Supply and demand might not be the only reasons for how high or low home prices are in a particular housing market. According to a study by Zillow, the growth in home values could also depend on the land-use regulations in a particular city.
Using the Wharton Residential Land Use Regulation Index, Zillow compared job growth and home value appreciation since 2010, by grouping markets by how strict their land use regulations were.
The study found that in the seven years between 2010 and 2017, home values across the country increased by 14 percentage points for every 10 percentage points increase in jobs. However, in markets with the most restrictive land regulations, values increased 25 percentage points for every 10 percentage points increase in employment.
Overall, home values in the most restrictive metropolitan areas grew an average of 23.4 percent, more than double the home value appreciation in the least restrictive metros (9.4 percent) and about one-third times faster than metros in the middle (17.9 percent), Zillow said.
Leading the list of such markets, was San Francisco where, according to Zillow, strict regulations combined with physical land limitations resulted in home values rising 58.8 percent between 2010 and 2017, while employment grew 23.2 percent during those years.
“In hot job markets with some of the strictest laws about building new residential housing, home values experience the most pressure,” said Aaron Terrazas, Senior Economist at Zillow. “It's helped home values recover and exceed their previous highs, but leaves many home shoppers unable to break into the market.”
Appreciation was smaller in areas with less-strict regulations, the study found. For example, job growth in Dallas, a moderately restrictive market, was similar to that in San Francisco, but home value growth was milder, increasing 37.1 percent.
The national growth in housing values also masked large swings between metropolitan areas. Therefore if home values rose 60.8 percent in Denver where jobs increased 22.6 percent, in Atlantic City, New Jersey, home values fell 25 percent and jobs decreased 8.5 percent during the seven-year period.