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Does Density Raise Housing Prices?

My last post, on urban geographic constraints and housing prices, led to an interesting discussion thread.  The most common counter argument was that because dense cities are usually more expensive, density must cause high cost.  But if this was true, cities would become cheaper as they became less dense. Most American urbanized areas have become less dense, not more, over time due to suburban sprawl.  Even where city populations have grown, much of that growth has been in areas that where undeveloped a century ago.  Thus, the developed part of even growing cities were, I suspect, more dense in 1917 than than they are today: for example, Manhattan’s population peaked at 2.3 million in 1910, about 40 percent more than its current population.   So rents should have come down.  Did they? Apparently not.  The Census date has statewide data showing that rents rose pretty much everywhere in real terms over the late 20th century.  In the District of Columbia, real rents increased from $346 to $612 in real dollars between 1950 and 1990, even as the city was losing population and the region was de-densifying.  If Washington is typical, it appears that lower density and higher rent went hand-in-hand.

Urban[ism] Legend: The “Geographically Constrained Cities” Fantasy

geographic constraints

One common argument against building new urban housing is that cities are geographically constrained by their natural and political boundaries, and thus can never build enough housing to bring prices down.  This claim rests on a variety of false assumptions. The first false assumption is that the amount of land in a city limits the amount of housing in that city.  If you assume that every bit of residential land must be occupied by single-family houses on 1/5 of an acre on land, I suppose this assumption makes sense.  But in reality, you can always put more people on a block of land.  Where today you have big houses, tomorrow you could have small houses.  Where today you have small houses, tomorrow you could have small apartment buildings.  Where today you have small apartment buildings, tomorrow you could have large apartment buildings.  Even in midtown Manhattan, where I live, there are lots to two-to-four story buildings that could be knocked down and replaced with larger buildings.     If Manhattan had the density of Mongkok (a popular Hong Kong neighborhood with 340,000 people per square mile), it could accommodate almost 7 million people- about 80 percent of the city of New York’s population.*  And if Manhattan had enough housing to accommodate Mongkok-type densities, a whole lot of housing units (either outer borough units or older Manhattan units) would become vacant, causing rents to plunge. The second assumption is that a city’s built-up core is its entire housing market.  But this is wrong, because Manhattan landlords compete not just with each other, but with landlords in the outer boroughs and the suburbs.  So if enough housing units were, for example, built in New Jersey, demand for housing in Manhattan would eventually decrease.   *A common counteragument is that demolishing and rebuilding housing […]

The Role for State Preemption of Local Zoning

Urbanists have increasingly turned to state-level preemption as a tool for reducing the barriers to new housing supply, recognizing the improved incentives for land-use policy relative to the local level. In a piece for the Atlantic Cities, Nolan sums up the potential for preemption to address current inefficiencies in urban policy. In addition to being a pragmatic tool to increase the supply of housing where it’s needed most, state-level preemption of local land-use rules is grounded in the American system of federalism that relies on higher levels of government setting limits on the extent to which lower levels of government can legislate or regulate away individuals’ rights. As legal scholar Michael Greve explains in The Upside-Down Constitution, American government is designed to rely on the threat of residents (and their tax base) leaving jurisdictions that enforce exploitative policies. When residents are free to enter and exit jurisdictions, the places that provide the policy environment, business opportunities, and quality of life can expect to gain residents at the expense of those that don’t. The opportunity for residents to “vote with their feet” by choosing to live and work in the places where they can best pursue their own version of the good life is essential to the American system of competitive federalism. When jurisdictions must compete with each other for residents and wealth, they tend to enact policies that support broad-based prosperity. Absent this competitive pressure, policymakers are more likely to implement policies that privilege special interests because they face a diminished threat of their tax base leaving the jurisdiction. Preemption can play an important role in supporting competitive federalism as opposed what Greve calls cartel federalism — when special interests and policymakers benefit at others’ expense. For example, with the 14th Amendment, the federal government restricted the potential for state governments to […]

Exempting Suburbia: How suburban sprawl gets special treatment in our tax code

Our tax code favors suburbia. Homeownership, greenfield development, and sprawl receive preferential tax treatment, and the market responds to incentives built into the code. As a result, a disproportionate amount of capital flows to those investments. In many cases, it has been an unintentional side effect of pursuing other goals. The combined effect is that our tax system plays a huge role in shaping our communities. Its influence is an important factor to understanding how residential design in the US became what it is today.

old posts

Before there was a Market Urbanism blog, I posted short thoughts on the Congress for New Urbanism group blog.  I am in the process of recovering as many of the posts as possible through the Internet Archive (archive.org).  My 2015 posts are here.  I hope to gradually recover the earlier posts as well.

Financing Suburbia: How government mortgage policy determined where you live

The government exercises tremendous power over residential design in the US. Its influence is nearly invisible, because it works through complex financing programs, insurance incentives, and secondary markets. These mechanisms go unnoticed, but their effect is hard to miss—they remade the United States into a nation of sprawling suburbs. This is the second post in a series about government policies that encouraged suburban growth in the US. You can find the first post here. What image springs to mind when you picture “federally subsidized housing”? Most people imagine a low-income public housing tower, a homeless shelter, or a shoddy apartment building. Nope—suburban homeowners are the single biggest recipient of housing subsidies. As a result, suburbs dominate housing in the United States. For decades, federal finance regulations incentivized single-family homes through three key mechanisms: Insurance, National mortgage markets, and New standards for debt structuring The housing market hides these details from the typical home buyer. As a result, most people are unaware of these subsidies. But their effects are striking—they determined the location and shape of development across America for generations. A New Deal to restore the housing industry Debt has a negative connotation these days. Credit cards, student loans, and auto loans are the anchors that keep many Americans in debt for most of their life. Meanwhile, we view mortgages very differently—they are seen as an investment, a symbol of adulthood, and a sign of financial stability. This was not always the case. In the early 1900s, mortgages were just like any other kind of debt. Nowadays payments are spread out over decades, but back then they came due all at once after a few years. Most people didn’t have enough cash at the end of the term. It was standard to pay back some and negotiate a new loan for […]

Living Downtown: A Great Book for Market Urbanists

One long-forgotten housing option is residential hotels; a century ago, most renters lived in hotels and shared space with short-term tenants.  I just read a book, Living Downtown, about the rise and fall of residential hotels.  Rather than discuss them in detail I refer you to my amazon.com review. But here are two general thoughts: one reason Airbnb has been controversial is because it mixes long-term and short-term tenants.  But in the first half of the 20th century this was a common mixture. Until the 1920s, residential hotels were so unregulated that they included a wide range of places, from luxury hotels to vile flophouses where there was not even a mattress to sleep on.  But this mixture allowed even tramps to avoid sleeping on streets as they do now.

Subsidizing Suburbia: A forgotten history of how the government created suburbia

This is the first article of a five-part series on suburbia in the United States. In primary school, one of my friends lived in a duplex. This fact blew my mind. To my inexperienced 7-year-old mind, a duplex barely registered as a house. Her family shared a driveway with their neighbors, and their yard was tiny. It was the first house I’d ever seen that shared a wall with its neighbors. I’d seen apartments of course, but in my mind those were temporary, for people who who were saving up to buy a “real” home. I couldn’t understand that some people might actually prefer to live in something besides a private home, because I’d never come across it before. Median income in American cities tends to rise at about 8 percent per mile as one moves away from the business district. My mental model of the world was pretty typical for an American child brought up in a single-family home. It’s easy to see why—US residential development is dominated by suburbs, and home ownership is touted as the ultimate symbol of prosperity. Other types of dwellings tend to be for young people starting out in life or low income households unable to afford a place of their own. The popular image of the American Dream includes a white picket fence and a car, not an apartment and a subway pass. This is in stark contrast with most other countries. The French word for suburb is banlieue, and it has come to connote poverty and social isolation, because that is where immigrants and the poor tend to live. They’ve been known as “red suburbs” because of their tendency to vote Communist. Meanwhile, the wealthy live in the city center. In South Africa, the inner city is reserved for the privileged white […]

TILTs for Income Mobility

Land-use scholars have offered a variety of policy proposals that attempt to identify institutional reforms to reduce the incentive for homeowner NIMBYs to protest development. For example, in a 2013 paper law professor David Schleicher proposed a policy called Tax Increment Local Transfers (TILTs). When  a municipality permits a new development, the new construction will increase its tax base by an amount called the tax increment. Schleicher suggests that the tax increment could be transferred to  NIMBY homeowners to buy their support for new housing. But homeowners aren’t the only vocal opponents to new housing. Anti-displacement activists are also prominent opponents to new construction. What if we also dedicated TILT revenues to anti-displacement causes? Making new housing construction feasible in the cities with the best job opportunities is of serious importance for economic opportunity and mobility. Research by Peter Ganong and Daniel Shoag (covered here by Sandy and me and here by Matt Yglesias) demonstrates that restricted housing supply in the U.S.’s most productive cities has resulted in less income mobility over the past 40 years. Ganong and Shoag explain that during the high-mobility period of 1940 to 1960, people moved from low-income to high-income states. In the process, the labor forces in high-income states grew, putting downward pressure on their wages relative to low-income states. As income increased across all states during this time period, it grew fastest in the lowest-income states. Ganong and Shoag show that the negative relationship between income growth rates and average income across states has broken down since 1980 with the rise of land-use regulations that have severely limited housing supply growth in the country’s most productive cities. Specifically, they find that if income convergence had continued at its 1940-1960 rate through 2010, hourly wage inequality would be eight percent lower today. While homevoters are responsible for the lion’s […]

NIMBY Contradictions

Ever since zoning was invented in the 1920s, homeowners have argued that limits on density and on multifamily housing are necessary to protect property values.  But today, urban NIMBYs seek to prevent new housing on the ground that new housing will lead to gentrification, which will in turn lead to increased property values, which in turn will lead to rising rents and displacement. Similarly, I often read that cities and suburbs shouldn’t have any new housing because they might become “too dense” or “overcrowded.” (Never mind that when there’s not enough housing to go around, excluded residents respond not by leaving the city, but by sleeping on the streets, thus making the city feel even more crowded). But at the same time, I also read that building new housing is futile, because it will all be bought up by foreign oligarchs, who (because they aren’t quite greedy enough to rent out their property) cause the housing to be lifeless and unoccupied.  It is not quite clear to me how the city can be overcrowded and undercrowded at the same time, but evidently this view seems to be common.

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