- SB 445 would expand housing supply by legalizing ADUs and allowing residential development in commercially zoned areas across North Carolina
- The bill would address housing affordability by reducing regulatory barriers that prevent the private market from building enough homes to meet demand
- While SB 445 is a strong step forward, lawmakers should continue pursuing broader reforms such as by-right multifamily development and zoning deregulation
North Carolina’s housing affordability crisis is fundamentally a supply problem. Demand continues to grow as people and businesses move to the state, but housing production has struggled to keep pace. The result has been rising home prices, increasing rents, and declining affordability in communities across North Carolina.
A 2024 housing needs assessment by a national real estate research firm estimated that North Carolina could face a housing shortage of over 764,000 units by 2029. At the same time, affordability has declined in all 100 counties as demand continues to outpace housing construction. These trends are increasingly making it difficult for young families, first-time homebuyers, and working-class North Carolinians to find housing they can afford.
Against that backdrop, the housing provisions included in Senate Bill (SB) 445 represent one of the most significant pro-supply housing reforms considered by the General Assembly this session.
The bill would require local governments to allow accessory dwelling units (ADUs) in residential areas where single-family homes are permitted. It would also require local governments to allow residential and multifamily development in commercially zoned areas.
Neither reform would solve the housing shortage overnight. Nevertheless, they would both move North Carolina in the right direction by reducing regulatory barriers that limit housing production.
ADUs are one of the simplest ways to add housing supply
Allowing accessory dwelling units, also known as backyard cottages, garage apartments, in-law suites, and granny flats, is one of the lowest-cost ways to increase housing supply.
SB 445 would require local governments to allow at least one accessory dwelling unit on residential lots where single-family homes are already permitted while eliminating many of the regulatory hurdles that have prevented homeowners from building them. In many communities, ADUs are technically legal but effectively blocked through burdensome requirements such as special-use permits, owner-occupancy mandates, excessive parking requirements, minimum lot-size standards, and restrictive size limits. The bill would prevent local governments from using many of these tools to discourage ADU construction. For example, it would prohibit local governments from requiring a homeowner to live on the property, forcing developers through lengthy discretionary approval processes, or limiting an ADU to less than 800 square feet.
These changes may seem minor, but they address the kinds of local regulations that often make small-scale housing projects financially impractical. By creating a more predictable approval process, SB 445 would make it easier for homeowners to add rental units, housing for family members, or workforce housing in neighborhoods that already have infrastructure in place.
The economics behind ADUs are straightforward. Because they are built on existing lots with existing infrastructure, they can often be produced at a lower cost than entirely new housing developments. They also provide housing options for aging parents, young adults, caregivers, students, and workers who may not be able to afford a traditional single-family home.
States that have liberalized ADU regulations have seen substantial increases in housing production. California, for example, saw annual ADU permits increase from roughly 1,300 units in 2016 to more than 28,000 units annually after statewide reforms reduced local barriers to construction. ADUs now account for a significant share of new housing production in many California communities.
Commercial land represents a massive opportunity for new housing
The most consequential housing reform in SB 445 may be its provision allowing residential and multifamily development in commercially zoned districts.
The legislation would require local governments to permit residential structures and multifamily developments in areas zoned for nonagricultural commercial, business, and industrial uses while establishing a minimum allowable height threshold of 60 feet. In other words, the bill is tailored more for multifamily development in commercial areas rather than single-family developments.
This reform addresses a significant problem in modern zoning.
Across North Carolina, large amounts of commercially zoned land sit underutilized. Aging strip malls, vacant shopping centers, declining office parks, and oversized parking lots often occupy land with existing infrastructure, utility access, and transportation connections. Yet local zoning rules frequently prohibit housing from being built on these properties.
Allowing housing in these areas creates opportunities for infill development without requiring costly infrastructure expansion or greenfield development.
More importantly, it creates opportunities to build housing where people actually want to live, near jobs, services, and existing transportation networks.
Why market-rate housing matters
One of the biggest misconceptions in housing policy is that only subsidized housing improves affordability.
The evidence increasingly suggests otherwise.
A growing body of economic research has found that new market-rate housing, even luxury apartments, helps reduce pressure throughout the broader housing market. When higher-income households move into newly constructed units, they free up older housing stock that becomes available to middle-income and lower-income households.
Researchers call this process “filtering.”
One study frequently cited by housing economists found that building 100 new market-rate apartments opens up roughly 70 units in below-median-income neighborhoods through a chain of moves over time. Other research has found that new housing construction lowers rents in nearby neighborhoods and slows rent growth across local housing markets.
The need for a by-right approval process for multifamily developments
North Carolina still maintains many local regulatory barriers that unnecessarily constrain housing production. Minimum lot-size requirements, parking mandates, setback requirements, discretionary review processes, and lengthy permitting timelines all increase costs and discourage development. In addition to SB 445, lawmakers should give serious consideration to by-right multifamily developments.
Under a by-right system, projects that comply with objective zoning standards receive administrative approval without requiring special permits, rezoning hearings, or political approval from local elected officials.
In many North Carolina jurisdictions, meeting the zoning requirements does not automatically guarantee approval. Developers are often required to obtain special-use permits, conditional rezoning approvals, site plan reviews, traffic impact studies, environmental reviews, or other discretionary approvals that require hearings before planning boards or elected officials. Because these approvals involve subjective judgments rather than objective standards, projects can face months or even years of delays due to public opposition, political considerations, or repeated review cycles. This uncertainty increases financing costs, discourages investment, and ultimately raises housing prices by making new housing more expensive to build.
By-right approval would significantly reduce those barriers. For example, legislators could require a by-right approval process for all multifamily developments in areas of a certain density. In addition, single-family zoning could be outlawed in localities of a defined population while allowing for by-right approval of small multifamily developments such as duplexes and triplexes. This would be similar to California’s 2021 SB 9.
North Carolina lawmakers have considered broader housing reforms in previous sessions, including legislation that would have expanded housing flexibility and reduced local restrictions on housing development. Many of those proposals went beyond those in SB 445 in addressing the root causes of housing scarcity, such as last year’s SB 497, which would have removed single-family zoning in residential areas by allowing by-right approval for quadplexes and below. As the General Assembly continues its housing discussions, lawmakers should revisit those ideas.
The bottom line
The housing provisions in SB 445 represent a meaningful step toward addressing North Carolina’s housing shortage.
Allowing ADUs and residential development in commercially zoned areas will make it easier for the private market to produce housing where demand exists. Those reforms recognize a simple reality: Housing becomes more affordable when more housing gets built.
Still, North Carolina’s housing shortage remains too large for incremental reforms alone. If lawmakers want to improve affordability meaningfully over the long term, they should build on SB 445 with broader reforms that expand by-right development, reduce zoning barriers, and make it easier for housing supply to keep pace with population growth.
