affiliation with the UNC Charlotte Urban Institute) summarizes and categorizes various state-level reforms to incentivize municipalities to increase housing supply.)

In Japan and New Zealand, smaller, non-federal countries where the national governments resemble U.S. states in their relationships to municipalities, local governments are limited in their authority to restrict what can be built. That is, local governments there are denied the authority to adopt exclusionary land use policies.

The North Carolina General Assembly is considering a similar proposal to allow more housing types. Senate Bill 349 would require local governments to allow missing middle housing and accessory dwelling units in residential areas. Statewide reform would reduce the ability of local governments to use policy to foist the burdens of growth on other municipalities—a game that can endanger growth and its many benefits to the residents of the region.

In the end, we the people of the Charlotte region need to decide whether we want a future with housing scarcity or abundance. Scarcity produces windfalls for those who already have theirs, but it frustrates economic dynamism and the opportunities and upsides it generates. By contrast, a housing system that produces abundance will accommodate economic growth and the prosperity it brings and will feature more affordable housing. Growth involves messy change, but change is inevitable and will occur even with policies designed to preserve the status quo. The net effects of growing prosperity, though, are positive, in contrast to the consequences of stasis.

Reforming policies to allow for a more efficient housing market will not completely solve our affordability issue in Charlotte. Even a perfectly functioning market will not supply affordable housing to our lowest income households. But not building as much as we can will certainly make the problem worse—including by raising the cost of interventions like public housing and housing subsidies.

Not building enough housing is in many ways a policy choice. It might be a choice we current residents decide to make, but we should carefully examine the consequences of our decisions and consider whether they create outcomes that are consistent with our values.