- A new report on housing reform from the Mercatus Center offers a framework to examine North Carolina’s progress in removing barriers to housing construction and identify where additional reforms are still needed
- Even though North Carolina has already adopted several housing reforms, state and local regulations continue to limit the amount and type of housing that can be built in many communities
- Many reforms can be pursued locally through changes to zoning, permitting, and development standards, while the General Assembly can establish broader guardrails and protections for housing construction
North Carolina needs more housing. As communities across the state continue to grow, the question for policymakers is not simply how to make housing more affordable, but how state and local policies can make it easier for the private market to produce the homes North Carolinians need.
Fortunately, North Carolina does not have to start from scratch.
In Housing Reform in the States: A Menu of Options for 2027, Mercatus Center scholars Salim Furth, Emily Hamilton, and Charles Gardner identify 18 reforms that state and local policymakers can use to remove regulatory barriers to housing construction. Their recommendations fall broadly into four categories: reversing regulatory overreach, streamlining development procedures, improving legal frameworks, and updating construction standards.
Using the Mercatus report’s recommendations as a benchmark provides a useful way to evaluate North Carolina’s progress. In several areas, the General Assembly has already adopted reforms that protect property rights and make housing easier to build. In others, legislation containing reforms has been introduced but not become law.
Importantly, not every solution requires action from Raleigh. Local elected officials, planning boards, zoning officials, and permitting departments can pursue many of these reforms themselves. State lawmakers can establish broad protections and guardrails, while local governments can examine their own zoning ordinances, permitting procedures, parking requirements, fees, and development standards.
This brief is the first in a three-part series that uses the Mercatus report’s framework to take stock of what North Carolina has already accomplished and identify the next steps state and local policymakers should take to increase housing supply.
1. Cap minimum lot size requirements
Minimum lot size requirements limit how many homes can be built on available land and increase the amount of land that must be purchased with each home. The larger the minimum lot size, the fewer homes can be built. Allowing smaller lots can support more entry-level and lower-cost housing.
The Mercatus report recommends that states establish ceilings on local minimum lot sizes, particularly in places served by public water and sewer. “Ceiling” means a maximum limit set by the state that localities could not exceed by their own minimums. For example, if the state of North Carolina were to set a minimum lot size ceiling of 1,500 square feet, then the city of Raleigh could not set its minimum lot size to 1,800 square feet, since it would be above the state’s designated ceiling.
Houston provides evidence of the importance of allowing for small lot sizes. After allowing residential lots as small as 1,400 square feet, the city saw tens of thousands of small-lot homes constructed. Texas and Maine have since adopted statewide limits on minimum lot sizes in certain circumstances.
North Carolina considered a similar concept in Senate Bill (SB) 688. The bill would have required residential zoning to be based on dwelling units per acre rather than minimum lot sizes and established minimum allowable densities based on municipal population. A minimum allowable density would establish a floor for how many housing units a local government must allow per acre, preventing a city from having zoning rules that require very large lots. Under SB 688, the minimum density would have varied based on municipal population, with larger municipalities required to allow more housing units per acre than smaller municipalities.
It did not become law.
State action: The General Assembly could establish a reasonable limit on minimum lot sizes.
Local action: Cities and counties do not need to wait for state legislation. Local governments can review their zoning ordinances and reduce minimum lot sizes where existing requirements unnecessarily consume developable land. They can also allow the subdivision of larger residential lots into smaller lots where infrastructure can accommodate additional homes.
2. Require clear and objective development standards
Housing that complies with existing zoning regulations should not require a political negotiation before it can be built.
The Mercatus report recommends requiring “specific and objective” approval criteria. When applicants satisfy published standards, approval should follow rather than depend on subjective judgments by boards or administrators.
North Carolina’s House Bill (HB) 765 attempted to move in this direction. Among other provisions, it would have expanded administrative approval for permitted uses, established clearer timelines, restricted unauthorized zoning conditions, and required factual support for certain zoning decisions.
State action: The General Assembly should revisit the provisions in HB 765 and establish stronger protections for by-right development.
Local action: Planning boards and local governments can audit their own ordinances for vague, undefined standards, such as whether a project is “compatible,” “appropriate,” or consistent with neighborhood “character.” Wherever possible, these should be replaced with measurable standards involving height, setbacks, density, traffic, infrastructure, and other objectively identifiable conditions.
Projects satisfying those standards should receive administrative approval.
3. Strengthen protections against zoning regulations that would make existing development nonconforming
Zoning regulations should not make the types of homes, lots, and development patterns that already exist throughout a community illegal or impossible to build again.
The Mercatus report highlights jurisdictions where large shares of existing development would be illegal to construct under current zoning and recommends invalidating certain restrictions when a substantial share of existing properties do not comply with them.
North Carolina has partially addressed this issue in 2024 through SB 382, which included a provision that restricts local government–initiated downzoning and protects against certain newly created nonconformities.
There is room to go further.
State action: The General Assembly could pass a reform protecting homeowners against zoning standards that make large portions of existing neighborhoods nonconforming.
Local action: Local planning departments could conduct zoning audits comparing current requirements with existing development. If an established neighborhood consists predominantly of homes on 5,000-square-foot lots, for example, then requiring 10,000-square-foot lots for new homes would deserve reconsideration. The same principle could apply to setbacks, parking, building dimensions, and density.
Existing neighborhoods can provide valuable evidence about what forms of development are already compatible with a community
4. Secure development rights when an application is submitted
Developers should be able to rely on the zoning and development rules in place when they submit a qualifying application rather than risk having those rules changed while a project is moving through the approval process.
The Mercatus report recommends securing zoning rights at the time a development application is submitted.
A 2025 bill, SB 493, attempted to strengthen North Carolina’s vested-rights protections by clarifying that qualifying development applications would be protected from subsequent changes to local development regulations. The bill would also have clarified that establishing a vested right would not extinguish other existing use rights attached to the property, giving developers greater certainty that the rules and development rights applicable when they filed would remain available as the project moved through the approval process. While SB 493 passed the Senate, it stalled in the House.
State action: North Carolina should reform vested rights and consider establishing that applicable zoning regulations are secured upon submission of a completed development application.
Local action: Local governments can create greater predictability by avoiding zoning changes designed to stop projects already moving through the development process and by publishing clear policies governing pending applications when regulations change.
5. Limit objectors’ standing to sue
Residents who challenge a development approval should be required to demonstrate an actual and individualized harm rather than relying on generalized opposition to delay an otherwise lawful housing project.
North Carolina already requires people who are not the applicant or a property owner to demonstrate that they will suffer “special damages” in order to appeal certain quasi-judicial land-use decisions. Even so, state law also allows neighborhood associations to appeal when at least one member has standing, meaning that groups of nearby property owners can participate in challenges without every member individually demonstrating a distinct harm.
State action: The General Assembly could clarify that challengers must demonstrate actual or imminent damages that are personal and distinct from effects on the public generally. A narrower standing standard could be written to require an objector to show a concrete, personal impact from the proposed development rather than simply living nearby or opposing the project.
Local action: Local governments cannot rewrite state standing requirements, but they can reduce opportunities for conflict by adopting clear and objective approval standards. The less uncertainty built into a development approval, the less opportunity there is for prolonged disputes over whether an otherwise permitted project should move forward.
Part 2 of this series will continue to look into what state and local policymakers can do to make housing more affordable and abundant in North Carolina.
The post A housing supply reform agenda for North Carolina: Part 1 appeared first on John Locke Foundation.
