I’m no economist, so I have a hard time evaluating arguments that rely on statements like:
Which means that I have no idea if this paper (beware, pdf) by some Harvard economists is really top-notch scholarship. But it makes the case that one of the chief reasons for rapid housing inflation between 1960 and 2000 was that, in high-priced places, local governments have been increasingly unwilling to issue housing permits—the causes of which they can only speculate about.
Now, what’s noteworthy to me about the study is this—the researchers looked specifically at whether housing inflation could be attributed to rising residential density per se, i.e., to a falling supply of buildable land. Their conclusion: not really.
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The controls for price and density are both statistically significant, but …the results indicate that rising density levels can only explain a small amount of the decline in new construction over time.
Further evidence that rising density is not strong enough to explain large declines in construction can be found by examining individual permit-issuing places within the San Francisco metropolitan area. Figure 6…shows many low-density, high cost areas with very little new construction.
All the time, I hear people claim that the real reason that housing prices are going through the roof in Seattle and Portland is that the cities are too dense–as if the only thing that can keep housing prices down is letting the cities sprawl out indefinitely at the urban fringe. Spokane, for example, is already one of the Northwest’s most sprawling urban areas, but it’s considering expanding its growth boundaries by an additional 11 square miles, allegedly to keep the cost of housing down in years to come.
But I never really understand the argument that increasing density will increase housing prices. Seems to me to be the other way around: that dense places are costly because there’s a lot of demand for them, and not enough supply.
By definition, increasing density means increasing the amount of housing in a given area—and all else being equal, expanding supply should mean that prices fall. Obviously, density does raise the price of big yards. But many urban areas are finding that there’s a surprising number of people who don’t really need or want yards—but do need housing. So creating denser transit- and pedestrian-friendly neighborhoods within city limits should make more places for such folks to choose from—which should, in the long run, make housing more affordable.
Of course, things can get complicated. San Fransisco is denser than Seattle, but its housing costs are much higher. But part of the reason seems to be that a lot of people really want to live in dense SF neighborhoods—and the fact that many of them can live without cars means, among other things, that they have more money to spend on housing. High housing costs in SF may largely be a function of high demand: a lot of people want to live in vibrant, dense cities, and they’re willing to pay extra to do so. So it seems that the right policy response would be to give the people what they want—namely, more dense, transit- and pedestrian-friendly urban neighborhoods. But the policy response we get, all too often, is to increase housing supply in far-flung suburbs—the very places where people aren’t particularly interested in paying extra to live.
(Thanks to Planetizen News for the find.)