Raleigh, NC – North Carolina home prices increased over 10 percent since the start of the pandemic, the first time that Zillow data has shown a double-digit increase in any 12-month period. That came on top of several years of price growth in excess of 5 percent – substantially higher than during the so-called housing bubble of the 2000s.
The sustained increase in home prices has a straightforward cause: North Carolina has built far fewer homes, especially small homes, than at any time in a generation. Even while prices surged past 2007 levels, homebuilding remained stuck below 1993 levels. And the homes that are built today are disproportionately of the large-and-pricey variety.
The main culprit for high home prices is local land-use regulation – restrictions on where and how densely housing can be built. Since 2015, legislators have been working to ease the burden of land-use regulations on owners, as they have with other regulatory reforms. They have taken significant steps to protect the rights of owners to use their property with less interference from local government, including a comprehensive rewrite in 2019 that made state zoning law clearer and more predictable whether a person is dealing with a city or a county. The bill also improved the bargaining position of owners versus local governments.
In this environment, it is not surprising that a bipartisan team of legislators has filed the most ambitious zoning reform bill that we have ever read. The Act to Increase Housing Opportunities, filed concurrently as Senate Bill 349 and House Bill 401, has four major themes:
- It would legalize “middle housing,” which it defines as duplexes, triplexes, quadplexes, and townhouses. This provision would preempt local restrictions that allow only single-family homes on much of the state’s residential land, provided water or sewer is available. This section has a key weakness, however: It would allow localities to apply stricter regulations to “plexes” than to single-family homes, which could act as a functional ban.
- The bill would also give North Carolina homeowners the right to build and rent out an “accessory dwelling unit” (ADU) such as an in-law apartment or backyard cottage. Unlike with middle housing, the bill would clear away regulations that make ADUs impracticable, including parking restrictions and high fees. It would also ban owner-occupancy restrictions, although North Carolina courts have already ruled those constitutionally invalid.
- The bill would try to rebalance the relationship between property owners and local governments, giving more weight to the former. The most ambitious clause in this vein reads, “A local government shall not adopt or enforce an ordinance downzoning property that has access to public water or public sewer, unless the local government can show a change in circumstances that substantially affects the public health, safety, or welfare.” It would not be ironclad – circumstances are always changing, and “welfare” is an elastic term. Another clause would remind governments that “ambiguities … are to be construed in favor of the free use of land.” Although those clauses would not immediately change the regulatory framework, they would instruct judges to approach local authority with more skepticism. Of more immediate value to builders, the bill would also provide a flurry of procedural tweaks intended to protect property owners during permitting processes and disputes.
- Finally, the bill would require each jurisdiction to make space for every type of land use except industrial and “nuisance” uses (such as garbage dumps). When the Supreme Court upheld zoning in a 1926 case, part of its premise was that some uses of land are only restricted when they are in the wrong place – “a pig in the parlor instead of the barnyard.” Since then, zoning has become much stricter. Instead of merely separating land uses, many jurisdictions entirely ban them. This provision would be a first step in returning to what zoning expert William Fischel calls “good housekeeping zoning.”
The bill could better achieve its desired effects if some provisions were amended.
First, the bill could include a crucial form of middle housing, cottage clusters, preferably on divisible lots. Where “plex”-style middle housing provides an excellent wealth-building platform for owners who live in one unit while renting out the others, cottages can replace the vanishing starter home. That is especially true if a lot with a cluster of cottages – essentially houses smaller than 1,200 square feet in area – is allowed to subdivide below the minimum lot size so that each cottage can be sold without the complexities of a condo.
Second, the provision that limits downzoning could clarify that local governments can still achieve those ends by purchasing easements or compensating property owners for a partial regulatory taking. When a city wants to preserve a historic district or add parking, for instance, it ought to compensate those who bear the costs, just as it does when buying land for a new park or road.
The General Assembly has been consistent in its pursuit of fiscal restraint and government reform to expand access to opportunity for more people. Removing barriers to innovative forms of housing would improve housing availability and affordability while providing more ways for existing owners to capture the value of their investments. North Carolina should have room for everyone to find a home and advance economically.