Home prices are soaring and Freddie Mac estimates America’s home shortage to be 3.8 million. So why not build more? That solution would seem intuitive, yet there’s a school of thought–common in urban America–that upzoning for more housing worsens affordability. Here we dissect the logic of that claim.
The problem: many of America’s big cities are mostly zoned for single family housing. Research from the New York Times shows that in Los Angeles, 75% of residential land is zoned for detached single-family homes. In Seattle, it’s 81% and in San Jose it’s a whopping 94%.
Now, many cities are trying to relax their rules in a process known as “upzoning,” which involves changing zoning codes to increase development densities, so that developers can build more and different kinds of housing. Proponents say it will increase supply and bring prices down, while opponents argue that it will inflate land values and “induce demand” into neighborhoods.
When Joseph Bivona, a grocery store owner in The Bronx, NY, tried to tear down his store and replace it with an 8-story building, people protested. The grocery store owner applied to change the zoning law to allow mixed-use residential and commercial buildings. His proposal would allow four new buildings that would house over a thousand residents.
“This affects the quality of life in this neighborhood,” said one protester. “The owner…does not have the community’s best interest at heart.”
“Once you lose that zoning you lose control of your community,” said George Havranek, president of the Spencer Estate Civic Association. “This is an appetizer for [developers]. This is not the main course.”
Do they have a point? These opponents cite “induced demand” as the reason why building more housing will actually increase prices. If the phrase sounds familiar, it is often made about road policy: when new lanes are added to a highway, that doesn’t reduce traffic, but supposedly induces people to drive more.
For housing, the theory is that the more units are built, the more people want them. If, moreover, that new development improves the neighborhood, it will attract wealthier residents, who then further attract upscale amenities. That increases property values and rent.
One study on upzoning in Chicago concluded that over 5 years, home prices increased without actually spurring much new housing. In an email to Bloomberg, the author says additional support, like “more affordable units and rent control” are needed. “Upzoning isn’t a sufficient affordability program in itself.”</…….
Source: https://catalyst.independent.org/2022/05/02/upzonings-increase-home-prices/