Several causes have been offered to explain runaway real-estate valuation. For instance, some cities face serious geographic constraints that make building a difficult proposition. I live in an area in northwest Washington that is bounded by Canada to the north, the Pacific Ocean to the west and the Cascade mountains to the east (not to mention a giant flood plain through the middle). Yet even here, strict regulations make building new housing difficult on the limited buildable tracts.
Regardless of any region’s geographic constraints, most housing scholars acknowledge that government regulations play the biggest role in the ongoing hike in rental and housing prices. Zoning reform had thus gained steam in legislatures across the country as a way to get building booming again and reduce prices.
Counterintuitively, several scholars associated with the Urban Institute (UI), a prominent urban-oriented think tank, issued a study in late 2023 that continues to be used as a cudgel by anti-development activists to push back against zoning liberalizations, as they dispute whether loosened zoning laws leads to the construction of significant new housing. This was a godsend to NIMBYs (Not In My Back Yarders) given the preponderance of evidence suggests otherwise.
The UI study set up a battle of the think tanks, as the more free-market-oriented American Enterprise Institute (AEI) stepped forward to vigorously disagree with UI’s conclusion. Despite its wonkishness, this is an important debate for the future of housing reforms. The way that most peers have scored it, the AEI scholars got the better of the argument.
Let’s start with the original UI conclusions: Using machine learning to comb newspaper articles between 2000 and 2019, UI scholars found a relaxation of zoning restrictions at the city level helped with higher-end housing availability but was followed by “no statistically significant evidence that additional lower-cost units became available or moderated in cost in the years following reforms,” in the paper published in the journal Urban Studies. As such, UI scholars conclude: “The debate over how to increase the supply of affordable housing … stands unresolved.”
That threw a wet blanket on the current YIMBY (Yes In My Back Yard) view that zoning liberalization allows for more types of building and usually speeds up the process. YIMBYs believe the intellectual debate is indeed resolved, even if the political debate isn’t.
To support their takeaway that cuts against the current consensus, UI scholars theorized “that these [not statistically significant] outcomes may be produced by amenity affects occurring when a reform takes place; new buildings increase housing supply, but not only are new units likely to be more expensive than existing units, they may also bring amenities that improve the attractiveness of a city’s housing market overall.”
Not so fast, said the AEI scholars in an Econ Journal Watch review published this year. The AEI folks noted UI’s major caveats: that increased land-use restrictions can lower affordability and that mandated lower densities “are associated with increased median rents and a reduction in units affordable to middle-income renters.” The issue centers on the key UI finding: “No statistically significant evidence.”
That raised the obvious empirical question. “If those positive effects are small, then perhaps they do not compensate for potential negative effects of such liberalization,” the AEI wonks set up their response. The researchers then looked at the same 180 zoning reforms that UI analyzed and found a lot of problems.
The AEI review concluded that “60 of these articles should be disqualified outright due to duplication, incorrect geographic attribution, or policies that only affected commercial or industrial areas or properties.” Of the 120 reforms left standing, AEI found that 118 of those “are either incorrectly classified in direction (more v. less restrictive), are either not major municipality-wide reforms, or have insufficient information to accurately determine policy direction.” That left two valid results out of 180, for a remaining sample size so small as to be, well, not statistically significant.
Overall, AEI found that “short and simple, by-right, density enhancing reforms can produce sustained 1% to 2.5% annual growth in housing supply.” In their response to AEI’s rebuttal, UI researchers said one of their goals was “to assess what machine learning combined with news articles can and cannot reliably capture, and to encourage continued refinement.” They chalked up the differences to one of degree: their research showed a statistically insignificant connection between reforms and housing, whereas AEI found a larger one.
Several expert observers scored this one in AEI’s favor, and it’s easy to see why. “Huge yikes,” Tracy Hadden Loh, a fellow at the Brookings Institution, wrote on social media, regarding the UI research. The Roosevelt Institute’s Ned Resnikoff went further still in his regular Public Comment newsletter, titling that installment, “New Frontiers in Bad Housing Policy Research.” He wrote that the “Urban Institute paper beloved by supply skeptics is even more flawed than I realized.”
Most interesting, perhaps: The Urban Institute published a new report in April that examined specific upzonings in two cities. “In New York, we estimate that seven neighborhood-scale upzonings collectively resulted in more than 4,000 additional housing units within four years compared with the number of added units on similar parcels that were not upzoned,” the researchers concluded.
Those findings seem statistically significant for this debate. They were certainly significant for those who found housing. This newer UI research was particularly impressed by the “transformation of formerly industrial land near relatively high-income neighborhoods.” Upzoning land had “made way for many market-rate homes and a large number of units specifically for households with low and moderate incomes.”
The consensus before the UI’s earlier paper was that liberalizing regulations leads to more housing construction and lower prices. After all the hubbub, it has survived unscathed.
Jeremy Lott is a Washington-based writer and co-author the new Free Cities Center booklet, Urban Policy Beyond the Nation’s Big Metros.