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Biden’s Infrastructure Plan Encourages Looser Zoning Rules to Ease Housing Shortage

April 17, 2021
real estate house framing

The Biden Administration is attempting to address a nationwide housing shortage through a “carrot-only” approach to development. Included in the $2.3 trillion infrastructure plan is a roughly $213 billion affordable housing initiative, with a $5 billion grant program to encourage local governments to ease zoning and land-use restrictions, such as minimum lot sizes and bans on multifamily housing.

These local restrictions, coupled with the COVID-19 pandemic and record-low mortgage interest rates, have resulted in a housing shortage – the tightest in 30 years. Ironically, this housing shortage is occurring during a time when house sales are skyrocketing. In Cleveland, one of the hottest housing markets in the country, pending home sales have increased by nearly one-third from last year. In other major cities, the demand is even more striking. For example, in Washington, D.C., home sales have increased by nearly 85% over the previous year. This supply-and-demand conflict has driven home prices to new heights, even though many families are already spending more than one-third of their income on housing.

To relieve this pressure, the Biden Administration proposes a $5 billion fund where local governments could compete for grants to pay for new schools, roads and bridges in return for looser zoning restrictions. This “carrot-only” approach would help local governments pay for the community-related expenses of new construction—such as more people on roads—while encouraging affordable housing.

Not all experts, however, are certain that this grant program, which still has not yet passed through Congress, will work. According to the National Association of Home Builders, regulatory compliance, which includes permits to comply with federal environmental protection laws, accounts for about 24% of the cost of a newly built single-family home. Also, the materials necessary to build new homes are at record heights. Lumber has never been more expensive and is up 188% since the start of the pandemic. The National Association of Home Builders estimates that lumber prices are adding at least $24,000 to the cost of the average new single-family home.

We will be staying on top of the Biden Administration’s proposed infrastructure plan and what it may mean for this country’s home builders. If you have any questions about how this legislation may impact your business, do not hesitate to contact Matt Viola (216-736-7253 / mtv@kjk.com), who heads our Real Estate practice group.

 

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