NIMBYs Argue New Housing Supply Doesn't Make Cities Affordable. They're Wrong.

Tokyo is a shining example of how free market housing regulations can keep even big, growing cities affordable.



The idea that cities would be more affordable places to live if more housing construction were allowed to take place is both remarkably simple and remarkably controversial.

When the Los Angeles Times polled voters in late 2018 about the cause of the state's housing shortage, just 13 percent identified a dearth of new residential construction as a primary factor, behind things like a lack of rent control, or foreign real estate speculators.

In Seattle, moderate, middle-class activists argued against a city council-led effort to allow for taller, denser construction in some neighborhoods on the grounds that it would make the city's affordability problems worse, not better.

The same point was advanced by the much more left-wing Los Angeles Tenants Union, which argued in a recent Medium essay that new market-rate housing construction "does not lead to lower housing prices, but rather spurs gentrification and displacement."

Yet just today, The Wall Street Journal offered a stunning rebuke of this argument with a profile on the one city that demonstrates free market housing policies can really work: Tokyo.

According to the Journal, the Japanese capital of nearly some 13 million people saw the construction of 145,000 new housing units started in 2018—more than New York City, Los Angeles, Houston, and Boston combined. The country as a whole has managed to add close to the same amount of new housing as the U.S., despite having about half the population.

All this new housing construction has kept rents relatively flat, with the average cost of renting a two-bedroom apartment in Tokyo hovering at $1,000 a month for the past decade. That's well below median monthly rents for the two-bedroom apartments in, say, Los Angeles ($1,750), New York City ($2,500), or San Francisco ($3,110).

A Financial Times article from 2016 similarly notes that while home prices have more than doubled in San Francisco (where over 80 percent of homes are now valued at more than $1 million), housing prices in Tokyo have barely budged.

Tokyo, and Japanese cities more broadly, have managed to stay affordable by building more. These same cities have managed to build more by scrapping regulations that delay or forbid new housing construction.

According to today's Journal article, the Japanese government made sweeping changes to the country's zoning laws at the turn of the century, allowing larger, denser housing construction, and empowering private consultants to issue building permits, essentially creating "a free trade zone" for new development, in the words of one expert.

Indeed, while U.S. cities have hundreds of separate zoning categories that minutely control what kind of activity can take place on a single plot of land, Japan has just twelve zoning categories, which are also far more permissive.

In Japan, housing can still be built on land zoned for commercial or industrial uses, while even the most residential zoning permits small shops and offices. Compare that to some U.S. cities where zoning regulations will allow, for example, a restaurant on a plot of commercially-zoned land, but no other businesses.

Also helping things tremendously is the fact that most development in Japan is by-right, meaning so long as your project satisfies the underlying zoning code, you have a right to build it. Many cities in the U.S. give planning officials the discretion to deny projects, something that slows down approval of new construction and invites all manners of NIMBYism.

In short, Japan and Tokyo are living proof of how a much freer market in land use and construction can keep cities affordable even as their populations grow. Unfortunately, no U.S. city is even close to embracing Japan-style zoning reform.

Local governments are often far too beholden to incumbent homeowners (who fret that new construction will depress the value of their property) or anti-development activists (who are often desperately trying to keep the forces of gentrification at bay) to embrace Tokyo-style deregulation.

Efforts to move more zoning decisions up the state level—where pro-development interest groups might have more sway—have been met with stiff opposition.

Japan seems to have solved this by making zoning a national issue. Given the U.S.'s constitutional setup, that's neither feasible or desirable.

That means that, in the short run at least, U.S. cities will continue to get more expensive. Much of the blame for these price hikes will continue to fall not on restrictive regulations governing new building, but on the new building itself.