How Do Building Regulations Impact Housing Supply?

Builders across the US are still trying to keep up with homebuyer demand that began during the pandemic housing boom, and in some areas, regulations are creating even more hurdles
May 22, 2025
2 min read
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Home builders work to improve housing inventory
Home builders across the U.S. are working to improve inventory, but regulatory processes and growing demand continue to be a challenge.

The pandemic housing boom had a major impact on markets across the U.S., with builders in some regions unable to keep up with growing demand. In turn, these housing markets saw home prices skyrocket, and in many areas, they still have not come down. However, demand wasn’t the only factor that drove up home prices during this time. Strict building regulations are also to blame for the lack of housing in these regions. Rules around density, height, parking, and permits all have an effect on the amount of housing in a particular area and how long it takes to build there.

To determine the impact state and local governments play in determining the amount and cost of housing, online real estate marketing platform Zillow analyzed building data across the top 50 U.S. metros over the last few years and found that tighter regulations raise home values by 9.1% and rents by 4% nationally.

Home builders' ability to respond to demand varies by metro 

Among the 50 largest metro areas, certain cities saw a stronger-than-expected response from home builders based on levels of demand and how quickly builders were able to add more housing. Cities such as Pittsburgh, San Antonio, Phoenix, Dallas, Columbus, Ohio, and Austin, Texas, experienced a surge in construction activity, with builders issuing more permits than anticipated during the pandemic housing boom.

Other metros, however, underperformed in meeting the increased demand during this time, due to stricter regulations in place. Seattle, for example, issued 27% fewer single-family building permits than needed, while Baltimore and Detroit fell short by 26% and 23%, respectively. Boston and San Francisco also lagged, with permit shortfalls of around 20% and 18%.

Housing supply is shaped by zoning policies at the state and local level

  • How Zoning Impacts Housing Development: Amid the ongoing housing shortage, an online tool from the National Zoning Atlas is showing how different zoning policies affect the amount of housing built in a given region. 
  • How Does Local Zoning Affect Housing Affordability?: While some believe less restriction is the answer to building more houses, in some parts of the U.S., goverments are turning to high-density zoning in order to increase housing supply. 

 

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