The Sightline Institute, a Seattle-based urban affairs think tank, has published a long and badly-needed essay. In September, Alan Durning, the institute's executive director, wrote a piece called “Yes, You Can Build Your Way To Affordable Housing,” profiling some of the different cities worldwide that have done this. It was a timely message at a moment when urban residents ― and even some urban commentators ― have questioned whether increased housing supply will really reduce prices. The numbers, both from Durning and elsewhere, suggest that it will.
Durning analyzes seven cities that differ wildly ― by location, governing model and built history. But he finds that their common denominator is that, despite high demand, they have managed to stabilize housing prices by increasing unit supply.
He begins with the obvious case study of Houston. While not completely unregulated, Houston has lighter regulations than other major U.S. metros, and builds much more housing than any of them. Although Houston receives many of the stereotypical scapegoats thought to increase housing prices ― millionaires, immigrants, corporate relocations, and luxury condos ― median home prices in Harris County remain $141,000. But Houston, he writes, comes with a caveat. It maintained this affordability by sprawling out. Can the same be accomplished in dense, land-constrained cities?
Next he covers Tokyo, a dense city where the answer seems to be yes. The city built 142,000 units in 2014, well over double any U.S. metro that year, and 58,000 more than in California, which has triple Tokyo's population. As a result, single-family homes in centrally-located Tokyo neighborhoods sell for $300,000 ― obscenely low compared to similarly-situated homes in major coastal U.S. cities. Between 2007 and 2014, condo prices in Tokyo actually dropped, despite the city's rapid densification.
From Houston and Tokyo, Durning takes us to other examples. Chicago is cheaper than other dense American cities because it has faster permitting (although there is also likely less demand for living there). Montreal, despite having a similar growth rate to Vancouver, is cheaper because it allows more housing and has looser zoning.
Durning even shows us governing models that fall entirely out of the private-sector paradigm. Germany, for example, has lush government subsidies and price controls, but it combines this with loose land-use laws. This means the nation has, in relation to its population growth rate, built three times the amount of housing as the United Kingdom. Housing prices have declined there in the last three decades, while rising in other strong European economies.
The Sightline article dovetails with a lot of other research showing the connection between greater housing supply and stabilized prices. This March, I wrote a piece showing the dichotomy for different U.S. metros. Between 2010 and 2016, Houston, Dallas and New York City led the nation in new housing permits, each permitting 273,000 units or more. The median home prices in each rose over that period by no more than $45,000. There were other metro areas, meanwhile, that have similarly-large populations and strong economies--but not nearly as much raw population growth. Yet they allowed a fraction of the housing permits, only to see their median home prices skyrocket. Los Angeles permitted 160,000 units, and prices rose by $155,000. Boston permitted 73,000 units, and prices rose by $92,000. San Francisco-Oakland-Hayward permitted 68,000 new units, and prices shot up by $305,000.
Another analysis published by Trulia draws similar conclusions. It found that between 1990 and 2014, the median price per square foot in various tech-industry-intensive cities was, again, directly tied to construction permit numbers. Raleigh and Austin, which had about six times the permits as San Francisco, had 1/6th the prices. Even trendier metros like Seattle and DC had double the permit numbers, but a third of the costs.
Noting all this is important, because it runs counter to the folk wisdom that now dominates the housing affordability discussion. Many urban residents themselves believe that their cities cannot build enough housing to become affordable, and some even think new luxury housing worsens the problem, further inducing rich people to move in.
And even urban commentators have echoed this sentiment. For example Charles Marohn, the executive of the influential Strong Towns blog, has written multiple articles questioning whether added supply will solve the housing mess. Forbes contributor Pete Saunders does the same, publishing articles with headlines like "The Orthodoxy Of Supply-Side Urbanism."
But something isn't "orthodoxy" if the data demonstrates--over and over--that it is provable in the real world. This latest article from Sightline, and previous research, shows that the supply-side theory for housing passes this real-world test in multiple cities.
[This article was originally published by Forbes.]