Permitting and Zoning Rules, Not Investors, Are Driving Higher Housing Prices

House prices are high and continually climbing, making it more difficult for Americans to afford a home. Prices for consumer goods may be ten times higher than they were in 1965, but houses are an astounding 24 times more expensive. When comparing the median price for a home in the U.S., which is nearing half a million dollars, to the median household income of $80,000, it’s clear why homeownership feels so far out of reach for so many Americans.

Federal and state lawmakers are following an easy playbook: blame large firms and investors for supposedly buying up vast amounts of the market. Missouri State Senator Joe Nicola (R-Grain Valley) is even trying to change state law to set strict rules on the properties that investors can buy.

This playbook is common, but it is not supported by the facts. The truth is that investors and their capital make home buying and renting more, not less, affordable by increasing housing supply. The real culprits behind high prices are runaway zoning restrictions and endless red tape preventing new construction. Political grandstanding and empty populism are no substitutes for building affordable homes.

Large companies and investors get plenty of scrutiny for bulk property purchases. But, according to a 2024 analysis by the Mercatus Center, “Large, institutional owners of single-family homes have never accounted for more than 2.5 percent of home purchases in any given quarter…Large institutions are still an exceedingly small part of the entire market. They don’t account for even 1 percent of the single-family rental market.”

A recent Kansas City Star story claimed that “large corporations buying single-family homes have contributed to rising prices,” but that assertion is simply false. Figures from the Mid-America Regional Council (MARC) reveal that, while 14,000 single-family homes in the Kansas City region are company-owned, there are an astounding 700,000 single-family homes total in the region. Pointing fingers and attempting to “fix” a modest two percent of the housing supply will only exacerbate the housing crisis.

The real culprit of high housing costs is far more nuanced. According to a 2020 Federal Reserve analysis of housing costs, investors’ impact on home prices is especially negligent in areas “where there are loose supply restrictions.” Therefore, “in the medium-term it may be optimal to let housing markets adjust through changes in supply instead of blocking the investors.” The Fed points to onerous local regulations as a chief culprit of rising costs.

Zoning laws and land-use regulations significantly contribute to rising home prices by limiting the supply of developable land, pushing affordable housing farther away from city centers. Local governments often impose restrictions on density (such as single-family-only zoning), building heights, lot sizes, and land-use types. These ill-considered constraints reduce the number of housing units that can be built in a given area, particularly in high-demand urban and suburban locations. The above-cited MARC report acknowledges, a “limited supply of available single-family homes for sale pressures rental prices upward.”

When demand for housing remains strong and supply is artificially capped, prices naturally rise. Research from economists like Edward Glaeser and Joseph Gyourko has shown that heavily regulated markets like San Francisco, New York, and Boston have much higher housing costs compared to cities with more permissive zoning frameworks. “Zoning taxes” identified in this research account for 10 percent or more of housing costs, a testament to the unacceptably high price of these rules.

Instead of promoting baseless claims, Sen. Nicola and company should focus on these devastating restrictions on land use. With the proper policy focus, home purchases and rentals need not break the bank.