From Jefferson to Davidson and Shelby counties, Tennessee has a housing affordability problem as demand for new housing has outstripped supply, details a new report from the state’s intergovernmental agency.
Since 2019, the median home price in Tennessee has increased 44%, surpassing the national average of 34% as tracked by the U.S. Federal Reserve.
The problem is not limited to fast-growing counties and cities, the Tennessee Advisory Commission on Intergovernmental Relations (TACIR) said in its report approved by commission members last week, but statewide, adding that more people They are trying to buy a limited supply. of homes, raising prices and putting the cost “out of reach for many.”
TACIR identified zoning, particularly single-family zoning, as one of the factors influencing the number of new homes built.
Single-family zoning is a type of land regulation that prevents homeowners from building more than one housing unit on a property. This type of regulation makes it difficult for developers to build apartments or even divide properties into multiple units. Ultimately, it restricts the number of people who can live in certain neighborhoods and communities, creating intense competition for fewer homes and driving up prices.
Zoning has become a bipartisan issue, and states like Democratic-controlled California and Republican-controlled Montana have adopted laws requiring city and county governments to eliminate many zoning regulations. construction of new homes.
Ron Shultis, a policy researcher at the conservative think tank Beacon Center in Tennessee, said the state’s single-family zoning creates a housing affordability crisis and that rents are rising more slowly in cities like Minneapolis, which have abolished the policy.
“You can see the results when you apply best practices and essentially allow the market to do what it does best, which is meet a demand,” Shultis said.
Housing Cost Impact Fees
State and local lawmakers on the TACIR commission received the draft housing report during their quarterly meeting in Nashville in late May.
Republican state Rep. Mike Sparks of Murfreesboro began the report by asking the commission to study the potential effect of impact fees on housing prices.
“I don’t know if it will help us keep our property taxes down,” Sparks said. “But to solve the problem, we have to have a discussion.”
State Rep. Mike Sparks, R-Smyrna (Photo: Tennessee General Assembly)
Lobbyists for state associations of realtors and home builders have consistently blocked counties from implementing impact fees (which require a bill from state lawmakers to take effect) over fears they would increase prices. of the homes that these groups are building and selling.
Impact fees, a one-time charge for builders, would be paid at least initially by developers, but some of the cost would likely be passed on to buyers of new homes.
County and city governments in fast-growing communities have wanted to implement or increase impact fees, rather than raising property taxes, to pay for new roads, schools and public safety costs that come with larger populations.
The draft report found that impact fees have minimal impact on the cost of housing, but along with the urging of several other commission members, it took the opportunity to study growing problems across the state with the housing market. .
Higher prices, higher tax bills
Rising new home prices have allowed many, but not all, counties to reduce their overall property tax rates. But the actual dollar amount homeowners pay in those taxes has increased as home values grow faster than the value of real estate and business-owned properties, leaving homeowners to bear a greater burden. fiscal.
This comes as many homeowners have seen the value of their homes, whether in good condition or not, rise rapidly for several years, sometimes even doubling in value as housing supply shortages drive up demand.
Homeowners then find themselves in a dilemma: On paper, they can sell their homes for more money but probably can’t find a cheaper place to live.
This has particularly affected older homeowners and retirees living on fixed incomes. Those homeowners can apply for a property tax freeze, but income limits mean many don’t qualify.
Other recommendations in the draft report include offering incentives to local governments to adopt zoning reforms, adding more money to the state’s housing trust fund and adopting policies to mitigate the impact of any reforms on an individual’s property taxes. .
The full draft of the report
TACIR Housing Report 2024
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