Nashville’s Zoning Laws Are Contributing to Housing Prices 30 Percent Higher Than They Should Be, Experts Say

Housing prices continue to climb in Nashville as interest rates and scarcity of available homes combine with the overall desirability by people across the country to move to the Tennessee capital.

But additionally, data from Florida Atlantic University (FAU) College of Business shows from May 2023 that, the city’s housing is 33.41 percent higher than it should be. FAU determined what the average cost of a home in a city is and what the cost is expected to be by analyzing data from Zillow and other third-party housing data providers.

In Nashville, its analysis found that the average home in Music City is $437,024, while it is expected to be $327,581.

According to the college’s data, this ranks 25th in the country.

As housing prices rise, so, too, are average rent amounts. The city’s average monthly rent cost is $1,952 – 7.5 percent higher than it should be, according to FAU data from May 2023. FAU says the average rent should be $1,815.

FAU ranks Nashville rental inflation as the 56th highest in the country.

The college researchers look to Zillow and other third-party housing data providers to determine what the rental market has to offer in terms of pricing, amenity, and availability.

In 2021, Nashville surpassed 2 million residents as people moved there during the COVID pandemic. According to WKRN, Census Bureau data showed that from 2020 to 2021, the city saw a “net in-migration” of 13,234 people, during which almost 36 people moved to the city daily.

However, data from 2022 showed that Nashville lost 11,533 people in 2021 after experiencing that wave of new people the year prior.

Davidson County saw 1,151 residents in 2022 move to different counties in the state, according to the University of Tennessee (UT). Furthermore, Davidson County residents moving to a different county in Tennessee increased from 3.6 percent in 2010 to 4.7 percent in 2020, UT found.

UT analysis shows counties outside of Nashville are the areas experiencing the most population growth.

Davidson County did add 4,772 residents in 2022, but that is 8,462 fewer people than the city saw move there two years prior.

Meanwhile, Rutherford County experienced 9,417 people moving to the area in 2022, which was the most for a Tennessee county.

UT predicts that Tennessee could see 1 million new people moving to the Volunteer State by 2040. This year, Tennessee’s population went over 7 million.

The Nashville Mayor’s Office released an affordable housing task force report two years ago. The report estimated that the city would need to create 53,758 new housing units to accommodate its projected growth by 2030.

Nashville has increased its home inventory by 160 percent from April 2022 to April 2023, according to a RE/Max national housing report, ranking Music City second in the nation behind Raleigh, North Carolina.

Professor Daniel Smith, who is the director of the Political Economy Research Institute at Middle Tennessee University, told The Tennessee Star the most useful item from that report was the recommendation to “examine Nashville’s zoning laws to remove overly restrictive regulations preventing the construction of new housing options.”

“We knew this was the fundamental problem all along, so the resources used by the taskforce might have been better spent doing this,” he said in an email.

Charles Gardner, who is a research fellow at the Mercatus Center that focuses on housing affordability and planning law, told The Star, “In order to accommodate that number of units, you need to have zoning capacity, which can accommodate it.”

Gardner said Nashville faces a planning issue regarding how and where Nashville will “accommodate this growth.”

The research fellow described the zoning map of Nashville as “complex.”

According to Jason Edmonds, a policy analyst at the Beacon Center of Tennessee (BCT), Nashville has over 100 zoning districts, which was the most out of any county in Tennessee.

Smith said that the housing prices Nashville is experiencing “indicated that demand housing is outpacing supply.”

“To encourage new housing supply to keep Nashville affordable, especially for the entry-level workers that are attracted to the economic opportunity in the city, we need to seriously examine how zoning regulations in the city may unnecessarily complicate, increase the cost of, or restrict housing,” he said in an email.

Edmonds told The Star that zoning laws “restrict supply, and that creates increased housing prices.”

He added that zoning laws artificially restrict how much housing can be built.

The policy analyst said if Nashville reforms or removes zoning laws, the housing prices will be left to the market, and the prices will “come down and make things more affordable.”

BCT released a zoning report in June that showed 82.4 percent of zoned land only allows single-family type of housing.

Rocket Mortgage defines single-family homes as “designed to be used as a single-dwelling unit, with one owner, no shared walls, and its own land” and a “free-standing residential building.”

Gardner said the primary concern of single-family zones is that it “arbitrarily” limits the density to which an area can be developed.

“Single-family zoning greatly limits the area in which those units can be added,” Gardner said.

He said an option for Nashville to consider is adding more units per structure.

“It is through those sorts of smaller changes as opposed to the construction of large apartment buildings, which draws a lot of the attention, that you can also add to supply significantly by unlocking property rights for individual owners,” he said.

“Allowing a piece of land to be broken into smaller pieces gives people more opportunities to own and become homeowners themselves, even in a city,” the research fellow added. “It creates more options for everyone, not just rental options, but ownership options as well.”

Davidson County only allows 10.9 percent of its zoned land to have three or more units, according to the BCT zoning report. In addition, the report also shows that two units are allowed on just 57.2 percent of the county’s zoned land.

Edmonds said these zoning laws are impacting the supply of housing.

According to Smith, homeowners in a particular area may be hesitant to adjust zoning regulations.

“The underlying source of many of zoning regulations preventing supply, however, is homeowners who see multi-family housing, renters, or more affordable housing as a threat to their community character,” the economics professor said in an email. “These often include minimum lot sizes, minimum parking requirements, height requirements, and explicit restrictions on multi-family housing or adding new housing units on existing lots.”

Gardner said reducing minimum lot size requirements and parking permit mandates can have a big impact.

“Allowing a single lot to have double or triple the number of units over a large area can make an enormous impact,” he said.

Smith said Nashville “should allow market forces, meaning the needs of residents rather than the ideals of city planners, to determine the appropriate parking allotment and location.”

“Minimum parking requirements impose substantial costs on a city and also restrict prime real estate to parking rather than housing,” he said in an email.

Reforming zoning laws to allow lots to build more units on private properties can make a difference in city housing costs. A 2016 National Bureau of Economic Research study showed that as housing increased in a place by 3 percent, then the rent in that area decreased by 2 percent.

Also, in 2018, New York University’s Furman Center released a report that showed adding different types of housing units improves housing affordability for everyone and abates rental increases.

In 2022, Seattle allowed new apartment buildings to be built, which resulted in a 19 percent increase in construction rates from the previous year, according to Axios. Rent prices, as a result of these new options, decreased by 1 percent from November 2022 to December 2022, curiocity.com reported. The national average during this time span was .3 percent.

As Music City continues to grow and expand, it is looking to “mixed-income” housing and neighborhoods as the future design of city neighborhoods. According to a MNPC report on developing the East Bank neighborhood, mixed-income communities “seek to alleviate the harms of concentrated poverty and have been shown to promote neighborhood improvements, including increases in housing quality and public safety.”

Smith said instead of centrally planning communities through zoning designations, city leaders should “allow city residents the widest scope possible to build communities organically.”

“Alain Bertaud, in his book Order without Design: How Markets Shape Cities (MIT Press), based on his five decades of urban planning experience around the world, argues that infrastructure should complement markets,” Smith said in an email. “This oftentimes means allowing labor markets to shape the spatial distribution and concentration, rather than urban planners using models focused on other outcomes.”

Smith noted it is impossible to predict the housing needs of “current and future Nashville residents.”

“That is why restrictive zoning laws, focused on designating certain areas for certain purposes, are so harmful,” he said in an email. “Cities should focus on relaxing zoning codes across the board to allow market needs to determine housing options.

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Zachery Schmidt is the digital editor of The Star News Network. Email tips to Zachery at [email protected]. Follow Zachery on Twitter @zacheryschmidt2.
Photo “East Nashville Neighborhood” by Andrew Jameson. CC BY-SA 3.0.

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