Are Local Governments to Blame for Zillow’s Housing Worries?

The headquarters office of Zillow at the Russell Investments Center in Seattle, Washington. Source: John Cook / GeekWire Photos

No issue has captured the minds of American citizens in recent years quite like the cost of living, leading to the creation of the Internet “Housing Theory of Everything.” The Housing Theory of Everything holds that many woes consumers have about the economy and their daily lives ultimately arise from being overly cost-burdened by rent or high housing prices. As mortgage rates and rental prices drive the cost of living ever upward, homeownership declines, wealth inequality widens, and housing insecurity worsens. Critics discussing the rising cost of living often point fingers at real estate platforms like Zillow, arguing that corporate greed and algorithm-driven speculation are driving unaffordable prices. 

However, this narrative oversimplifies the problem and distracts from the real culprits: restrictive zoning laws, chronic underproduction of housing, and misguided policy interventions. However, it is undeniable that both prices for rent and mortgages (and the percentage of income that goes toward these respective expenses) have continued to skyrocket due to limited and insufficient housing supply, slow construction unable to keep up with the demands of aging demographics, and pent-up demand from millennial homebuyers in the wake of the Great Recession.

As prices increase, many potential buyers find themselves priced out, leading to a decline in homeownership rates since the peak in 2004 from 69.4% to 65.6% in late 2024, a difference of tens of thousands of homes. This situation exacerbates wealth inequality, as homeownership is a primary means of building wealth in the U.S. Renters face challenges, with high demand pushing rental prices upward, further straining household budgets. Additionally, the shortage of affordable housing contributes to increased homelessness and housing insecurity.

Despite the ever-encroaching issue of unaffordable mortgage rates, most messaging regarding the crux of the housing crises has failed to hit the mark historically, instead chasing after private companies like digital real-estate manager Zillow or private equity firm Blackstone as the key culprit. For Zillow, online sentiment persists that its “Zestimate” home value estimation tool can be misleading, causing price volatility, rash decision making, and influencing market prices. For Blackstone, a common complaint involves the belief that the firm is purchasing large numbers of single-family homes, thereby reducing inventory and driving up prices, making homeownership less attainable for average buyers. However, Blackstone’s impact has been limited by the fact that the company owns a mere 0.06% of all single-family housing stock in the United States, as of 2024. To understand what solutions the United States housing market needs, it is important to ensure a baseline understanding of the housing market’s driving factors. 

While housing supply is consistently extremely low in highly desirable areas, the real driving force behind prices is that the rate of resupply is even lower, leading to a widespread housing shortage. The Brookings Institution estimated in 2023 that the U.S. housing market was short of 4.9 million units relative to demand, but home constructions have fallen and never recovered from an all-time high in 2005. Increasing the amount of housing stock has been proven to lower prices, albeit on years-long timescales. Despite this, in regions from local cities like Fayetteville to major metropolitan cities such as Chicago, policymakers and elected officials have continued to fail, albeit in good faith, to address the systemic problems with housing access. Seeking shorter-term and easier-to-understand solutions, lawmakers are often pressed to expand rent control and other ineffective programs to placate an agitated constituency.

Often with these demands comes blame from the populace for institutions that do not play as significant a role in raising home prices, like internet real-estate company Zillow. This is because of its conspicuous presence in the online home retail process, having over 160 million homes in its database as of 2023. ​​For real estate platforms like Zillow, a turbulent housing market presents challenges and opportunities. For example, Zillow’s dependence on local real estate organizations and realtors for its information renders it little more than a discovery tool for potential buyers, rather than a playmaker in the increasing costs of living in a home. While high home prices and interest rates might deter some buyers, leading to fewer transactions and potentially reduced advertising revenue, Zillow has diversified its services. 

Zillow’s diversification has not yet proven successful, however, as its iBuying failure is a prime example of why the company doesn’t control home prices. In 2020, Zillow fully launched Zillow Offers across the United States, an ambitious program that used iBuying algorithms to buy homes in cash and resell them for a profit. However, the company immediately found itself overpaying for properties in a volatile market, leading to losses exceeding $500 million and forcing Zillow to shut down the operation entirely in 2021. This failure underscores a key reality: even with vast data and market influence, Zillow couldn’t dictate home prices—it could only react to market trends set by supply, demand, and local policies. As the housing market continues to be shaped by restrictive zoning laws, high interest rates, and construction bottlenecks, future homebuyers will remain at the mercy of broader economic forces rather than companies like Zillow. 

The housing crisis in America is not a result of tech companies manipulating prices but rather a policy failure at the local and national levels. If policymakers continue to ignore the root causes and local populations continue to cast aspersions on relatively limp-wristed private companies, the root of the issue will never be addressed. The solution is clear: build more housing, reform outdated regulations, and stop treating symptoms while ignoring the disease. There are simply not enough homes to live in, and without significant policy changes, such as zoning reform to increase supply and incentives for affordable development, homeownership will remain an unattainable dream for many.