Zoning alone can only affect prices when there is an arbitrage opportunity to build something in location A that isn't possible in nearby location B. When entire cities upzone across the board like Minneapolis there is no arbitrage opportunity, so prices are not going up specifically because the zoning was changed. Prices are increasing because there is a chronic shortage of places to lives near economic opportunity and high demand to live somewhere you can make a living.
> Prices are increasing because there is a chronic shortage of places to lives near economic opportunity and high demand to live somewhere you can make a living.
Yes. And the solution is not to drive people into dense slums, but to make sure that jobs are available outside of city cores.
It will require concerted action, probably something like cap-and-trade for dense office space.
Agglomeration effects mean that any city that tries to split up offices away from the city cores would end up "losing" compared to cities which allow offices and industries to cluster together freely.
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Notably, intensively-developed properties decrease in value relative to similar dwellings that were not upzoned, showing that the large-scale upzoning had an immediate depreciative effect on pre-existing intensive housing.
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. Next, I combine the address histories with a simulation model to estimate that building 100 new market-rate units leads 45-70 and 17-39 people to move out of below-median and bottom-quintile income tracts, respectively, with almost all of the effect occurring within five years. This suggests that new construction reduces demand and loosens the housing market in low- and middle-income areas, even in the short run.
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To give some random examples
Let's start by defining "cheaper" as "cheaper rent" specifically. Rent will only decrease or stabilise when supply outstrips the absorption rate of the market. In New Zealand, for example, at least one analyst sees the equilibrium absorption rate of rentals to be 2.5% vacancies to total rentals. This means that to make rents go down (or stop going up at the same rate as household income), the available rentals must be greater than 2.5% of the total rentals.
One way to achieve that is to build a whole lot of housing and rent it out, far in excess of population growth in a city. To enable building a whole lot of housing, you can upzone a city. However, increasing potential housing does not actually increase the amount of housing.
To do that, you need to actually build houses. Now, anyone who wants to build a house will usually only do so if it makes financial sense to do so; essentially, when the risk-adjusted return on investment is high enough. Upzoning doesn't really change the risk-adjusted return on investment for developing a house.
Now, lowering rents WILL change the risk-adjusted RoI for building a house; it will LOWER the RoI! So builders will stop building when rents start decreasing, because the financials stop making sense. This is a natural hand-brake on (private) house-building rates, regardless of upzoning. Build enough housing to lower rents, and house builders will stop building houses!
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The kind of counter-factual we are looking for is not really expensive cities that become cheap as density increases, because density brings about more jobs, income, competition, and so on that mixes in with housing data as confounding variables.
Instead, we want: cities where rent as a proportion of disposable income goes down, while increasing population and density. Most likely, any city in that situation is going to be increasing housing units faster than population growth.
The next part of the analysis would be to figure out how they managed to do that despite absorption rates being a handbrake on the market :)
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A side-note; Auckland, which did upzone in ~2016 and again more recently, has not had a notable reduction in rent as a proportion of household income, despite increased density. Population growth meant that it hasn't really beaten the absorption rate of the market, except during Covid (lots of house-building going on at the same time as population decrease).
Agreed, thanks, you expressed it better than I could.
This is why I tend to question the YIMBY war cry of build build build until rent is affordable, as unrealistic. As you say, the build rate has to be consistently above the absorption rate. But that seems quite unlikely since builders are not chasing diminishing profits.
That's why don't see real world examples of cities that become denser and denser while becoming more affortable (relative to income, as you point out).
