Debate: Make Housing Affordable by Abolishing Growth Boundaries, Not Ending Density Restrictions

Why not abolish both?

Wendell Cox and Christian Britschgi | From the May 2023 issue

(Photo: Art Wager/iStock)

Improve Housing Affordability by Restoring the Competitive Land Market

Affirmative: Wendell Cox

In too many metropolitan areas, housing is no longer affordable for middle-class households, especially in markets subject to "urban containment," now the world's dominant planning regime. According to planning experts
Arthur C. Nelson and Casey Dawkins, urban containment draws "a line around an urban area"; it includes urban growth boundaries and greenbelts. It is "explicitly designed to limit the development of land outside a defined urban area, while encouraging" infill, to limit or block organic urban expansion.

Urban containment is intended to increase urban land costs. Shifting demand inside the contained area produces an abrupt increase in land values at the boundary, distorting the land value gradient. As Nelson and Dawkins say, "This shift should decrease the value of land outside the boundary and increase the value of land inside the boundary"(emphasis added), which effectively sets a higher "floor value" for urban land. This is the "urban containment effect."

Land values have indeed risen across urban growth boundaries, from eight to 20 times according to research in the U.S., Australia, and New Zealand. Housing has become shockingly unaffordable, despite expectations that boundary expansions and densification would keep housing affordable. The key to materially improving affordability is neutralizing the consequences of urban containment.

A permanent seller's market in land has developed, making it too expensive to build housing for the middle class. International housing expert Shlomo Angel stresses that "supply must be adequate to allow competition to determine land prices," and that "the explicit containment of urban expansion—by greenbelts, as in Seoul, Korea or in English cities, by urban growth boundaries, as in Portland, Oregon, or by environmental restrictions as in California—has inevitably been associated with declines in housing affordability."

Alain Bertaud, former World Bank principal planner, wrote that "arbitrary limits on city expansion (such as green-belts or urban growth boundaries)" result in "predictably higher prices."

In the U.S., the U.K., Canada, Australia, and New Zealand, median price-to-income ratios have escalated under urban containment from 3.0 or less. By 2019, the range between the most and least affordable U.S. major markets increased by five years of median household income. The median multiple had tripled in the least affordable markets, while all severely unaffordable markets had urban containment, according to the Demographia International Housing Affordability Survey.

In the five-county San Francisco market,Edward Glaeser and Joseph Gyourko estimate that land values for the median priced house are 10 times the normal 20 percent.

Meanwhile, house construction costs vary far less than land values.

The Organization for Economic Cooperation and Development (OECD) reports that housing costs have been growing "three times faster than household median income over the last two decades" and have been the "main driver" of rising middle-class expenditures. The OECD maintains that "the current generation…has lower chances of achieving the same standard of living as its parents." Much of the middle class could be facing an existential crisis.

Cost-of-living differences arise principally from housing affordability differences.

Paul Cheshire of the London School of Economics finds a "fatal mismatch" between planning and the market, concluding that urban containment is irreconcilable with housing affordability and price stability.

In contrast, removal of density restrictions in municipal zoning is unlikely to materially improve housing affordability. Virtually all major markets have multiple local jurisdictions (in the U.S., the average market has more than 100), while urban containment is typically imposed by higher-level governments (nations, states, provinces, and metropolitan areas). Municipal zoning cannot trump the consequences of urban containment.

Vancouver, Canada, has nearly doubled its density within its already developed 1951 limits (unparalleled among the high-income world's central cities), and its suburbs are densifying. Yet the Vancouver market has become the least affordable in Canada and the United States, with a 13.3 median multiple. As Patrick Condon of the University of British Columbia concludes, "No amount of opening zoning or allowing for development will cause prices to go down."

Build More Housing Downtown, Where People Want To Live

Negative: Christian Britschgi

An increasingly uncontroversial view among policy wonks on the left, right, and center is that housing in America is too expensive and government regulation is to blame.

The question, then, is which regulations we should prioritize repealing—urban growth boundaries that limit greenfield single-family development on the exurban fringe, or zoning restrictions that ban apartments and other forms of dense housing within the already-developed urban core.

As a libertarian, I think neither set of regulations is a good idea. Both interfere with property rights, reduce housing production, and raise housing costs.

That said, expensive urban metro areas would benefit most from upzoning already-developed neighborhoods to allow more infill development. If forced to choose, we should prioritize the legalization of more town homes, apartments, condos, and high rises downtown over eliminating restrictions on exurban McMansions.

We should do that because that's what America's heavily regulated market for land suggests people want.

The economist Jed Kolko has shown that the past decade was one of densification. The percentage of Americans who lived in the densest census tracts increased. The densest neighborhoods grew faster than lower-density urban neighborhoods and suburbs. Only exurban census tracts grew faster.

That last datapoint might suggest urban growth boundaries are the real constraint on housing production. But real estate prices also grew fastest in the densest tracts, suggesting that's where demand for new housing really is. If we're prioritizing reforms, we should prioritize building in places where people are saying with their dollars that they want to live.

Libertarians who focus on urban growth boundaries argue that high urban land prices are themselves a creation of growth boundaries: Would-be suburbanites are crowded into cities against their will, and prices go up as a result. This isn't necessarily wrong—but it is overstated.

The growth boundary in Portland, Oregon, certainly raises prices. It's also been expanded three dozen times since it was created. It wasn't until 2020 that the city implemented reforms abolishing the single-family-only zoning that had covered 77 percent of residential land.

Likewise, it strains credulity to think the primary reason apartment rents are high in downtown D.C., where developers are building as many units as they're allowed, is because agricultural zoning in Montgomery County, Maryland, 35 miles away, is stopping new subdivisions.

Lowering housing costs for people who demonstrably want to live in the city is going to require legalizing more housing supply there, and that requires lifting density restrictions.

The good news is where urban density restrictions are lifted, builders respond by building a lot of new housing. That happens even in places where there are few restrictions on exurban growth.

Houston, Texas, famously has no zoning code. Neither the state nor surrounding jurisdictions put many restrictions on exurban development either. Yet in 1998, when the city loosened the few density restrictions it does have—in the form of setback requirements and minimum lot sizes—within its urban core, the construction of newly legal town homes exploded and population densities in some neighborhoods doubled. Town home–buying Houstonians weren't legally constrained from getting a new house out in the sticks. When given an affordable option, they opted for something closer to downtown.

Critics of upzoning sometimes argue America's densest cities are also its most expensive. Allowing more dense housing, they say, will just get you a larger, more expensive city. This confuses stocks and flows.

San Francisco and New York City are expensive not because developers started building dense housing but because downzonings stopped them from adding more to meet continually rising demand. To suggest dense cities can never be affordable is like arguing that eating a meal won't nourish you because you'll eventually be hungry again.

Look at liberally zoned, ultradense Tokyo. It has built a lot of housing to match its growing population, and housing costs have been flat there for decades.

Generally speaking, we should let people build whatever, wherever. When multiple laws unjustly constrict that freedom, we should focus on eliminating the ones that most bind people's behavior. In housing policy, that would be inner-city and suburban apartment bans. If we can't wipe out all the restrictions in one fell swoop, then those bans should be the first to go.

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