A dominant view in urban economics suggests that the solution to the housing crisis of major cities is to relax zoning and other planning regulations. This column challenges this position, arguing that there is no clear and uncontroversial evidence that housing regulation is a principal source of differences in home availability or prices across cities and that these issues are more linked to rising inequalities in the geography of employment, wages and skills. Blanket changes in zoning are unlikely to increase affordability for lower-income households in prosperous regions, but would increase gentrification without appreciably decreasing income inequality.
Housing in the largest metro areas the world over has become unaffordable for much of the population. Hard working individuals living in large cities have been priced out of better-quality housing. Those wanting to move from lagging regions into dynamic urban areas in search of better opportunities are also deterred by astronomical real estate costs. Segregation of housing and income inequality are increasing, as are commuting times.
According to the dominant view in urban economics, the main culprit for this situation is restrictive zoning in large metro areas (Katz and Rosen 1987, Quigley and Raphael 2005, Ihlanfeldt 2007, Glaeser and Gottlieb 2008, Saiz 2010, Kline and Moretti 2014, Hsieh and Moretti 2015, 2017, Ganong and Shoag 2017, Gaubert 2018). The solution is simple – the massive ‘upzoning’ of urban land by reducing the decision-making power of local communities over land use, so that they can no longer prevent high-density building. By getting rid of restrictions and letting the real estate developers in, more and more affordable housing will be built in those places where people have the greatest opportunities. Prosperous metropolitan area like New York, the Bay Area, or London will become bigger, more productive, and more socially inclusive. Inter-regional mobility will pick up and, as a consequence, income inequality will decline, both within cities and across the country (Hsieh and Moretti 2015, 2017).
Supply restrictions are therefore considered to be the main obstacle to solving the problem. Zoning prevents building enough housing to keep up with demand, increasing housing prices, rewarding landowners, as a consequence enhancing inter-personal and inter-territorial income inequality, and dissuading talent from flowing into more affluent regions (Hsieh and Moretti 2017, Ganong and Shoag 2017). It is also regarded as a major source of economic inefficiency, as lack of affordable housing may prevent these cities to reach their full potential (Glaeser 2017), limiting overall national growth and hurting the most vulnerable (Hsieh and Moretti 2017).
Finding a possible solution
According to this view, the solution is simple – cut regulation in order to build more and denser housing in metro areas. The greater affordability triggered by housing deregulation in the prime areas of prosperous metro regions would trickle down to the rest of the metro area. Following this view, a fast-growing coalition of high-income millennials (‘yes in my back yard’, or YIMBYs), urban planners who want density, developers, and elected officials has thrust this view into the public debate.
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