Tyler Cowen of Marginal Revolution asks a great question: How good would the abolition of zoning in New York City be? He argues that zoning restrictions prevent Manhattan from being a “forest of skyscrapers” such as Sao Paulo.
Many of Manhattan’s skyscrapers are much taller than typical Sao Paulo skyscrapers. This is mostly because the rock that lies under Midtown and Downtown nearly eliminates the marginal cost of foundations for taller buildings. On the rest of Manhattan island the soil is less friendly to skyscrapers, rendering tall buildings less economical. Nonetheless, restrictive zoning prohibits optimal density in almost all areas of Manhattan.
The restrictions are mostly created to cater to NIMBY activists who are afraid of too many people moving to their neighborhood, using more parking spots, making sidewalks more crowded, blocking views, and altering the “character” of their neighborhood. These activists have been granted property rights over their neighbors’ land by pandering politicians. Of course, this restricts creative destruction, and prevents entrepreneurs from increasing supply to meet the market demand. Shortages arise as a result of the density restrictions coupled with a limited stock of developable land.
On top of all that, bureaucracy creates barriers to entry for new development. Only well-connected developers are able to grease city hall to get favorable zoning, and subsidies that others could not. This raises the price of land to a level that only well-connected developers can afford, flushing out wannabes that would build more housing and office space. Zoning restrictions, bureaucratic delays, and barriers to entry in NYC create a shortage of housing and office space, drive prices though the roof, and forces people to migrate to the outer boroughs and suburbs to find an affordable place to live.
Without density restrictions, Manhattan would still be very expensive due to the higher construction costs of denser development. However, if developers were allowed to meet the market demand, a greater “forest of skyscrapers” would arise. Higher land costs would be absorbed by more units/office space, which would help keep rents in check.
Matthew Yglesias’ Response: In The Zone
If all our major metro areas simultaneously allowed for increased density, the short-term impact on any particular place would be relatively modest.
Yes, in the short-term, but over the long run, development patterns would shift drastically in every region. Once restrictions are removed, more people would be able to locate closer to workplaces, while employers would locate closer to quality employees. High-level employers would still choose dense cities due to agglomeration, and NYC could accommodate more of these firms with higher density.
Not every place would be denser. In fact, places that are not as accessible to business would naturally remain less dense. People who telecommute and retirees could still live in low-density areas very affordably. Also, location-flexible industrial firms would still find affordable land, and lower wage employees could live more comfortably near these firms since location-sensitive housing needs are met elsewhere.
For most areas, the density vectors spreading from business districts would be steeper. Near the CBD and transportation accessible areas would be more dense. The outlying areas would still sprawl, since worker’s location needs would be more effectively satisfied closer to their jobs. Overall, population shifts would naturally tend towards higher overall productivity. Add in a more-free market for transportation, and productivity gains would be greater.