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But in practice, we're so far behind on the supply side that we could densify much of our cities and inner suburbs and still see values rise. And I'm not convi

But in practice, we're so far behind on the supply side that we could densify much of our cities and inner suburbs and still see values rise. And I'm not convinced that when done in a playful manner, that densification doesn't add value to existing SFHs, despite now being located in a noisier/denser/whatever area. People largely prefer convenience and not driving all the time. Just walking to school is a huge plus - fewer noisy buses, more healthy kids, etc. Arlington VA added a ton of mid-rise and high-rise development in the 80s/90s (Clarendon, Courthouse, Ballston) with good results. Reston VA is now doing the same and home that were $400k a decade ago are selling for nearly double. In both cases, the scope of in-fill was tightly controlled - the local governments created dense zones around the Metro stations - which makes sense.

AnthonyMouse 3y ago
> But in practice, we're so far behind on the supply side that we could densify much of our cities and inner suburbs and still see values rise. This is a common source of confusion. If you relax zoning, the instantaneous effect is that the value of land is increased in the areas where the zoning is made more permissive (because now you can do more with the land) and reduced where zoning was already permissive (because now land zoned for those uses is less scarce). So the immediate effect is that the value of the land where single-family homes are will go up, and that effect is permanent. Then the value of indoor space goes down as people are allowed to and do build more of it. Which is what we're after, because the important thing is that people can get a couple thousand sq ft of living space for an affordable price, regardless of the number of floors the building they're in has. If the value of the land doubles but the amount of housing per acre quintuples, you've still made the land cost per housing unit decline by 250%. What that does to the long-term value of existing single-family homes depends on how much demand there is. In areas where the zoning had been oppressively restrictive, the gain in land value from relaxing the zoning could exceed the amount that it's even possible to lose from the value of indoor space. For example, you have a $400,000 house and the new zoning makes the land itself worth $500,000, but housing still becomes more affordable because someone can buy that $500,000 piece of land, build a dozen housing units there and sell the property for $2.4M, pricing each of the units at $200,000. The existing single family home still sells for $500,000+ though, not because it's a housing unit but because it's an acre of land where someone could build a dozen. > In both cases, the scope of in-fill was tightly controlled - the local governments created dense zones around the Metro stations - which makes sense. It doesn't. It makes a significant amount of sense to put a 3-5 story building in an area with mostly single-family homes, because that can often be supported with no additional infrastructure. If you want to put them all in the same place then you have to upgrade the utilities and transportation infrastructure there. Which is fine if that's what happens naturally because people choose to develop a particular area, but there is no reason to force it. And trying to concentrate them all in one area also slows down the construction and makes it cost more, because then the land cost there remains high for lack of alternatives, forcing developers to buy out those particular people (and giving them undue gains that should have been evenly distributed to the community at large) instead of buying whatever properties were already on the market.
- jjav 3y ago
  > build a dozen housing units there and sell the property for $2.4M, pricing each of the units at $200,000 If builders were selling units at their cost plus a fixed profit margin, you're right. But builders are in the business of maximizing profit. If in this area there was a backlog of people willing to pay 400K for a housing unit, the builder will sell each of these dozen units for 400K. If you feel I'm wrong, please point me at a few cities in the US where housing became cheaper as density increased.
  - AnthonyMouse 3y ago
    Well you have to pick one. Either people will pay ~$400K for the units and then the builder's incentive to build there is obvious -- because there is enough demand to sell them for $400K, which is profitable. Or people wouldn't pay quite as much as the existing single-family homes, but they'd still pay more than the builder's costs to construct the building, so it's still profitable. It only becomes not profitable when the price of a housing unit drops below the builder's costs. Which is why they'd want to keep building until that happens. > If you feel I'm wrong, please point me at a few cities in the US where housing became cheaper as density increased. I keep saying this. The causation goes the other way. Density increases where demand is higher. Higher demand increases prices, then density blunts the increase so that it's smaller than it would be if no additional construction occurred. That doesn't mean it would become cheaper in the higher demand area than the lower demand area -- particularly if the area is still growing, in which case construction lags the increase in demand and has to catch up. And if construction is inhibited, it can't, so you get as much density as the zoning allows and then prices skyrocket because supply can no longer respond to increases in demand. Which can happen even if the area already has above-average density. What you'd need to see a price decrease is an area where zoning was relaxed after being strict, allowing density to increase after it had previously been suppressed, so that density increases because of the legal change rather than a new increase in demand. But the lack of this happening in areas of high demand is exactly the problem. Maybe we should try it and see what happens?

AnthonyMouse 3y ago

> But in practice, we're so far behind on the supply side that we could densify much of our cities and inner suburbs and still see values rise. This is a common source of confusion. If you relax zoning, the instantaneous effect is that the value of land is increased in the areas where the zoning is made more permissive (because now you can do more with the land) and reduced where zoning was already permissive (because now land zoned for those uses is less scarce). So the immediate effect is that the value of the land where single-family homes are will go up, and that effect is permanent. Then the value of indoor space goes down as people are allowed to and do build more of it. Which is what we're after, because the important thing is that people can get a couple thousand sq ft of living space for an affordable price, regardless of the number of floors the building they're in has. If the value of the land doubles but the amount of housing per acre quintuples, you've still made the land cost per housing unit decline by 250%. What that does to the long-term value of existing single-family homes depends on how much demand there is. In areas where the zoning had been oppressively restrictive, the gain in land value from relaxing the zoning could exceed the amount that it's even possible to lose from the value of indoor space. For example, you have a $400,000 house and the new zoning makes the land itself worth $500,000, but housing still becomes more affordable because someone can buy that $500,000 piece of land, build a dozen housing units there and sell the property for $2.4M, pricing each of the units at $200,000. The existing single family home still sells for $500,000+ though, not because it's a housing unit but because it's an acre of land where someone could build a dozen. > In both cases, the scope of in-fill was tightly controlled - the local governments created dense zones around the Metro stations - which makes sense. It doesn't. It makes a significant amount of sense to put a 3-5 story building in an area with mostly single-family homes, because that can often be supported with no additional infrastructure. If you want to put them all in the same place then you have to upgrade the utilities and transportation infrastructure there. Which is fine if that's what happens naturally because people choose to develop a particular area, but there is no reason to force it. And trying to concentrate them all in one area also slows down the construction and makes it cost more, because then the land cost there remains high for lack of alternatives, forcing developers to buy out those particular people (and giving them undue gains that should have been evenly distributed to the community at large) instead of buying whatever properties were already on the market.

jjav 3y ago
> build a dozen housing units there and sell the property for $2.4M, pricing each of the units at $200,000 If builders were selling units at their cost plus a fixed profit margin, you're right. But builders are in the business of maximizing profit. If in this area there was a backlog of people willing to pay 400K for a housing unit, the builder will sell each of these dozen units for 400K. If you feel I'm wrong, please point me at a few cities in the US where housing became cheaper as density increased.
- AnthonyMouse 3y ago
  Well you have to pick one. Either people will pay ~$400K for the units and then the builder's incentive to build there is obvious -- because there is enough demand to sell them for $400K, which is profitable. Or people wouldn't pay quite as much as the existing single-family homes, but they'd still pay more than the builder's costs to construct the building, so it's still profitable. It only becomes not profitable when the price of a housing unit drops below the builder's costs. Which is why they'd want to keep building until that happens. > If you feel I'm wrong, please point me at a few cities in the US where housing became cheaper as density increased. I keep saying this. The causation goes the other way. Density increases where demand is higher. Higher demand increases prices, then density blunts the increase so that it's smaller than it would be if no additional construction occurred. That doesn't mean it would become cheaper in the higher demand area than the lower demand area -- particularly if the area is still growing, in which case construction lags the increase in demand and has to catch up. And if construction is inhibited, it can't, so you get as much density as the zoning allows and then prices skyrocket because supply can no longer respond to increases in demand. Which can happen even if the area already has above-average density. What you'd need to see a price decrease is an area where zoning was relaxed after being strict, allowing density to increase after it had previously been suppressed, so that density increases because of the legal change rather than a new increase in demand. But the lack of this happening in areas of high demand is exactly the problem. Maybe we should try it and see what happens?