One of the most influential ideas in urbanism today is that the key to addressing the housing crisis is reforming zoning and building codes to allow for taller buildings and higher population densities.
A growing chorus of market urbanists and YIMBYs make the case: Restrict supply, and demand and therefore prices go up. So, it follows, liberalizing codes to make it easier to build—and to permit taller, denser structures—will increase supply and cause prices to fall, which will then make housing (and expensive cities) more affordable.
But a new study published in the journal Urban Affairs Review throws a bit of a proverbial wrench into the works. Its author, Yonah Freemark, a doctoral student in urban planning at MIT, has analyzed the effects of upzonings in Chicago neighborhoods. His study takes the form of a natural experiment (the “gold standard” of social-science research) by comparing an initial set of zoning reforms, undertaken in 2013 to encourage development around transit stops, with a more aggressive set of reforms from 2015, which expanded the upzoned areas and increased incentives for taller, denser development.
The study design allows Freemark to overcome the analytical problem of an endogenous relationship between upzoning and changes in prices and construction activity. He uses Chicago zoning files to determine the parcels of land affected by the two zoning changes, as well as data on building permits from the city and property values from the Illinois Department of Revenue. The study tracks the period 2010 to 2018, before and after the zoning changes.
Freemark reaches two startling conclusions that should at least temper our enthusiasm about the potential of zoning reform to solve the housing crisis—conclusions that, interestingly enough, he has said he did not set out to find. First, he finds no effect from zoning changes on housing supply—that is, on the construction of newly permitted units over five years. (As he acknowledges, the process of adding supply is arduous and may take longer than five years to register.) Caveats and all, this is an important finding that is very much at odds with the conventional wisdom.
Second, instead of falling prices, as the conventional wisdom predicts, the study finds the opposite. Housing prices rose on the parcels and in projects that were upzoned, notably those where building sizes increased.
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