Local laws often prohibit the construction of dense new housing, which drives up prices, especially in a few large high-wage urban areas. The increased prices transfer wealth from renters to landowners and push people away from centers of economic activity, which reduces their ability to get jobs or earn higher wages, likely by a very large amount.
The direct beneficiaries of progress on this problem would mostly be middle-class people in developed countries – not the most needy of groups globally. However, if you believe economic growth, wage increases and technological advancement in developed countries are valuable goals, this is one of the more promising policy changes for raising productivity.
An opportunity to tackle the problem which nobody has yet taken is to start a non-profit or lobbying body to advocate for more housing construction in key urban areas and states. Another option would be to try to shift zoning decisions from local to state governments, where they are less likely to be determined by narrow local interests, especially existing land-owners who benefit from higher property prices.
The gain in economic output has been estimated to be in the ballpark of $100 billion. 1
While impossible to get hard figures on, we think given the enormous profit opportunities at least $100 million is likely spent each year on attempts to allow more construction in these key US cities. This estimate is uncertain. 2
There is both strong established opposition and significant expert support behind policy change in this area.
Table of Contents
- 1 What is this problem and how much does it matter?
- 2 What can you do about this problem?
- 3 Learn more
What is this problem and how much does it matter?
What is our analysis based on?
Our analysis is mostly based on a cause overview from the Open Philanthropy Project, and the papers cited therein.
What is this problem and why is it pressing?
Local governments in the US and other countries such as the UK or Australia typically have a variety of laws that limit what kinds of buildings can be constructed in different places, including limits on the number of stories or floorspace in a building. One effect of these policies is to prevent the construction of dense housing or offices. This drives up house and office prices and means fewer people can live in particularly desirable locations.
- Increasing income and wealth inequality by transferring money from renters to property owners, who tend to be richer. Rising property prices are arguably the biggest driver of growth in wealth inequality;
- Raising unemployment by preventing people from moving to get jobs in booming cities;
- Lowering labour productivity and technological advancement by preventing people from moving to work in the most productive firms, or locations with high economies of scale. Dense cities tend to be a disproportionate contributor to economic output and innovation;
- Unnecessarily limiting the number of people who can enjoy living in cities that are attractive to them in other ways – for example forcing out existing lower-income residents through gentrification where this would otherwise not be necessary.
Economists have attempted to estimate the size of these effects, suggesting that land use regulation raises property prices by 19% in Boston, 34% in Los Angeles, 12% in New York, 53% in San Francisco, and 22% in Washington, DC.3 The effects are much smaller in other US locations. The same paper estimates that use restrictions in these cities (in 2005) created a loss of economic value of $100 billion a year. Similar effects might be expected in cities such as London.
The key cause of this problem is that the biggest potential beneficiaries of land use reform – people who want to move to a suburb – do not get any say over the regulations that keep them out. Even if many new potential residents could benefit enormously from rezoning, they don’t get a vote on the issue until they live there, and they can’t live there until the area is rezoned. In the current system, when there is a conflict between the desires of incumbent residents and everyone else, incumbent residents will usually win.
What are the major arguments against it being pressing?
- There appear to be few campaigners or organisations working on this problem specifically. However, there may be a lot of advocacy on this problem that is hard to see because it is not occurring publicly in organisations set up for the purpose. This could include:
- Construction companies or landowners working to, e.g. rezone a region, in order to allow them to develop new areas and make money.
- Groups that focus on poverty and housing affordability, for whom extra housing construction is a possible option, or environmentalists who support denser living.
- Academics and policy experts, especially economists, who advocate publicly for more housing construction.
- Voters, public servants and politicians who favour denser housing on its merits, or because it expands their tax base.
- The direct beneficiaries of this reform would be quite wealthy on a global scale because they live in expensive cities in the developing world – In almost all cases the beneficiaries of these policy reforms would be among the 10% most wealthy in the world, and usually among the 5% richest. As a result, the potential welfare gains that can be achieved by further raising their salaries or lowering their rents is fairly small. However, because this would be increasing the number of people working in the most productive locations in the world, the gains to global GDP and rates of innovation would be disproportionately larger. Inasmuch as you think making people in the US or UK more productive is good for the rest of the world or the future of humanity, this cause could still look good.
- Local interest groups will be hard to overcome – Zoning decisions are currently made by local voters, who often have an incentive to prevent development of new housing in order to keep their own house prices high. It may be impractical to convince an entrenched interest group to change their mind.
- It may not reduce the cost of housing – Some economists have argued that while building more dense cities would raise wages and productivity, housing would not become cheaper. This is because denser cities would be more desirable to live in, in part because the wages paid in denser cities are higher. Therefore even more people would move to such cities, and would be willing to pay more to live in them. In this scenario landowners receive a much larger share of the gains from the policy change than otherwise. While this would still probably be good, it wouldn’t be as good as if the benefits were more widely shared to people on lower incomes. Economist Tyler Cowen is sympathetic to this view.
- Negative effects on incumbent land-owners – While the effects of reform are very likely to be positive on balance, we should recognise some compensating harms to some existing landowners. For example, the character of some suburbs would change in an unexpected ways that they would dislike, perhaps inducing them to move.
Key judgement calls you need to make
- What’s the value of economic growth in developed countries? – The effect of land use reform is mostly to make incremental improvements to wages, equality, typical living standards, employment and technological advancement in developed countries. Because most people in the US and UK have their basic material needs met, it is unclear how much this will actually directly raise their welfare. However, it could be that these changes could have valuable flow-through effects – for example more people working in San Francisco could invent more useful products used around the world.
- Is it possible to win this political fight? – The interest groups that oppose denser housing have a lot of control over the local decision-making process, and have had enough influence to create the present situation. It might be that well-meaning people cannot have much influence. On the other hand, opposition to land use reform does not seem to be organised,, and there is support for reform across the political spectrum.
- How neglected is this problem really? – It could be that the beneficiaries of denser development are advocating for land use reform in ways that are not obvious. If this is true, it would be harder for an additional person working on the problem to change the outcome.
What can you do about this problem?
What approaches exist for solving this problem?
The natural goals are to cause the following things through the political process:
- Local councils to simply reduce the restrictions on denser construction projects.
- Local councils to set themselves targets for total housing growth, requiring restrictions in one place to be offset with relaxed restrictions elsewhere.
- For land use decisions to be moved upwards to the city or state level, making them less likely to be dominated by very local interest groups – reducing the so-called ‘not in my back yard’ effect.
This is important mostly in the few major growing urban areas where land use regulations are driving up prices.
What skill sets and resources are most needed?
- Influence over public opinion and policy in key growing cities and states. This could include as a politician, writer or activist who can successfully make the case for land use reform.
- It seems academics such as Ed Glaeser – an economist who researches urban areas – have had a significant influence over elite opinion on this issue, though this effect is hard to quantify. Journalists such as Matthew Yglesias and Ryan Avent have also attempted to change public opinion on the issue and make people aware of the broader effects of land use regulations by publishing two books on the topic.6
- The ability to raise money from foundations, businesses or other donors, in order to coordinate supporters of land use reform into an effective advocacy group.
What can you concretely do to help?
If you live in a city in which land use restrictions are preventing growth:
- Become a politician at the local or state level and support land use reform.
- Run a campaign at the local level to encourage changes to zoning regulations to, e.g. make housing more affordable. Or use any public platform you have to change people’s minds about the issue as an independent activist.
Over your career you could:
- Start a lobby group aimed at promoting land use reform in a range of key urban areas, attempting to raise money from people who care about the issue. This would be a challenging and pioneering project.
- Become a researcher on cities and urban policy in academia or a think tank.
This seems to be a cause area that would require substantial investment in your career capital before you could have much influence. However, there is a smaller action that is open to more people:
- If you live in one of the cities described, vote for candidates who will favour further housing construction, or contact your representatives to express your views about land use regulation.
- The Open Philanthropy Project report on the problem and their interviews on the topic.
- The Market Urbanism website.
- The Gated City by Ryan Avant.
- For a more in depth treatment of urban economics and the benefits of having larger and denser cities, see Glaeser’s The Triumph of the City. Here’s a review of the book first.
Notes and references
- The permanent gain in economic output from loosening land use regulations in the key US cities has been estimated to be in the ballpark of $100 billion. This is around 0.5% of US output.↩
- While impossible to get hard figures on, we think over $10 million is likely spent each year on attempts to allow more construction in these key cities by interest groups that would benefit. We also estimate there to be at least 100 people working on the problem, or 100,000 people in favour of the change.↩
- Source. Archive.↩