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New Studies Provide Further Evidence That Zoning Reforms Work - Forbes   

The Federal Reserve’s interest rate hikes are cooling the housing market. The average 30-year mortgage rate is up to 7.5%, the highest since 2000. Potential homebuyers are sensitive to interest rates, and as a result the annual rate of existing home sales, which are the bulk of home sales, has fallen from over 6.5 million in early 2021 to just over 4 million. The drop in demand has brought housing prices down a little, but the median sales price is still 26% higher than it was prior to the pandemic. Moreover, the higher mortgage rates have pushed the median monthly payment to over $2,000, making housing less affordable than ever.

Luckily, we know how to make housing cheaper—build a lot more of it. Over the last several years, a number of state and local governments reformed their zoning codes and other land-use regulations to allow more housing construction. A collection of studies published in the latest issue of Cityscape confirms that these changes resulted in more housing.

The first study by Nicholas Marantz, Christopher Elmendorf, and Youjin Kim examines California’s recent accessory dwelling unit (ADU) reforms. From 2016 to 2020 California passed several statutes to facilitate ADU construction. Today, ADUs smaller than 800 square feet are permitted as-of-right, meaning no special permission is needed to build one. They find that ADUs are contributing to the state’s recent housing growth, making up about 13% of permits in the Bay Area and 19% of permits in Southern California more broadly. They also find that ADUs are likely to be built on larger lots in neighborhoods with moderate rents and close to job centers. This suggests that ADUs are helping lower and moderate-income folks find housing in areas with economic opportunities.

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