Staff: Tennessee housing affordability stems largely from undersupply; land-use rules and fees cited

Staff presenting an update on the commission's housing affordability study said the state's problems appear rooted in undersupply, driven by population growth and local land-use rules.

"The problem of housing affordability comes down to a simple fact of undersupply," said Speaker 7, who delivered the staff presentation requested by House Joint Resolution 139. Speaker 7 told members staff's preliminary county-level analysis and stakeholder interviews point to population growth concentrated in some counties and land-use regulation as prominent drivers of reduced housing availability.

The staff memo and maps in the packet show county population growth and availability measures. Speaker 7 reported a preliminary correlation of about -65% between county population growth and the housing availability rate, saying this indicates counties with higher growth tend to have less available housing.

Speaker 7 listed other contributing factors raised by stakeholders: impact fees, the presence of short-term rentals, institutional investors in rental markets, elevated interest rates and higher construction-materials costs since the pandemic. On land-use rules, staff said measures such as minimum-parking requirements and single-family zoning can constrain the number of units built. "Single-family zoning has been called a, quote, 'self inflicted wound,'" Speaker 7 said.

Asked about impact fees and the evidence base, Speaker 7 said Tennessee's analysis is complicated by the small number of jurisdictions that use impact fees. Citing literature from other states, staff said impact fees tend to add a marginal cost to housing; "some studies find that a $1 increase in impact fees is associated with roughly a $1-and-some change in housing cost," Speaker 7 said, adding that staff continues to study the relationship.

Members asked about possible policy responses. Speaker 7 offered a menu of options under consideration: making more land available for housing; reforming land-use and zoning rules; streamlining permitting; incentivizing development and investment in affordable housing; adjusting finance and taxation tools; direct assistance for renters and buyers; and workforce and construction-sector investments. Staff also noted examples from other states, including Montana's menu approach, Oklahoma's $250 million housing trust for low-interest loans, and recent large housing investments in Massachusetts.

During Q&A, members raised implementation questions: whether population changes in rural counties represent spillover from nearby metro areas; the feasibility of inventorying state and local public land for housing (including underused municipal sites such as libraries or firehouses); and practical barriers to using land banks. Members and staff also discussed developer barriers — builders cited labor shortages, material costs, permitting delays and time-to-approval risk. One member reported a builder estimate that each linear foot of road frontage can add approximately $1,000 to $1,500 to development costs because of off-site infrastructure requirements.

Staff characterized the numerical findings as preliminary and said more work is needed to quantify the effect of land-use measures and fees. Speaker 7 closed by saying staff will continue analysis and is available to follow up on members' questions.