Does Upzoning Cause or Reduce Housing Affordability and Racial Inequality?

This argument is most pronounced in New York but is repeated also in London.

One the one side of the camp are those who might be described as Critical Urbanists – the most well known example Zoned Out by Professors Tom Angotti and Sylvia Morse – for these upzoning puts upward pressure on rents and causes displacement of poor and ethnic communities. They point at census evidence of displacement in upzoned neighbourhoods with increases of white residents and reductions of other ethnic groups contrary to city wide trends.

The opposite case is put by a group you might call the Market Urbanists – for these the cause of high rent is not upzoning but overly restrictive zoning. Prominent authors include Edward Glaeser of Harvard and Joe Gyourko of the University of Pennsylvania as well as Matt Yglesias, Ryan Avent, and Noah Smith. This is a diverse group. Some critical urbanist authors have described them as ‘supply side shrills’ or ‘friends of Ayan Rands spawn ‘, however few are anti-planner neo-liberals. Most are progressive liberals arguing for zoning reform and inclusive affordable housing policy, rather than no zoning.

These two camps tend to talk past each other. The former tend to use institutional and experiential area based studies. Before and after in a neighborhood; aided by the incredible fidelity of US census tract data where the race of geographical specific units to the household are discernable. This is criticised by the latter who tend to use more economic based methods. Looking longitudinally at households over a long period of time and the impact on price on new supply both inside and outside a study area. The latter also mention filtering theory which we have covered on here before. This looks at the impact of a new householder withdrawing from competition at the margin once they occupy a net new unit making it cheaper for less affluent householders elsewhere to afford. This is related to the so called ‘fish tank affect’ stressed by Noah Smith, by keeping affluent incomers in big glass tanks (apartments) they don’t push up prices elsewhere.

There is also concern about what is being claimed.

Economist Noah Smith, a supporter of the YIMBY framework, says that progressives simply do not understand economics:

….[I]t has become an article of faith that building market-rate housing raises rents, rather than lowers them.  The logic of Econ 101 — that an increase in supply lowers price — is alien to many progressives, both in the Bay Area and around the country.

You often here that downzoning pushes up prices in affluent neighbourhoods (like Prospect Park Brooklyn) but so does upzoning (like West Shore Brooklyn) which is it, both or neither – the overwhelming forces of gentrification in Brooklyn possibly the main factor whether or not areas are upzoned, downzoned or not at all? This points also to the need for greater rigor in studies, what is the expected sign of change (null hypothesis) and how does the study methodology distinguish this from underlying socio-demographic change in a neighbourhood and net impact of a zoning change on prices across a whole housing market area (through filtering effects) not just inside a rezoned area.

A good bibliography on studies which claim there is no impact on displacement is here. But argument still rages over measurement, by population or individuals. The following study by NYC itself looks at direct additional to general and inclusionary housing stock directly alongside demographic shifts across the entire area it states there was no decrease in residents of hipanic origin across the study period. . There have been an increasing number of studies looking at impact of upzoning and new construction on price and longtitudinal effects on individuals. The evidence goes both ways however increasingly they are leading towards evidence that new apartment construction does put downward pressure on prices and this downward pressure leads to less not more displacement. There are also disputes on measurement of the proportionate impact of strictness of zoning and the proportionate impact of land constraints (more on the coast and peninsulas such as San Francisco making it harder for cities to expand). Also impact on price can come from one of two causes – a supply effect – the impact of increased supply on price and an amenity effect, the increased cachet of gentrification lending to more demand for inmigration. Not all studies distinguish the two but those that do seem to show the supply effect is far more important than the amenity effect. Care also needs to be taken with dispacement that is involuntary and replacement where someone moves out and is replaced by someone who is more affluent and/or of a different race. This disctinction can only be made with individual longtidunanl data.

The issue of methodology is crucial especially if some form of racial impact assessment is mandated. Which it might by if New York mandates its proposed comprehensive planning reforms.

The worry is that both camps research looks past each other. The market urbanists research tends to ignore institutional factors, not look at racial impacts, the critical urbanists being too anecdotal and data light.

If increasing supply raises a price it is either a Giffin Good (low cost) or Veblen Good (luxury). In high value areas it is not impossible that luxury houses like luxury cars or yachts are veblen goods, and also that this causes speculation (see Cameron Murrays work here on housing development rights being a speculative option good) and lack of transmission of upzoning potential to new construction – as in this study from Chicago.

Veblen goods contradict the basic law of demand, which states that quantity demanded has an inverse relationship with price, because of their exclusivity appeal. This may mean that in exclusive neighbourhoods where previous lack of supply caused by exclusionary zoning there may be pent up demand which cannot be satisfied on the market which is then released once new construction takes place. This increased number of residents may push prices up as the ‘brand’ value of the neighborhood increases. including from existing houses – however the ‘fish tank effect’ and filtering may actually push down prices and reduce displacement in poorer neighbourhoods elsewhere, which seems to be supported by the data.

Also there are huge economic distortions in New York caused by rent control stock. Rent control, as all the studies show, throttles the new supply and turnover of new stock. But it does benefit existing residents. One of the few ways to get around it is to demolish existing stock. The answer here may be less rent control, or ensuring no net loss of affordable housing supply through adding them to inclusionary zoning requirements. Loss of rent control stock is not an argument against upzoning but ensuring that zoning works alongside a reformed set of regulations as a whole, including inclusionary zoning.

The two sides in this debate need to stop talking past each other and trash talking. Housing in cities is an unusual, segmented and distorted market. You cant ignore racial impact and it does you no good to quote loaded rabid anti planner type ‘research’ such as that from Randall-o-Toole. Crude rules of supply and demand wont work and canny rules require a sophisticated and progressive supporting zoning framework. Add vastly more required reports to the 800 page plus and ridiculous 8 step zoning review process in New York (the most complicated and pointless in the world) wont help, wheras comprehsivive border to border zoning reform focussed on increasing supply of all homes and affordable homes in particular will.