Zoning Reform Passed. The Homes Have Not Been Built
States and cities have spent three years legalizing denser housing, but starts have fallen to the weakest pace since 2020 — because permission is not the binding constraint when the math does not work.
The past three years produced the most significant liberalization of American land use rules in half a century. States overrode local single-family zoning, legalized accessory dwelling units, cut parking requirements, and streamlined approvals for projects meeting objective standards.
Housing starts have fallen to their weakest pace since April 2020.
Why permission was not enough
Zoning reform removes a constraint. It does not create the conditions under which building is profitable.
A project gets built when the finished value exceeds the cost of land, materials, labor, financing, insurance and fees, by enough to compensate for risk. Reform lowers one input — the regulatory cost and the time to approval. Every other input has risen sharply.
Materials costs carry tariffs on imported inputs. Construction financing reflects long-term rates near 20-month highs. Builder's risk insurance has climbed with the rest of the property insurance market. And on the revenue side, rents are flat to falling in much of the country while home prices are forecast to be roughly unchanged this year.
Removing a barrier to a project that loses money produces a project that still loses money.
What reform did accomplish
The changes are not worthless; they are slow-acting. Legalizing a housing type today means it can be built in every future cycle in which the economics work, and the accumulated effect over a decade is substantial.
Accessory dwelling units are the clearest case. Where they have been legalized and approval simplified, permit volumes have risen consistently, because a homeowner adding one unit faces a completely different cost structure than a developer building a hundred.
The uncomfortable conclusion
Housing supply is determined by the interaction of regulation, interest rates, construction costs and expected rents. Advocates on all sides tend to emphasize the single variable they can influence.
The current moment illustrates the point. Regulation has loosened, and construction has fallen, because the other three variables moved further in the opposite direction. The reforms will matter — in the next cycle, when they will look like foresight rather than failure.
