Genesis
Response
Penultimate
Finale
July 30th, 2021
In 2019 almost 40% of those living in rented housing paid greater than 35% of their income on rent; this problem isn’t getting better. Between 2010 and 2018 households earning between $35,000 and $75,000 saw their rent increase as a % of their income by 10%. There is clearly an affordability crisis in America and the main reason for this is zoning.
Most American cities use zoning as their method of regulating developments. This divides the city into zones which specify what purpose each area has, as well as prescribing diktats about what the developments in each zone must look like. This will normally take the form of minimum lot sizes, maximum height restrictions, setbacks, and minimum parking rules. In effect, these rules are all prohibitions on certain actions an individual can take with their own land. In addition to that, they all serve to resist densification.
This is problematic because densification is the best vehicle we have to ensure that housing remains affordable. This can be shown through an example - imagine you own a large house with a lot of about 4000 feet. You could sell that house to another wealthy individual and likely make a large sum of money. Another option could be you sell the house to developers who could convert the house into several apartments.
Although the value of those apartments individually would be less than the total value of the house, it is almost always the case that the total value of splitting the house up will be higher than if it was sold as a single unit. This would mean that more affordable homes will be freed up, and there is a direct economic incentive for people to free them up. The problem? Minimum lot sizes prohibit this activity and so the owner will just have to sell to another wealthy person.
As a consequence rising land values will mean that the urban poor are priced out of their homes and replaced by wealthier individuals. This is what many call gentrification. However, if we let people simply build the houses that they already have an economic incentive to build, then we can resist that trend.
Indeed, the empirical evidence supports this. For example, a paper published this year by Kate Pennington looked at the impact of new construction in San Francisco. She found that houses within 100 meters of new construction will see 2% lower rents, and the renters’ risk of displacement to a lower-income neighborhood will fall by 17%. This is supported by a literature review published in 2018 by the NYU Furman Center that surveyed numerous studies and found that “the preponderance of the evidence shows that restricting supply increases housing prices and that adding supply would help to make housing more affordable”.
The evidence is clear. Housing is too expensive, and it’s because we don’t allow people to respond to the shortage by building more. The solution is simple. Let people build more houses.
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