Upzoning means no price hikes, just supply spikes
Highlighting free-market fixes for the local affordability crunch, The Market Urbanist’s Scott Beyer unpacks how induced demand fears (in which supply increases drive up demand) miss the mark. Amid Silicon Valley's sky-high housing costs and San Jose’s love for single family zoning, Beyer suggests upzoning could unleash more supply and lower prices.
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.
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My rebuttal to the “induced demand” theory is that these gentrifying areas were already getting more expensive. You might say they were suffering from “latent demand.” Since new housing is not being built to meet demand, prices increase everywhere.
Upzoning not only increases the supply of housing within these gentrifying areas, it also reduces building costs, by dividing the fixed costs of real estate development across more heads.
“Townhouses typically cost 30 percent less per unit, and apartments 50 percent less, than comparable-quality single-family homes,” says Todd Litman of the Victoria Policy Institute.
What's popularly called 'induced demand' for housing could sooner be called 'latent demand'.
One place where upzoning has worked to cool gentrification is San Francisco. One place where upzoning has worked to cool gentrification is San Francisco. High income people have moved to the city due to the tech boom, leading to rising rents and displacement.
“Developers want to make money, so they like to build in places where prices are already rising. That means that new market-rate housing is positively correlated with rising rents and displacement, but it doesn’t mean that the new buildings are causing the neighborhood change,” says Kate Pennington of the Center for Economic Studies.
Read the whole thing here.
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