Can New Zealand's Upzoning Success Provide A Blueprint To Surging US Home Prices?

In the midst of soaring home prices and surging demand for space stateside, the U.S. can take a lesson from a nation nearly 8,000 miles away: New Zealand.

Known for its scenic landscapes and Lord of the Rings-inspired tourism, the island country caught the attention of economists and urban planners, who wonder if New Zealand’s upzoning reforms would be an answer to America’s affordable housing dilemma.

New Zealand, not unlike many urban pockets in the U.S., once faced very low-density residential neighborhoods. A potent mix of rapid population growth and restrictive zoning culminated in Auckland’s home prices doubling between 2009 and 2016, according to Business Insider.

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Though instead of succumbing to the problem, Auckland introduced laws allowing the building of denser housing options on single-home lots which resulted in a tripling of housing capacity and a slowed pace of rising housing costs.

The Contrast With America: The U.S., especially its burgeoning cities, grapples with restrictive zoning laws, which are relics from another era according to Insider, originally designed for segregation and the separation of residential neighborhoods from manufacturing.

The implications are less-than-quiet — prohibitive construction of multifamily homes, skyrocketing housing costs, and an affordability crisis.

While some cities like Denver, Seattle, and Washington, DC are finding success in denser housing, others remain caught in a web of conflicting regulations and opposition from well-off homeowners.

Data from Goldman Sachs Group Inc GS paints a clearer picture of the U.S. conundrum. The pandemic ushered in a counterintuitive housing boom despite unemployment spikes.

The work-from-home era intensified the demand for housing, resulting in a 43.3% surge in U.S. home prices between March 2020 to June 2022.

Today, while mortgage rate shocks cooled off the rampant growth, the majority of pandemic house price gains persist. Goldman’s sees modest growth rates for U.S. home prices, culminating in a 4.5% rise above the 2022 peak by 2026.

The Path Forward: The construction industry — including giants like D.R. Horton Inc DHI and Lennar Corp LEN, PulteGroup, Inc PHM, and others — could see a shift in building demand as more cities adopt or resist upzoning policies.

The lesson from New Zealand and the lingering aftermath of the pandemic housing boom is pretty clear: Upzoning, although essential, isn’t a cure-all.

Besides revising outdated zoning laws, a holistic approach would require building-code changes, infrastructure investments, and public funds for affordable housing options.

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