![Sample our Geography journals, sign in here to start your FREE access for 14 days]({"type":"image" , "src" : "/sda/5937/TOC-Subject-Sample-2021-Geography.jpg"})
ABSTRACT
Growing numbers of affordable housing advocates and community members are questioning the premise that increasing the supply of market-rate housing will result in housing that is more affordable. Economists and other experts who favor increases in supply have failed to take these supply skeptics seriously. But left unanswered, supply skepticism is likely to continue to feed local opposition to housing construction, and further increase the prevalence and intensity of land-use regulations that limit construction. This article is meant to bridge the divide, addressing each of the key arguments supply skeptics make and reviewing what research has shown about housing supply and its effect on affordability. We ultimately conclude, from both theory and empirical evidence, that adding new homes moderates price increases and therefore makes housing more affordable to low- and moderate-income families. We argue further that there are additional reasons to be concerned about inadequate supply response and assess the evidence on those effects of limiting supply, including preventing workers from moving to areas with growing job opportunities. Finally, we conclude by emphasizing that new market-rate housing is necessary but not sufficient. Government intervention is critical to ensure that supply is added at prices affordable to a range of incomes.
Acknowledgments
We would like to thank Paavo Monkkonen, Vincent Reina, Richard Revesz, Michael Suher, Carl Weisbrod, participants in the Florida State University College of Law faculty workshop series, and an anonymous reviewer for very helpful comments on prior drafts of this article. Dana Scott and Nicholas Phillips provided excellent research assistance. Professor Been is grateful for the support provided by the Filomen D’Agostino and Max E. Greenberg Research Account. Although this research was conducted by the faculty directors of the Furman Center, which is affiliated with NYU’s School of Law and Wagner Graduate School of Public Service, it does not purport to present the institutional views (if any) of NYU or any of its schools.
Disclosure Statement
No potential conflict of interest was reported by the authors.
Notes
1. Undoubtedly, renters, other community members, and advocates have reasons for opposing development that are not based in supply skepticism. People often worry that proposed developments will overcrowd their children’s schools or their preferred form of transit, change their favorite retail or entertainment venues, or take away their sense of belonging and community (Freeman, Citation2006; Hutson, Citation2016). Those concerns may sometimes lie behind expressions of supply skepticism, but we focus in this essay only on arguments development opponents are making about how adding supply will affect housing affordability.
2. A related notion is that if you can’t build it, they won’t come (see, e.g., Newman, Citation2008).
3. Most of the studies are framed as assessing whether stricter land-use regulations are associated with higher prices, as Landis and Reina note (in this issue), but the studies could just as easily be framed as examining whether relaxing regulations is associated with lower prices. See Furman (Citation2015) for a review.
4. A variant on this argument is the claim that luxury apartments are left empty as owners travel or live elsewhere and that land used for such properties should instead be used for affordable housing. (Booth & Adam, Citation2017, reporting on Britain Labour leader Jeremy Corbyn’s statement that requisitioning “empty” homes might be necessary because “It can’t be acceptable that in London we have luxury buildings and luxury flats left empty as land banking for the future while the homeless and the poor look for somewhere to live.”)
5. The durability of housing means that at any point in time, newly constructed housing will comprise only a small portion of the housing market and most of the increase in demand in any submarket must initially be absorbed by existing housing. For example, in 2015, only 3.2% of owner-occupied housing had been constructed within the prior 5 years (American Housing Survey, Citation2015).
6. In some cases, the high-end housing may be created through the demolition of older, lower priced homes. If so, then the high-end housing will have the immediate effect of reducing supply and potentially increasing prices in the lower priced submarket. But see Bachrach, Monkkonen, and Lens (Citation2017), who examine a sample of multifamily construction in Los Angeles between 2014 and 2016, and find “the vast majority of new multifamily units—both market-rate and income-restricted affordable apartments—have replaced single-family houses or been built on land not previously used for residential development.”
7. Of course, some older housing might command a premium if consumers value its unique features.
8. It may be that housing advocates belittle arguments about filtering not because (or not only because) they are skeptical that it works, or inpatient for more immediate results, but because they object to the notion that poorer people should be housed in older units than wealthier households. That discussion is beyond the scope of this article, but opposing market-rate development in the hope that more new construction will be devoted to affordable housing ignores the cost differential between rehabbing existing units and building new, and fails to reckon with the role rehab can play in stabilizing and improving neighborhoods.
9. About 32% of the units that were affordable in 2012 were also affordable in 1985.
10. Again, there may be an interaction between demand spillovers and filtering: if supply at the high end of the market is limited, demand for that housing will spill over to other submarkets, making it less likely that housing in that submarket will filter down.
11. Specifically, Rosenthal finds that the real income of an occupant moving into a rental home in a 30-year old building in the United States is on average 50% of the income of an occupant moving into a newly built rental unit.
12. Kok et al. (Citation2014) argue, for example, that the large positive association they find between land-use regulations and land prices in the San Francisco Bay Area is due in part to the fact that jurisdictions in the Bay Area are not close substitutes.
13. Demand from foreign investors is likely to be more elastic, but even here there are limits and some cities have raised revenues by imposing tax surcharge on nonresident buyers (Favilukis & van Nieuwerburgh, Citation2017).
14. Schleicher (Citation2017) provides a recent review of the evidence about changing mobility rates, and explores the causes and consequences of those changes. Some blame the decline on land-use restrictions that make it hard to buy or rent in markets with job opportunities (Ganong & Shoag, Citation2017); others point to such factors as the aging of the population (Karahan & Li, Citation2016) and changes in the labor market (Molloy, Smith, & Wozniak, Citation2017).
15. Residents also express concerns about the costs that additional development might impose upon the neighborhood’s quality of life, by exacerbating traffic congestion, competition for parking, school overcrowding, and other strains on public services. That broader issue of local costs for broader societal benefits in the land-use context is addressed most recently by Monkkonen (Citation2016); see also the review by Schively (Citation2007).
16. See also the review by Aarland, Osland, and Gjestland (Citation2017).
17. Displacement was defined as either (a) a decline in the absolute number of low-income households in census tracts that were otherwise growing, or (b) larger declines in low-income households than in households overall in the tract.
18. Badger (Citation2016) usefully collects views of economists and advocates on the issues raised by the California Legislative Office study; see also Zuk and Chapple (Citation2016).
19. Bunten (Citation2017), for example, models zoning decisions to assess both the costs and the benefits of density restrictions, and finds that the optimal level of restrictions would increase aggregate output by 2.1%, with one third of those gains negated by the increased congestion felt by residents of productive locations, for a net gain of 1.4%. See also Turner, Haughwout, and van der Klaauw (Citation2014), who find that the benefits of land-use regulations are less than the costs they impose.
20. Of course, by providing protection against change, land-use regulations benefit those who don’t want change, but impose costs on those who do want change.
21. Other factors, such as availability of large amounts of undeveloped land, also contribute to lower density. The key point here is that to the extent that regulations reduce the density of development, they impose additional costs.
22. Inclusionary zoning programs have to be designed and calibrated carefully to ensure that they increase the supply of affordable housing without increasing the costs of market-rate housing. See, for example, Mukhija, Das, Regus, and Tsay (Citation2015); Schuetz, Meltzer, and Been (Citation2011); see also the reviews by Sturtevant (Citation2016) and Thadden and Wang (Citation2017). Regulatory relief measures, such as design flexibility and fast-track permitting programs, may need to accompany inclusionary zoning mandates (see, e.g., Garde, Citation2016).
23. Kinahan’s study of the neighborhood effects of federal historic preservation tax credits (in this volume) is an example of the type of analysis needed to identify how particular kinds of investment, in specific types of markets, affect neighborhood change.
24. Early in 2018, the Trump Administration effectively rescinded the AFFH regulation, but that action is being litigated.
Additional information
Notes on contributors
Vicki Been
Vicki Been is the Boxer Family Professor of Law at New York University School of Law and a faculty director at the NYU Furman Center.
Ingrid Gould Ellen
Ingrid Gould Ellen is the Paulette Goddard Professor of Urban Policy and Planning at NYU Wagner and a faculty director at the NYU Furman Center.
Katherine O’Regan
Katherine O’Regan is Professor of Public Policy and Planning at NYU Wagner and a faculty director at the NYU Furman Center.