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Does Upzoning Work?

Jason M. Barr                       August 14, 2023

Many cities around the world have severe housing affordability problems. One reason is overly restrictive zoning regulations. Zoning—the rules that dictate what can be built on each lot—was initially designed to control urban problems, including congestion, pollution, and shadows.

Over time, however, planners made common cause with property owners to tighten the rules. Planners did not like urban density and were all too happy to reduce it. Property owners realized that stricter codes could preserve their property values and exclude the poor and minorities from their neighborhoods.

By the middle of the 20th century, the most popular zoning rule was limits on the so-called Floor Area Ratio (FAR)—the permitted maximum floor area stated as a ratio to the lot size. For example, a maximum FAR of 1 means a one-story structure can cover the entire lot or a two-story structure can be built on half the lot. FAR caps and plot coverage maximums guarantee much lower population densities.

A Bridge too FAR?

The decades of downzonings—reductions in allowable FARs—after World War II, however, did not affect housing prices all that much since large industrial centers were emptying out, and the suburbs still had plenty of land on which to build. But then, in the 1990s, these places began to rebound. A recent wave of research, particularly in economics, has documented the unintended consequences of stringent zoning regulations, including higher housing prices, increased segregation, urban sprawl, and greater greenhouse gas emissions.

If the 20th century was the Age of Downzoning, then the 21st century is gearing up to be the Era of Upzoning. Cities worldwide have initiated loosening building regulations. Logically speaking, if downzoning has reduced construction, then upzoning should produce more housing. Or does it? Does simply turning on the spigot cause the water to flow?

Let there be Housing?

To answer this question is not so simple, however. One must be able to see clearly through the fog of urban change. Expensive cities are dynamic places: people constantly move in and out, and businesses grow and shrink. Housing affordability seems to worsen no matter what new policy or subsidy the government adds.

The typical observer sees the tall cranes erecting luxury condos while urban life gets more expensive. It must logically follow that those cranes are “causing” higher prices. However, demand and supply are in a constant wrestling match. When the demand side wins, prices rise, no matter how much new construction there might be.

The Scientific Method

To separate supply from demand and cause from effect requires some effort. Researchers must create a scientific setup—a treatment and control framework—especially concerning changes to the zoning rules. If particularly hot neighborhoods are targeted for upzonings, there needs to be a way to identify the demand (the hotness) from the upzoning impacts (more supply).

For example, when testing a new pill that aims to lower cholesterol, it’s best to compare a group of people with similar characteristics. The ideal experiment is to enroll in a study, say 100 men, who are very similar—in their 50s, overweight, and don’t regularly exercise. Half are randomly assigned the pill, while the rest are given a placebo. If the men who took the pill have lower cholesterol, on average, it strongly suggests that the pill works.

Zoning as Treatment

Recent studies on upzoning, discussed below, use this logic, although, unlike medical doctors, researchers can’t control the experiment to such a fine degree. Instead, they need a way to locate a reasonable control group similar to the “treated,” or upzoned, lots before the upzoning was enacted.

Several studies use the so-called border method. They compare blocks in the upzoned area to those just on the other side. Presumably, two blocks across the street are very similar otherwise. Another approach uses time as the difference. When areas are rezoned randomly at different times, one can compare neighborhoods before and after the rezoning. Finally, another method is to use a statistical algorithm to match upzoned parcels to similar non-upzoned parcels elsewhere in the city.[1]

With this in mind, we now turn to the findings.

Upzoning in Seattle (left) and rezoning in São Paulo (right). Source: Krimmel and Wang 2023) and Anagol et al. (2023). Note: “BAR” is Building Area Ratio (same as Floor Area Ratio).

Upzonings Around the World

New York

New York City, under Mayor Michael Bloomberg, from 2004 to 2013 rezoned nearly 40% of the city’s residential land. Central areas of Manhattan, Brooklyn, and western Queens, which had underutilized industrial sites, waterfront blocks, and transit-accessible neighborhoods, were upzoned by increasing the maximum allowable FAR for residential use.

Hsi-Ling Liao, in her 2023 paper, “The Effect of Rezoning on Local Housing Supply and Demand: Evidence from New York City,” compares upzoned parcels to those that were not upzoned but were within 1000 feet (305 m) of the boundary. She concludes that in the upzoned districts, “…the number of residential units increased by more than 4 percent seven years after upzoning. The parcels that are more intensively treated and receive a stronger boost in allowed residential capacity experience an 8 percent increase in housing supply.”

A very similar study was conducted by Xuequan Elsie Peng in her 2023 paper, “The Dynamics of Urban Development: Evidence from Land Use Reform in New York.”  She compares the new housing units in the upzoned blocks to those that are within 650 meters away (0.4 miles). Her findings echo those of Liao’s—in the upzoned areas after six years, the number of units increased by about 4%, while after 12 years, the number of units increased by about 8%, relative to the blocks that were not upzoned.

Peng also studies treatment intensities by investigating if more generous FAR allowances lead to more housing. She finds that in the low upzoning case (FAR increases of less than 30%), there was about 2% more housing, on average, after ten years relative to the non-upzoned blocks. In the high upzoning case (FAR increases greater than 92%), she finds that these neighborhoods added about 8% more housing, on average, after ten years than non-treated blocks.

Portland

Hongwei Dong, in his 2021 paper, “Exploring the Impacts of Zoning and Upzoning on Housing Development: A Quasi-experimental Analysis at the Parcel Level,” studies the case of Portland. He focuses on parcels that were upzoned between 2001 and 2002 in southwestern Portland.  In this case, the rezonings were primarily in suburban neighborhoods, where a majority of lots contained low-density, single-family homes.

After matching upzoned parcels to similar non-upzoned ones, Dong concludes that upzoned parcels were about two times more likely to be developed fifteen years after upzoning and that “further analysis suggests that the 111 upzoned parcels produced 240 dwelling on 33.8 acres of land. The density is 7.1 units per acre. The fifty-eight control parcels produced eight dwelling units on 18.6 acres of land. The density is 4.3 units per acre. These findings suggest that upzoning not only sped up housing developments but also increased housing production.”

Seattle

Jacob Krimmel and Betty Wang study the case of rezonings in Seattle in their 2023 paper, “Upzoning with Strings Attached: Evidence from Seattle’s Affordable Housing Mandate.” Unlike New York and Portland, Seattle took a different approach. In 2019, select neighborhoods were upzoned to allow more floor area, but this benefit came with a “tax”—a mandatory housing affordability (MHA) requirement for developers to either include affordable units or pay into a fund for the city to spend on affordable units elsewhere. The authors write, “The reform combines two policy levers that some economists consider to conflict with one another: Increasing development capacity through upzoning and requiring private development to create income-restricted affordable housing.”

The MHA areas were applied to areas already zoned for multifamily, commercial, or high-density single-family homes (such as townhouses). However, the upzoning was relatively mild, amounting to one additional floor than otherwise, on average. Comparing blocks that were in MHA areas to those that had no change, they conclude that the program, in fact, backfired in that it drove new construction away from the MHA areas. They find

strong evidence of developers strategically siting projects away from MHA-zoned plots – despite their upzoning – and instead to nearby blocks and parcels not subject to the program’s affordability requirements. The differential reduction from MHA to non-MHA zones could be as large as 70% of average permitting activity at the border.

They further find that:

Worryingly, most of the drop in the number of units in MHA zones is coming from the multifamily segment of the market, where most of the housing products are 3- and 4-story townhouses and duplexes. This is of particular note because lowrise and small multifamily homes are seen as a more affordable alternative to luxury apartments for low- and moderate-income renters.

Chicago

In “Upzoning Chicago: Impacts of a Zoning Reform on Property Values and Housing Construction” (2019), Yonah Freemark explores the case of Chicago. Under Mayor Rahm Emanuel, Chicago undertook two rounds of upzonings. The first, in 2013, upzoned neighborhoods between 600 feet (183 m) and 1,200 feet (366 m) of metro and commuter rail line stops to encourage transit-oriented development (TOD). The second round, in 2015, expanded the upzoned areas to a half mile within the stops.

The rezonings involved two types of changes. The first was an increase in the allowable FAR, which in 2013 amounted to 17%, on average, while the 2015 rules increased the FAR from before 2013 to 33%, on average. Additionally, in both years, rules on on-site parking were made less stringent, allowing developers to provide fewer spots.

Freemark first compares parcels upzoned in 2013 to those left unzoned but were later upzoned in 2015. He then compares the parcels upzoned in 2015 to neighboring blocks just outside. For the 2013 upzonings, Freemark does not find evidence that they led to an increase in housing supply, as measured by new building permits.

However, this finding is likely due to three factors. First, the upzonings applied to both high- and low-income areas. Upzoning low-income areas is less likely to be effective if the income there is not high enough to compensate for the cost of new construction. Second, the period of investigation was from late-2013 to late-2015, a very short period to analyze the impacts of upzoning. Lastly, the average upzoning of 17% was rather small to have a meaningful impact, as other studies have shown.

However, in his analysis of the impact of the more generous 2015 upzonings, he finds (weak) evidence that the combined relaxation of parking and FAR rules increased the number of residential building permits in the nearly-three-year period after the rules changed (about 25 more permits in the upzoned areas versus the non-upzoned areas between September 2015 and June 2018).

Zurich

In their 2023 paper, “Making Housing Affordable? The Local Effects of Relaxing Land-Use Regulation,” Simon Büchler and Elena Lutz investigate the Canton of Zurich in Switzerland from 1995 to 2020. The canton contains 168 municipalities with a population of 1.52 million. Each municipality separately undertakes rezoning approximately every 15 years.

The authors exploit the independent and random timing of the rezonings to explore how increases in the FAR before and after the rezonings impact housing construction in 100-meter (328 feet) by 100-meter grid cells. For each cell, they measure the total floor area in five-year intervals and then track when the upzonings occurred. Thus, the treatment is the cell after upzoning, and the control is the cell before upzoning.

Their conclusion: “We find that large upzonings of more than 50% significantly increase the living space and housing units by 9-18% on upzoned parcels compared to non-treated parcels in the subsequent six to 15 years….In contrast, small upzonings, of 0-50%, do not incite a strong reaction from developers.”

Auckland

In their 2023 paper, “The Impact of Upzoning on Housing Construction in Auckland,” Ryan Greenaway-McGrevy and Peter Phillips study upzoning in Auckland, the largest city in New Zealand, with about 1.57 million residents. In 2016, the metropolis upzoned nearly three-quarters of its residential land.

The authors’ approach is to look at new building permits inside the upzoned areas versus those just outside. Studying the relative changes in annual building permits issued for new dwelling units, they conclude,

The response to the zoning change is immediate: The estimated treatment effects increase every year after implementation. By 2021, five years after the policy was introduced, some 23.06 additional permits are issued, on average, in upzoned areas compared to non-upzoned areas in each of the 479 Sas [Statistical areas, similar to census tracts]. This would correspond to 11,044 permits across the city. Cumulating the corresponding figures for 2016 through 2021 yields 34,614 additional permits in upzoned areas compared to non-upzoned areas. Treatment effects for attached dwellings exceed detached from 2019 onwards. By 2021, the estimated treatment effect for attached is 17.96 permits, while for detached it is 5.09.

São Paulo

Finally, in their 2023 paper, “Estimating the Economic Value of Zoning Reform,” Santosh Anagol, Fernando Ferreira, and Jonah Rexer study the case of São Paulo, the world’s fourth largest city, with 21 million residents in its metro area. The city undertook a rezoning in 2016. Similar to the other studies, they explore how raising the Floor Area Ratio—what they call the Built Area Ratio (BAR)—impacted new construction. On average, they found that the upzoning increased the allowable BAR by 36%, and more than half the city’s blocks received an increase.

The authors explore new housing permitting in upzoned blocks compared to non-upzoned blocks on the other side of the border. Their conclusion:

We find that the 1.4-point max BAR increase at the cut-off causes an increase of .003 multi-family dwelling permits filed per block per quarter, which is a sixty six percent increase in permits per unit of max BAR in treated relative to nearby control blocks. The differences in permitting activity between treatment and control blocks emerge just one year after the zoning reform was passed and increase thereafter, which is plausible given the time it likely takes for developers to create project plans, acquire land, and so on.

Upzoning and Housing Prices

Several studies also look at the impact of upzonings on real estate prices. Here the findings are mixed. However, interpreting price impacts is more complex. When rezonings occur, several processes are at work. The first is that upzoned parcel has the future opportunity—the so-called option value—to be redeveloped more densely and generate more revenue. A forward-looking market naturally means that upzoned parcels will sell at a premium, even if there is no redevelopment in the short run.

Second, upzoned neighborhoods typically mean more density, which means more Starbucks and other urban amenities, which raises local housing prices. There’s also the possibility of the opposite effect, where density causes more traffic congestion, street noise, crime, or trash—a so-called negative amenity effect—which will reduce prices (however, I sense is this is less of an issue today).

Then there is the supply effect: more housing will reduce prices, all else equal. However, when upzonings are small and take a long time to yield fruit, the supply effect may be swamped by the option value and amenity benefits.

The Findings

Liao’s study of New York City looks at the sale prices of buildings built before 2004 and thus excludes any buildings completed after the rezonings. She finds no statistically significant changes in housing prices in the upzoned areas, suggesting that the supply effect balanced out the amenity and option value effect.

Freemark’s study of Chicago found that after the upzonings in 2013,  density bonuses increased prices by about 16%, on average, vis a vis the non-upzoned parcels. But focusing on location, he finds that the result was likely driven by price rises only in Downtown, with no increases in other neighborhoods. And zooming in only on condo sales, he finds that prices increased by 12%, on average. Since the period of his analysis was short, it suggests that Downtown condo buyers had higher expectations for their neighborhood that showed up quickly in the sale prices but were not offset by more supply.

Büchler and Lutz’s study of Zurich looks at average rental listing prices. They found that rental prices in upzoned cells typically saw no price changes over time. Again, the supply effects of lower rents were evidently matched by the amenities benefit.

Anagol et al. look at neighborhood housing prices for São Paulo and find that areas with larger BAR increases had greater increases in the number of home sale listings, where a 1-point increase in the maximum BAR was associated with a 10.9% increase in listings growth, on average. And just as importantly, with more listings and supply, they found that each one-point increase in maximum allowable BAR was associated with a 5.7 percentage point reduction in home prices.

All told, these studies suggest that price impacts hang in the balance between the different supply and demand forces, but they also demonstrate that price increases are not a foregone conclusion.

Upzoning Effects: Each graph shows the rise in housing supply after upzonings (on the right half of each graph). Upper left: Büchler and Lutz (2023) for Zurich, middle left: Peng (2023) for NYC, upper right: Liao (2023) for NYC, bottom right: Anagol et al. (2023) for São Paulo, bottom left from Greenaway-McGrevy and Phillips (2023) for Auckland.

Does Upzoning Work?

This research shows that, yes, upzoning works. Of the seven studies reviewed here (excluding the Krimmel and Wang study), all but one found a statistically significant uptick in new housing permits, completed units, or residential floor areas after upzonings—and because of the upzonings.

But, of course, there are nuances and caveats. The studies reveal that the units materialize only after several years, and their impacts are relatively modest. But they do show that if strategically managed, upzonings can be effective.

What are the key lessons from these studies?

Scale

The first is that scale matters—the greater the allowable floor area increases, the greater the impact the upzoning will have. For example, Liao and Peng found that small FAR increases yielded much less housing for New York than larger FAR increases. Büchler and Lutz found no effect in the Canton of Zurich for upzoning of less than 50% but saw about a 10% increase after ten years for large upzonings. In Chicago, upzonings of 33% seemed more effective than of 17%. And Krimmel and Wang show that mild upzonings with additional costs can backfire by diverting construction away from these areas.

Scope and Location

While these studies do not directly investigate the amount of total upzoning versus total new supply, the evidence suggests that broader is better because of housing supply’s connection with demand. In central neighborhoods, a new high-rise can trigger an upward price spiral because of the national or international demand.

Outside of the center, where demand is more tempered, and land values are lower, new supply will be more easily felt because the new tenants are less likely to trigger an upward price cycle. On the other hand, in locations where the cost of new construction is too high relative to the expected rents or incomes, upzonings may have little effect. Districts with high owner-occupied and single-family homes will likely also see slower impacts because redevelopment can only occur once owners decide to move, which can take several years.

These studies focus only on upzonings. But many cities downzoned some neighborhoods simultaneously with their upzonings. As a result, rezonings can wind up shifting supply rather than boosting it citywide. And if rezonings push construction from the periphery to the center, price relief may not result.

An Affordable Future

Upzoning is necessary for a healthy city to grow and accommodate more residents, but it is not sufficient to solve the affordability problem. Older, denser cities still have a host of other barriers or frictions that make new construction difficult and slow, particularly in neighborhoods where it’s needed most.

Parcels must be assembled, buildings must be emptied, and other building regulations must still be followed—producing a steep mountain to climb.

Greasing the Wheels

In other blog posts, I have discussed steps that cities can take, but let me highlight a few that can help grease the wheels:

  • Link upzonings to neighborhood housing vacancy rates. The lower the vacancy rates, the more generous the increases in the FAR. This will ensure that upzoning is applied where it’s needed most.
  • Construction subsidies should be the greatest in the middle- and moderate-income neighborhoods. Abundant affordable housing comes from the construction of middle-income housing outside the center. Lower-income residents will gain through the so-called filtering process, where the older housing becomes more affordable, and people move into the new middle-income housing.
  • Homeowners should have much more flexibility to add Accessory Dwelling Units (ADUs), such as converting a garage to an apartment, adding a “granny flat” in the yard, or subdividing their house to add an apartment. These new units, which don’t require demolitions or evictions, are a relatively easy way to provide affordable units and generate extra income for homeowners in the suburbs.
  • A land value insurance program can insure homeowners against reduced land values if rezonings should cause neighborhoods to become less valuable. This will reduce (though not eliminate) NIMBYism since residents have some economic protection against change.

Leadership

The real problem of housing affordability, however, is not economics, it’s politics. Upzonings are contentious because people see them as generating higher housing prices and bringing changes to their neighborhoods. As a result, they elect leaders who either enact NIMBY policies or merely tiptoe through the garden of affordability.

True affordable housing comes from expansive citywide policies. The only way to do this is for leaders to form coalitions, seek compromise, create carrot-and-stick programs, and compensate those harmed to prevent them from stopping reforms.

Our cities cannot afford the delay.

 

Works Discussed

Anagol, S., Ferreira, F. V., and Rexer, J. M. (2023). “Estimating the Economic Value of Zoning Reform.” National Bureau of Economic Research, Working Paper No. w29440.

Büchler, S., and Lutz, E. C. (2023). “The Local Effects of Relaxing Land Use Regulation on Housing Supply and Rents.” Working Paper (July).

Dong, H. (2021). “Exploring the Impacts of Zoning and Upzoning on Housing Development: A Quasi-experimental Analysis at the Parcel Level. Journal of Planning Education and Research.

Freemark, Y. (2020). “Upzoning Chicago: Impacts of a Zoning Reform on Property Values and Housing Construction.” Urban Affairs Review, 56(3), 758-789.

Greenaway-McGrevy, R., and Phillips, P. C. (2023). “The Impact of Zoning on Housing Construction in Auckland.” Journal of Urban Economics, 136, 103555.

Krimmel, J. and Wang, B. X. (2023). “Upzoning With Strings Attached: Evidence from Seattle’s Affordable Housing Mandate.” Working Paper (July) and summary in Cityscape (2023).

Liao, H-L (2023). “The Effect of Rezoning on Local Housing Supply and Demand: Evidence from New York City.” Working Paper (July).

Peng, X. E. (2023). “The Dynamics of Urban Development: Evidence from Land Use Reform in New York.” Job Market Paper (January).

 

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[1] The matching method used by Dong is called propensity score matching. The rest of the papers used what is called Difference-in-Difference (DiD) regressions.

by Jason Barr Leave a Comment

Robert Moses and the Zoning of New York (Part II): 1944

Jason M. Barr               July 24, 2023

Author’s Note: This blog post is the second in a series that brings to light Robert Moses’ forgotten role in New York zoning and planning history. Post I from 1938 to 1941 is here.

Robert Moses, the Master Builder of New York City from the 1930s to the 1960s, is famous—or infamous—for the staggering number of projects he built. He started with parks and parkways and expanded to bridges and tunnels, highways, housing projects, and slum clearance.

Lost in all the discussion, however, was that Moses was also a member of the City Planning Commission (CPC) for twenty years. Though this position was less visible than his leadership of the Triborough Bridge Authority or the Parks Department, Moses’ role at the CPC deserves more attention than it has because it has impacted the city, nonetheless.

A Brief History of the CPC

In 1933, Fiorello La Guardia was elected Mayor of New York. He was determined to clean up city government, which for decades has been run by Tammany Hall Democrats. La Guardia brought in Robert Moses as Parks Commissioner, who immediately initiated a vast program of building swimming pools, parks, and parkways.

In 1936, La Guardia spearheaded charter reform to centralize power in the mayor’s office. The new charter created the City Planning Commission. Many people expected that Moses would take the helm, but he refused. He was unsure exactly what the CPC was supposed to do and was not interested in figuring it out.

Instead, in 1938, La Guardia chose as the CPC’s first leader the economist and FDR advisor Rexford Tugwell. Tugwell, a devotee of master planning, arrived with a vision of what the Commission should do. He had three signature items on his agenda. The first was to undo the problem of non-conforming uses. Tugwell wanted urban order and could not stomach things being where they ought not to be. His first major initiative was to ban signs and billboards at locations where they were originally grandfathered in 1916.

Failures

A business and real estate coalition, however, formed to stop him, afraid that the proposal was just the tip of the iceberg toward greater interference in the property market. Ironically, Tugwell received support from Moses. Given his career building parks and parkways, he, too, thought signs and billboards could be a nuisance.

Next was a Master Plan of Land Use, comprised of maps with stricter boundaries for future allowable land uses and a vast greenbelt. New York would become a Garden City, whether it wanted it or not. Here Moses was his foe and helped lead the charge against the plan, as it struck him as too radical.

The third policy was to revise the zoning resolution—particularly by downzoning the city. But Tugwell never got his chance. Instead, he could only pass changes to a few residential districts. In particular, the CPC created several single-family-home-only zones and introduced Floor Area Ratio (FAR) caps in suburban areas. Moses went along with these as he was fine with downzoning in residential neighborhoods.

Moses on the CPC

After the billboards loss, Tugwell’s failure to pass the Master Plan was the last straw. He quit his position in 1941 and soon became Governor of Puerto Rico.  La Guardia chose as the new chairman Edwin. A. Salmon, already a member of the CPC. Robert Moses was picked to fill the vacant seat. Almost immediately after taking office, Moses pushed the CPC to formally scrap Tugwell’s Master Plan.

During the three years of working with—and battling against—Tugwell, Moses learned what the CPC could and should do. Furthermore, being on the inside would be useful, aiding him in his other endeavors. As planning historian Stanislaw Makielski writes, “Moses saw city planning as a matter of meeting the city’s needs on a project-by-project basis, and he never gave his full attention to the activities of the Planning Commission, using it chiefly as an additional source of information and as a public forum for his own brand of planning.”

Long Haired Planners

As discussed in an earlier blog post, Moses occupied a position squarely in the political middle. On his left were those he labeled as “long-haired planners” (although, as best I can tell, they all had short hair). In June of 1944, Moses published a screed against them in the New York Times Magazine. In so many words, he told eminent modernist thinkers like Eliel Saarinen, Walter Gropius, Erich Mendelsohn, Rexford Tugwell, and even Frank Lloyd Wright to shut the f*** up.

Moses was a man who did things like build parks and roads, and their planning theories were poisoning people’s minds, or, as he wrote,

In municipal planning we must decide between the revolution and common sense—between the subsidized lamas in their remote mountain temples and those who must work in the market place. It is a mistake to underestimate the revolutionaries. They do not reach the masses directly, but through familiar subsurface activities. They teach the teachers. They reach people in high places, who in turn influence the press, universities, societies learned and otherwise, radio networks, the stage, the screen, even churches. They make the TNT for those who throw the bombs. They have their own curious lingo and double talk, their cabalistic writings, secret passwords and abracadabras.

Moses also had little patience with the laissez-faire-ists who felt the government had no business telling people what to do with their property. While Moses disdained wholesale reforms, he was a fervent devotee of modernization and “cleaning up” the old metropolis. He believed in slum clearance because the new housing had more open space, was less dense, and was laid out according to  proper standards. Like many planners of his day, Moses adhered to the dictate of better living through the tower-in-park.

Before and After. Left: Rendering of a hypothetical office building under the 1916 Zoning Codes. Right: Hypothetical rendering if the same building was constructed under Robert Moses’ 1944 Plan, with stricter setback rules. Source: here.

The Moses Plan of 1944

By the spring of 1944, it was clear that the war would be winding down, and the time was ripe to implement zoning reform ahead of the expected post-War boom. After the Roaring Twenties, there was broad consensus among planners that the 1916 codes were too lenient.

With Tugwell out of the picture, Moses felt it was his turn to take a stab at rezoning. If he could get through a more conservative resolution, he might put the left at bay for a while. Still, Moses firmly believed in the necessity of downzoning.  As he wrote to his fellow commissioners in May 1944, when he introduced his new plan:

It is ridiculous to apply high standards to public housing, to redevelopment corporations and to limited-dividend companies, and not apply them to speculative or ordinary private buildings.

All of the buildings, public, semi-public or private, contemplated in the postwar period will accomplish nothing toward improving city life unless the zoning standards are jacked up. At the present time the zoning standards are so low that in a good many cases we are entirely dependent on the Multiple Dwelling Law from relief on over-building….

I should like to go very much beyond these amendments and to make them a good deal more drastic, but it seems the approach should be gradual and conservative. I know of no reason why the rise in standards here proposed should meet with opposition from any reasonable citizen or organization.

Moses’ proposal could be called 1916 2.0. New buildings’ allowable envelopes would be lowered—their street wall would rise to lesser heights, and their setbacks would be more severe. Additionally, the open space requirements around each structure were expanded. The net effect was to reduce a building’s bulk as a function of the then-current rules; each zoning district would thus be dialed down a notch.

Moses Tackles His Opponents

Moses brooked no dissent. He knew he had the other commissioners and La Guardia lined up, and he needed to keep them unified against the opposition. When The Committee on Civic Design and Development, a group formed by the New York chapter of the American Institute of Architects (AIA), for example, wrote a report arguing for more sweeping changes, La Guardia asked for Moses’ opinion. He replied to the mayor, “This report is the work of the same radical group who have always insisted that our planning is not sufficiently revolutionary. You will never get anywhere in trying to argue the matter with them.”

And echoing his run-ins with Tugwell three years early, Moses reminded the Little Flower, “These people want a master plan and zoning system on entirely new constitutional and legal theories.” And relishing the opportunity to trash-talk them down the line, Moses added, “My very earnest advice to you is to ignore this report. I can tell you more about the individual members of the committee if you wish.”

Robert Kohn

Interestingly, Moses received a letter from Robert D. Kohn, who, as I argued in a prior blog post, invented the Floor Area Ratio in 1935. Kohn was a highly respected reformer and architect who served in the Roosevelt administration as the first housing chief of the Public Works Administration (PWA). As Parks Commissioner, Moses managed to commandeer a sizable WPA allotment to build up the city’s park system. It seems reasonable that he would have met Kohn.

Kohn was also a founding member of the influential group the Regional Planning Association of America (RPAA). His architect partner, Clarence Stein was also an important reformer and initial RPAA member, and had led the New York State Commission of Housing and Regional Planning in the early 1920s under Al Smith’s administration while Moses was building out Jones Beach.

The letter from Kohn to Moses offered some slight changes to Moses’ plan as it related to large buildings on entire blocks but was supportive of the downzoning plan overall. Moses’ response to his fellow commissioners was to belittle Kohn and accuse him of hypocrisy, telling them,

Attached is a letter from Robert D. Kohn. Mr. Kohn and his partner Stein are advanced thinkers of planning. Both of them are of the school that advocates drastic reorganization and much higher standards until it gets down to anything which affects their immediate prospects of the commission.

To Moses, the phrase “advanced thinkers” was no doubt an insult, as he clearly associated “advanced” with “radical.”

Moses was likely aware of Kohn’s role at the RPAA. He obliquely refers to (and rejects) their position in his report on his plan to the Board of Estimate. Again, Moses tries to outflank those on the left, by signaling to the Board of Estimate what he sees as their radical position:

The Commission is not proposing further restrictions on the height and bulk of buildings out of sympathy with current theories regarding “decentralization” and the scattering of population and activities over larger areas of the countryside. On the contrary, its purpose is to check trends toward “decentralization” which threatens values based on the manifest advantages of centralization and concentration of people and activity in a community such as New York.

Liar, Liar, Pants on Fire

Moses also attacked those on his right. For example, he accused the leader of the real estate interests opposing the new plan, Robert W. Dowling, of being a liar. Moses complained to the other Commissioners that,

I just want to point to one thing as an evidence of the kind of opposition there has been to these proposals; the unscrupulous character of the opposition. One of the things that Mr. Dowling and his publicity man have relied upon has been the statement that reputable fiduciaries, such as banks, particularly, savings banks, and insurance companies, have filed plans for large buildings—that these plans and the buildings projects will be abandoned if the new standards are adopted; and, that, therefore, the new standards are a very wicked thing. They have even had the effrontery to go to labor unions and tell them that the members of the building trades won’t have any work if we carry out this program.

Well, I have a little familiarity over a period of years with the insurance and banking laws—in fact, wrote quite a little bit of the Banking Law. So, I got in touch with the Superintendent of Insurance first in connection with plans for a building filed in the Building Department where he was indicated as the owner. I asked him what authority he had or anyone in the Insurance Department had for filing the plans. Mr. Dineen, the Superintendent, sent me the man who is in charge of liquidation, who admitted that he didn’t have the slightest thought of ever building such a building, that he was simply trying to create a market—the appearance of a boom—so that he could sell the property at a higher price. Mr. Dineen, this morning ordered the plans withdrawn from the Building Department….

That gives you a rough idea of the activity of Mr. Dowling.[1]

The Huie Maneuver

It was one thing for outside groups to criticize Moses, but fellow commissioner Irving Huie had an alternative proposal that Moses did not like. Huie (1897-1957) was born in Brooklyn. He graduated from New York University in 1911 with an engineering degree. After World War I, he served in city and state positions and private practice, helping to build infrastructure, such as highway construction in New York and Pennsylvania. In 1938, he became chief engineer for the city’s newly formed Department of Public Works. When he was appointed to the CPC in 1941, he was seen as an able official and “doer” like Moses.

Huie—rightly—complained that the CPC went ahead without any analysis of the plan’s impacts. Moses simply notched the dial downward and left it at that. Huie had performed an analysis and concluded that in the dense business districts, the combined lowering of street wall heights, setbacks, and increasing yard sizes would reduce allowable building floor area by 45%, likely making commercial construction uneconomic. At the same time, he felt that the rules in underdeveloped residential zones were not dialed down enough—and would allow, in his opinion, too much residential density. The best way to fix the problem was to establish Floor Area Ratio (FAR) caps citywide.

The Moses Rebuttal

Huie sent his plan to the Board of Estimate. Moses quickly dashed off a rebuttal lest they get persuaded by Huie’s reasoning. Like a good defense attorney, Moses went through Huie’s points and attacked them as either incorrect or too far-fetched. As for the Floor Area Ratio, implementation citywide would be too risky and have uncertain effects. Besides, Moses argued, you’d still need height caps in the center to control excessive height. On the other hand, Moses’ plan was simple, easily understood, and a mere tweak of rules that had existed for nearly three decades.

Rezoning Plan of 1944. As a commissioner on the City Planning Commission, Robert Moses attempted to reform the zoning codes. His plan was a “1916 2.0,” which reduced building envelopes and lot coverage. Source: here.

Moses Never Sees the Promised Land

When first released, the public reaction to the plan was mixed. Good Government groups, like the Citizens Union and the City Club, endorsed it, while the real estate industry was opposed. The CPC held hearings in June of 1944, then again in July. Moses wanted that to be that, but critics demanded more hearings, and caving to their wishes, the CPC had one more hearing in September. The opponents barked for more delay and study. Nonetheless, on November 1st, the CPC voted 5 to 1 to accept the Moses plan with Huie as the lone dissenter.

Next, it went to the Board of Estimate, which was charged with voting it into law. The Board held hearings on November 15th. Thirty speakers were allowed to voice their opinion, and the majority were against it. Over the next two weeks, opponents and proponents tried to sway the Board. When it held its final vote on November 30th, the majority voted against the zoning revision, with ten votes “nay” and six votes “yea.”[2]

And yet, the CPC had won. To give power to the CPC, the 1936 Charter stipulated that zoning changes approved by the CPC became law unless rejected by three-quarters of the Board of Estimate. In this case, the Board of Estimate rejected Moses’ plan by only 62.5%—not enough to negate it.

Thus, with the 1936 Charter on his side—along with La Guardia’s support—Moses accomplished something that Tugwell could not, or for that matter, had not been done since 1916—a revision of the zoning codes. Or so it seemed….

The 20% Rule

But opponents had an ace up their sleeve—the Zoning Resolution itself, which stipulated the so-called 20% Rule. Section 23 of the Codes on Amendments, Alterations and Changes in District Lines states,

The Board of Estimate and Apportionment may from time to time on its own motion or on petition, after public notice and hearing, amend, supplement or change the regulations and districts herein established….If, however, a protest against such amendment, supplement or change be presented, duly signed and acknowledged by the owners of 20 per cent. or more of any frontage proposed to be altered, or by the owners of 20 per cent. of the frontage immediately in the rear thereof, or by the owners of 20 per cent. of the frontage directly opposite the frontage proposed to be altered, such amendment shall not be passed except by the unanimous vote of the Board. (Emphasis added.)

In other words, if a rezoning was protested by 20% of affected property owners, it could only pass if the Board of Estimate approved it unanimously. The matter was brought to the courts less than a month after Moses’ apparent victory, and the plan officially died in July 1946.

As Makielski writes,

The result was almost anticlimactic….[T]he State Court of Appeals held that “20 per cent rule” applied and that clearly the Board of Estimate had failed to pass the amendment by unanimous vote….The Planning Commission had won before the Board of Estimate…but was defeated by another “formal rule” of the game; a rule that demonstrated the importance of the Borough Presidents’ votes when coupled with an energetic opposition to zoning innovation. Moses characteristically commented on the outcome, “Apparently we were too far ahead of the procession.”

Robert Dowling—the man that Moses accused of lying—led the lawsuit and had the last laugh when he “took a slap at Mr. Moses by referring to protests ‘ruthlessly ignored by certain public officials who resent any disagreement with their opinion….’,” as reported the New York Times.

The Moses Effect

Moses’ defeat, in part, represented the triumph of parochialism. The Borough Presidents of the Bronx, Manhattan, Brooklyn, and Staten Island voted against his plan. This fact, along with the 20% rule, meant that even Moses did not have enough power to overcome local interests. But at the same time, Moses was not interested in building coalitions and forging common interests like Edward Bassett did when formulating the 1916 Resolution. For Moses, it was his way or the highway; in the end, that was his undoing in 1944.

His failure also meant the continuation of the status quo—the 1916 Resolution—for the foreseeable future, which, depending on where you sat, was either good or bad. But more broadly, Moses’ defeat also shows that, in its early years, the City Planning Commission proved ineffective in achieving its own goals. Whether it was the grand dreams of Tugwell’s Master Plan or Moses’ simple rezoning, the City Planning Commission failed to establish power over land uses and to find the right balance between growth and change and protection and preservation. This legacy continues into the 21st century, where the idea today of wholesale rezoning is virtually impossible. 

FAR Away

Because of Moses’ antipathy toward using the Floor Area Ratio, a full-scale rezoning of the city would have to wait until he was out of power. But over the years, the ideas of those on the left would become increasingly mainstream. As I will document in the next post, the CPC would take up a full-scale rezoning in 1950, and the battle to tame Gotham would continue once again.

 

Read the first post in the series here.

—

[1] As a side note, Moses appears to utter these statements without a hint of irony, which is rich given that throughout his long career, he was not above using sneaky or underhanded methods to achieve his ends.

[2] The Borough Presidents of the Bronx, Manhattan, Brooklyn, and Staten Island were against it, and the citywide officers and the Borough President of Queens voted in favor. On the Board, citywide leaders each had three votes, the borough presidents of Manhattan and Brooklyn had two votes, and the other borough presidents each had one vote.

by Jason Barr 2 Comments

Long Live the Skyscraper

Jason M. Barr             June 12, 2023

A few weeks ago, I received an email from an acquaintance with a link to an article about my research. I was naturally intrigued, but when I started reading it, I realized that the author was using my research against me, rotating the findings to suggest they meant the opposite of what they actually meant.

The article is “Death to the Skyscraper,” and the author paints a very dark—dystopian even—picture of the skyscraper. She is not alone, to be sure. Her article is part of a long-running genre of skyscraper-as-destroyer-of-cities.

Her focus is on the environmental impacts of tall buildings, particularly their greenhouse gas emissions. It’s true that tall buildings tend to produce more through operational and embodied carbon than their diminutive counterparts. And this observation is, correctly, worrisome.

For those who see these “towers of power” simply as carbon-spewing Godzillas, the natural conclusion is that they should be banned from existence. But as I teach my students in Economics 101, you can’t draw conclusions without evaluating the costs relative to the benefits. Unfortunately, the whole article reads as an exercise in bad economics.

The Enduring Skyscraper

The author’s key thesis is that the skyscraper requires more of society than it gives in return. This claim puts her within a century’s-long tradition of those who have shared that view. In fact, her words (which are factually dubious at best) that “Even at the city level, the huge carbon cost of skyscrapers fails to outweigh any potential benefits that they might achieve from restraining urban sprawl” echoes one of New York’s key reformers, Edward Bassett. He sought to eliminate the skyscrapers in Manhattan by focusing only on their construction costs while ignoring their benefits. In a 1913 report that led to New York’s 1916 zoning resolution, he wrote:

Few skyscrapers pay large net returns. Most of them pay only moderate returns….However, the very tall buildings demand many things out of proportion to their increased bulk. All piping has to be made disproportionately heavier; special pumps and relays of tanks have to be provided, foundations often call for special construction, wind-bracing assumes an important place, long-run elevators are more costly than short-run elevators, the extra space taken up by the express run of the elevators is an additional cost. Thus in the aggregate the total cost per cubic foot of a very tall building may be 60 to 75 cents per cubic foot where a low building of the same class would cost only 40 to 50 cents per cubic foot.

But just because something has higher costs (either to the builder or society at large) does not logically lead to the result that it should be eliminated. To evaluate the claims more fully about tall buildings, we need to take a step back—or up—and put them in context to view the skyscraper trees within their economic forest. One should not make pronouncements about urban real estate without more widely considering how cities function.

The Manhattan Skyline from Central Park.

Why Do Cities Exist?

Since the skyscraper is one species within the urban environment, we need to begin with the question: Why do cities exist? Or flipping the coin, why does the majority—and growing—of the world’s population live in cities? The fundamental answer is “markets.”

Cities are, first and foremost, labor markets. They are where people find jobs, and, in this sense, cities are the engines that power our economic lives. To take a simple case in point, the three most productive counties in the U.S.: Manhattan (New York County), Los Angeles County, and Cook County (Chicago), together generate 9% of the United States Gross Domestic Product (GDP), yet they use 0.18% of its land mass.

People come for the jobs but stay for the opportunity to experience all that a city has to offer, like restaurants, museums, or large urban parks. Even working from home will not drive us out of the city. It might cause some relocations and adjustments, but in the end, the city will maintain its roles.

Hivetropolis

And, as Jane Jacobs has argued, cities are inherently problem-solving machines that draw their power from density itself. Ideas and hive intelligence are in the urban ether, and if we allow cities to function as they should—if we allow people to live and work where they see fit—then cities can continue to provide both the income from our labor and the goods and services that we want as consumers and citizens.

Now, if you concede that the purpose of the metropolis is to be the center of what is necessary, right, and good, then we must ask, how is the city to organize itself to function for maximum efficiency and gain? The answer is through the land market.

Allocating Geography

As nicely summarized by urban planner and author Alain Bertaud, the land market

sends strong signals though prices when land is underused or the use is unsuitable for its location;…provides a strong incentive to users to use as little land as possible in areas where there is a strong demand, in particular in areas well served by transport networks; and…stimulates innovation in construction.

This means that to understand what “should” go where, land prices are the most valuable signal. But high land values are really a signal of the value of geography—that more people and businesses want to be in the same place at the same time. Thus, the skyscraper is a geography-shrinking machine. It pinches the land to squeeze out new land—land in the sky—which allows hundreds, if not thousands, of people to be in the same place at the same time.

Good Communities

But what are we to make of the author’s conclusion that:

High land prices, of course, are not good for ordinary people and communities: they segregate societies along socioeconomic lines, with high costs of homes and rent pushing people into low standards of living, and risking their health, development and life chances. A city birthing new skyscrapers is likely to be unaffordable for many of its residents.

I have a few responses. First, a trip to Hong Kong, Singapore, or any mainland Chinese city, for example, would reveal that high-rises are not just the province of the rich—rather, high-rise after high-rise is home to Asia’s burgeoning middle class. So, there’s nothing inherent in the economics of tall buildings that precludes their use by many across the income spectrum.

Second, the segregation of uses is only partly the result of land markets. Tall buildings in the center are economically rational because they satisfy the need for people to be closer to each other. They make businesses more productive and allow more residents to enjoy the fruits of the city by saving on commuting and travel times. And the empirical evidence strongly supports this conclusion.

But even in the most central locations, there’s ample opportunity for a mix of building types and income levels. A quick stroll down Wall Street—the center of global finance—will reveal short buildings next to tall ones and old buildings next to new ones.

Zoning

The more important issues, however, are planning and zoning. While Jacobs argued in the 1960s that planners ought to get out of the way and let cities be, the opposite has occurred. Bassett and those who followed him could not stomach population density and mixed uses. They created zoning arrangements that made mixed uses illegal. Even today, it’s impossible to have a tall building in New York that contains one-third for shopping and restaurants, one-third for offices, and one-third for apartments, despite that office buildings remain largely underused.

Regarding hyper-segregation, the evidence strongly suggests it is due, in large part, to the historical planners’ fear of mixed uses and their desire to surgically separate all land use types regardless if people wanted them or not. They aimed to keep factories away from residences and single-family homes away from apartment buildings. Zoning was meant as a backdoor to means to create the ideal cities according to planners’ view that workers should all live in Garden Cities, and the center should be designed according to the highest City Beautiful ideal.

Once zoning took root in the first half of the 20th century, wealthier residents used these restrictions to limit housing, which made access to these places nearly impossible for a vast swath of society. The concomitant redlining of neighborhoods was a product of racism and the Federal government’s desire to protect white people’s home values.

Nimby Nation

Because of the tight restrictions in suburban areas, nearly the only place in the city today where builders can provide needed housing is in the center, where the land values are the greatest and zoning tends to be less restrictive. The irony is that renters have made common cause with single-family Nimbyists because they see the “greedy developer” and the “greedy landlord” as “ruining their neighborhoods” and driving up housing prices, even though renters stand to gain the most from new construction, which will lower rents.

And the Nimbyists preaching the “Gospels of Saint Jane” to limit building heights in the name of the “human scale” are, in fact, making it harder to build new housing and causing land values and rents to rise. So, the very people who rail against tall buildings are incentivizing them by their very actions.

But taking a broader perspective, tall buildings are not causing the affordability problem. Using New York as an example, the city has 3.6 million housing units, and 77% are in buildings that are ten stories or less, and 2.7% of units are in buildings 40 stories or taller. Taking a global view, in the developed world, 86% of its structures are 25 meters (8 floors) or less, 94% are less than 15 stories, and 99% are less than 100 meters (25 stories). The supertall part of the spectrum represents only a tiny fraction of the world’s buildings.

Are There Too Many Skyscrapers?

So, with this in mind, we turn to the question of what’s to be done. There’s a valid argument that cities are getting too many skyscrapers because of restrictive building regulations in the suburbs and GHG emissions.

Skyscrapers produce a lot of CO2. No one disputes that. But this fact does not mean they should be banned from existence. Banning something that makes cities function properly is a bad idea. Density is what powers cities, and density should be encouraged rather than discouraged.

More broadly, there’s an extensive literature in economics demonstrating one simple fact: If you put draconian restrictions on what a city can build, the outcome is more sprawl and traffic congestion, and higher housing prices. Similarly for GHG emissions, Manhattan has far lower carbon footprints per household than its suburbs.

Using a data set with estimated average household carbon footprints for every zip code in the United States, we can conduct a thought experiment. Imagine we “Manhattanized” the two suburban counties adjacent to New York City—Nassau and Westchester—by having all their residents live at the same density. Those two counties would see a reduction in their residential carbon footprints by 41%.

Do We Really Need More Paris’s?

And yes, 5-story buildings are the best in terms of minimizing carbon emissions, but again it does not logically follow that we should require by fiat that every city be built like Paris. It is worth noting a few facts about the place. First, officials created a skyscraper district in La Défense because they knew they needed tall buildings for the economic health of the city. Second, if you look at Paris’s global ranking, in terms of its importance in the world economy, as measured by the size and number of international firms, it’s falling. Paris in 2000 was ranked 4th, and by 2020, it was bumped down to 8th, losing out to skyscraper cities. Is it because of Paris’ lack of tall buildings? The data are strongly suggestive, though more research is needed.

In the last decade, Paris has shrunk by 122,000 residents. As reported in Forbes.com, “Many of those leaving are choosing either the suburbs or countryside around Paris, or they are relocating to France’s smaller cities such as Bordeaux, Lyon, and Toulouse.” By limiting its building stock, Paris is driving up housing prices, pushing out residents, and causing suburban sprawl—hardly something worthy of emulation.

Average Household GHG Emissions by Zip Code for New York City. Note how the outer fringes of the city with free-standing suburban homes have much higher carbon footprints than dense Manhattan. Source: Map based on data from Jones and Kammen (2014).

Think Externalities

Critics love to blame tall buildings for destroying the environment, but they (like us all) think little of turning on the air conditioning when they are hot, charging their laptops when they want to check Twitter, or hopping on a jet to go on vacation. But we would hardly say these should be eliminated from our lives.

To offer another illustration, where I teach, most students commute to class. Every semester, I informally poll them by asking them to raise their hands if they decided not to drive to class that day and took mass transit instead because they knew their car would emit some carbon during their commutes. I don’t think I’ve ever had a student raise their hand in the affirmative. They decide to drive or not based on whether they have access to a car and on the availability of parking.

The point is that CO2 is what economists call an externality, an unintended by-product of our actions that generates a negative effect on society. Greenhouse gas emissions are the mother of all externalities and should be treated as such. Since no one is willing to give up their comfortable lifestyles, that means we must rely on carrots and sticks to generate technological improvements that replace our current products and energy production with carbon neutral alternatives.

Tax Carbon

As I teach my students in Economics 101, the key to solving the externalities problem is for producers to “internalize” them so they pay for the costs that they would otherwise impose on others. The most effective ways to do this are to tax carbon emissions or create a cap-and-trade scheme. Cities around the world, like New York with its Local Law 97 and London with its carbon taxes, are generating penalties for GHG-heavy building owners. This is good.

I would argue, however, that New York’s law, for example, does not go far enough. All households—not just those in large buildings—should face a carbon tax. If cities charged all household “over producers” and gave credits to “under producers” based on their emissions, it would not only be fair—the rich would pay more in taxes—but would also benefit those living in efficient buildings. A household carbon tax and a gasoline carbon tax, would also encourage denser, less-car-based lifestyles, which would lower GHG footprints that much more.

Federal Policies

Help must also come from the Federal Government, which should penalize CO2 creation and reward alternatives that use less or no CO2. For example, steel and cement producers need to pay for the carbon they generate, while R&D credits should be given to businesses that develop low-carbon products or production methods. Electricity providers need subsidies and incentives to switch to wind, solar, and other clean energy forms, as well as to upgrade the electricity grid.

And globally, the developed nations must help the developing countries to produce their skylines with low-carbon methods. They want American lifestyles and feel that they should not make the sacrifices that the West never made. At the end of the day, solving the global climate crisis must be an international effort.

Towers of Power?

Towers of Power—the supertall buildings for billionaires—are a result of booming cities, but they are not the cause of gentrification. Gentrification is due to the gummed-up nature of cities. It is largely driven by overly restrictive zoning and price controls enacted to save the city from itself but has served chiefly to inflict more harm than good.

Since the restrictive zoning is driving up land value in the city centers, we should eliminate the outdated zoning rules and replace them with a rational plan that more carefully weighs the costs and benefits to neighborhoods. By allowing more moderately taller, mixed-use buildings throughout the city, we would decrease the bottlenecks that make land prices skyrocket in the center, thus reducing the incentive for developers to build supertalls.

Affordability

It’s important to reiterate that if you ban tall buildings, it does not logically follow that you would get affordable housing for lower- and middle-income households. Banning skyscrapers will make the affordability problem that much worse because tall buildings, in fact, are helping the affordability problem by providing more housing on less land. However, it does so in a rather indirect way–by “greasing” the moving chains from the top to the bottom of the housing spectrum.

Money seeks its highest return. So, the question is, why doesn’t more real estate money flow to lower-income housing? Despite what many people think, the real estate market does not operate according to some made-up rule that either we get skyscrapers or we get affordable housing. Money is not flowing into middle-income housing because it is illegal to build it in most parts of big cities, thanks in large part to stringent planning and zoning regulations, and other frictions that need to be addressed by policymakers.

If people were really concerned about gentrification, they would demand their leaders enable builders to flood the market with middle-income housing in the suburbs. This would cool land values in the center and provide units for those who need them the most.

Skyscrapers and Cities

Skyscrapers don’t belong everywhere and are not for everyone. But policy discussions are severely harmed when people use loaded rhetoric, poorly-defined concepts, and buzz phrases to make grand pronouncements based on little more than casual observations. Skyscrapers have spread like a wave over the planet in the 21st century because they help cities grow and succeed.

But yes, we need to carefully consider their costs and benefits to evaluate where policy changes can offer improvements. And there’s room for disagreement, but we can all agree that cities should be open and accommodating to all who want to call them home.

 

Thanks to Troy Tassier for his editorial comments on an early draft of this post.

by Jason Barr 4 Comments

The Missing Bottom: Filtering and Housing Affordability

Jason M. Barr                   April 3, 2023

“More Rundown Buildings Now!”

That should be the new motto for expensive cities. In the current debates on affordable housing, there is no discussion that the best way to help those with the lowest incomes is by letting some of the housing stock decay to a lower quality. The process of new housing for upper and middle-class households eventually becoming low-income housing is called filtering. For many decades, filtering was the primary route to affordability.

Current policies, such as mandatory inclusionary housing and tax breaks for new low-income units, don’t work because they require massive resources to help only a handful of families. The fact that cities hold lotteries for the precious newly built units is prima facie evidence of the absurdity of using new housing to solve the affordability problem. Rationing gems to the lucky few illustrates that the housing market is failing everyone else who must duke it out for what remains.

Decay Can be a Force for Good

The idea that we would let some of the housing stock decay to provide affordable homes was abandoned decades ago. Filtering was, after all, associated with slums, and slums had to be cleared. But to make housing more affordable for everyone, we must think of housing not as an infinitely lived product but as one with a life cycle requiring planned obsolescence. Cities need to expect and create the conditions to allow their housing stocks to cycle over, say, 50-year periods—to let new housing wear down and worn-out housing be replaced.[i]

Thus, filling in the “missing middle” in the housing market is doubly essential. It will not only provide new units for the middle class but will also generate a pipeline of properties that will filter down to the rest.

As I will discuss below, filtering is still vital for millions of residents across America. It’s just not allowed in the places where it’s needed most—in big, booming cities like New York. It’s time to make filtering cool again.

The Lower East Side circa 1900. This Manhattan neighborhoods was arguably the world’s most crowded, yet it was able to provide affordable housing for  immigrant communities because of the filtering process.

The History of Filtering: Manhattan 1900

In 1900, Manhattan’s immigrant neighborhoods were arguably the densest places on Planet Earth. Block after block was filled with tenements, each chockablock with residents living in tiny, dark units.

Jacob Riis’ 1890 photo essay in his classic book, How the Other Have Lives, advertised the seedier side of tenement life and helped shape public opinion that the slums had to be cleared. He was one of a group of reformers who were convinced they could save the city by surgically removing worn-down, low-income housing. Their goal was to scatter the population into new suburban homes and transform the metropolis into a worker’s paradise.

Yet, despite the overcrowding and the constant influx of immigrants, the truth was that the market was providing affordable housing. One 1907 study of 200 households living in the tenements found that the average family with six people paid 20% of their family income on rent. Only the poorest of the poor paid more than 30%; even in the worst case, it was never more than 43%.

This contrasts with New York City today, where 54% of households are rent burdened in that they pay more than 30% of their income toward rent, and 28% are severely rent burdened in that they pay more than 50% of their income on rent.

The housing was not pretty, to be sure, but it was available and relatively cheap. And just as importantly, the small apartments were considered temporary. The expectation was that families would rent up or move out as their incomes rose. As one investigator of immigrant neighborhoods opined in 1901,

Many tenements in Jewish quarters are owned by persons who formerly lived in crowded corners of others just like them; and from this population comes many and many a Broadway merchant and professional men in plenty. It is a common saying that from Hester street to Lexington avenue is a journey of about 10 years for any given family.

This was only possible if housing was cheap all around.

Supply in the Slums

Several things made sure that affordable housing was available. First was the continual process of generating new supply. And second, was that the buildings were disposable. They were constructed, allowed to depreciate, and, at some point, torn down and replaced with new housing.

To reformers, this idea was anathema, as they were laser-focused on housing quality and the problems of disease and vice. After an investigation of the tenements in 1903, one reformer, Elgin R. L. Gould, blamed the landlords for not taking care of their properties:

The building being flimsily built and the class of people living in it being somewhat destructive, when subject only to the poor management which ordinarily prevails, the item of repairs at the end of the year is large. Removals are frequent, as a slight inducement offered by a rival owner will cause a tenant to pack up and go, particularly to a new building just completed.

But the landlords were just supplying what the immigrants could afford. The constant churning meant that the housing market could fluidly adjust to cater to the evolving needs of the immigrants who poured into the neighborhoods.

Lodgers

Many households took in lodgers. One study of New York working-class families in 1909 showed that 34% of households took them in. Ironically, those most likely to have lodgers had relatively higher wages, as it seems the higher income was used to rent a place slightly larger than needed to let out the rest for a profit.

This provided more income for them and offered the smallest and cheapest housing possible for those who had just arrived from the Old Country. Lodgers represent the ultimate matching of supply and demand with those who were just getting started in America.

The Tenement Lifecycle

Tenement housing was expected to depreciate. There was no way to stop it since, as Gould documented, the residents had low incomes and moved relatively frequently, generating significant wear and tear on the structures. As such, it was typical for an entrepreneurial immigrant to buy an old apartment building, tear it down and build a new one. Relatively well-off residents would move in and pay the higher rent needed to cover the construction costs.

Over the following decade, the building would slowly depreciate, and the rental income would fall. But by then, the mortgage was paid off, and the payback period for the initial investment was returned. From there on, the property was “milked.” As long as the rental income—however low it might be—was greater than the operating costs and the opportunity cost of holding the land with that building, the owner could provide poor-quality but cheap housing.

At some point, the milking process had to end. When the building was in such bad shape, it would be torn down, and the process would start over. And in this way, the Lower East Side tenements had various housing qualities to satisfy the range of demands.

And just as importantly, even during the period of the greatest immigration, when new households were absorbing thousands of units, the market still was affordable because it was flexible. Not pretty, but flexible. And it shows that even in markets with tremendous demand, a city can build to accommodate everyone if it builds rapidly and expansively.

Reformers and Filtering

In the early 20th century, housing reform began to remove filtering as a useful housing option in big cities. Filtering never disappeared, but it slowed down so much that when cities like New York began to rebound in the 1990s, there was very little low-income housing left. What remains is “rationed” through rent controls.

A lot of good came from reform, of course. Laws mandating minimum sunlight, toilets, and hot running water in every apartment were not only done for humane reasons but also to improve community health. But stringent zoning and building regulations, along with slum clearance programs, were designed to prioritize quality over quantity—laudable goals, but not without unintended consequences.

The lasting implications of these policies were that they created limits on new housing construction, particularly in low-income neighborhoods, and they limited the flexibility of building owners to subdivide or adjust their properties based on the needs for different kinds of housing. The result has been to remove affordable housing from the total stock.

Filtering Across America. This graph presents estimates of average filtering rates for rental units based on the incomes of in-movers. On average, the income level for a household moving into a 50-year-old home is 30% that of a household moving into a new unit. Source: Rosenthal (2014).

Filtering in the 21st Century

In recent years, a handful of economists using cutting-edge statistical methods provide clear evidence that filtering not only still exists but also works to provide low-income housing when allowed to do so.

Since it is nearly impossible to get data on the specific nature of housing quality over time, an important 2014 study by the economist Stuart Rosenthal looked at the (inflation-adjusted) income of people who buy or rent housing over time within a sample of the same units. His data set contains over 72,000 housing units in a nationally representative sample between 1985 and 2011, and he then obtains the income of those who moved into these units over time.

His data show that, across America, the average change in moving-in household income is -11.8% for rental units and -7.5% for owner-occupied units. That is, on average, those who moved into these same units had lower income each subsequent round in large part because the housing was becoming older and more worn down.

And using more sophisticated statistical (regression) methods, he finds that filtering is most rapid in the first 50 years of a home’s life. After that, the filtering process typically stops and then reverses itself as homes become prized for their historical appearances or demonstrate that je ne sais quoi that makes them worth preserving or upgrading.

Furthermore, he finds that annual filtering rates are much faster for rental versus owner-occupied units—about roughly -2.5% per year versus 0.5%, respectively.  He concludes that across the U.S., on average, “[t]he real income of a newly arrived occupant at a 50-year-old rental unit would be just 30 percent of arriving occupant income in a newly built home….”

Filtering 2.0

In a paper published in 2022, three economists studied the issue of filtering in the same vein as Rosenthal. However, their data set was much larger—some 1.23 million household “turnovers” in their sample of 1.1 million housing units. They look only at owner-occupied units, but the findings are clear. On average, the rate of filtering for the U.S. housing stock is about -0.42% per year, similar to Rosenthal’s finding.

Within Cities

Because the authors obtained such a large sample, they estimate filtering rates across metropolitan areas and within cities. They find that filtering rates vary widely. Some neighborhoods see rapid filtering rates, whereas others see an upgrading of their housing stocks (call it reverse filtering).  In fact, they find that the variation in filtering rates is greater within cities than across them.

Though they do not do a deep dive into what drives this variation, one key finding is that central city neighborhoods have seen significant reverse filtering. This makes sense. As the desire to be in central cities has risen, it has driven up land values and housing prices.  Thus, only those with relatively higher incomes can afford to move in. More broadly, filtering is virtually impossible in neighborhoods where housing prices are rapidly increasing.

Across Cities

But just as interestingly, they explore the reasons why metropolitan areas across the country have very different average filtering rates. The main finding is that the ability of a city’s housing stock to keep up with demand—its so-called supply elasticity—is a vital determinant of its filtering rate.

One of the most important factors is the restrictiveness of zoning and the stringency of building regulations. Places with higher stringency have higher prices and less filtering. Thus, in metropolises like New York, San Francisco, and Seattle, where there is relatively little new construction, filtering is greatly diminished and reverses itself, on average.

 

Filtering and its Correlates. These graphs show that there is less filtering in cities that have rapid population and housing price growth, as shown in (a) and (d), respectively. Cities with difficulty is adding new housing and with strict building regulations have less filtering, as shown in (b) and (c), respectively. Note that positive numbers on the y-axes denote reverse filtering–that is, owners are upgrading their housing or that higher-income people are moving into older houses. Source: Liu, McManus, and Yannopoulos (2022).

Moving Chains

To get more evidence on filtering, we can turn to two recent studies that look at so-called moving chains. The idea is to follow the people, not the houses. When a new high-rise apartment building is opened, it initiates a moving chain, where a large fraction of units is occupied by locals who move from other parts of the city. When this happens, the “abandoned” housing is freed up and occupied by someone else, who then frees up their housing for someone else, and so on.

Two new studies statistically document these moving chains and look at the income levels of the people who occupy each vacant unit in the chain. They find that when a new high-price, centrally-located building is created, people of lower income are able to benefit from the empty units in the chain.

Helsinki

One study focuses on the Helsinki metropolitan area (HMA) with about 1.2 million residents. They begin by looking at 106 newly construed multi-family buildings, with 3,196 new units, built between 2010 and 2019 within a 3-kilometer (1.8-mile) radius of the Helsinki Central Station.

As expected, residents in the upper-income brackets tend to occupy these new units. However, they find that

the moving chains triggered by these new units reach middle- and low-income neighborhoods. By round three, 60% of movers originate from neighborhoods in the bottom half of the neighborhood income distribution….By round four, 50% of movers are ranked in the bottom half of the national level household income distribution.

In plain English, the new high-priced units allowed filtering for lower-income people.

The U.S.

Well, maybe, you say, there is something special about Helsinki. Another recent study looks at the moving chains across the U.S. In this case, the economist Evan Mast followed the “hopping” created by the opening of one of 686 market-rate multi-family constructed between 2009 and 2017 in the center of 12 large U.S. cities.[ii]

He finds that 67% of the new units in the central city are occupied by people already living in the metropolitan area. Even in global cities, the proportion is high. In New York, for example, 76% of new-building occupants are from within the New York metro area, and 68% are from within the city itself.

Following people along the moving chains, Mast finds that,

Constructing a new market-rate building that houses 100 people ultimately leads 45 to 70 people to move out of below-median income neighborhoods, with most of the effect occurring within three years. These results suggest that the migration ripple effects of new housing will affect a wide spectrum of neighborhoods and loosen the low-income housing market.

Again, in plain English: New upper-class housing in central cities benefits those in low-income neighborhoods through the filtering process.

We can’t see it amidst the fog of our everyday urban experiences, but if you telescope on filtering, it’s there. It’s just not happening fast enough to keep up with the demand for new housing.

Policy Implications

Research and history suggest that we need to think about housing and cities not as static entities but as dynamic systems. Newly constructed middle-income housing not only benefits those in the middle class but is also the primary means by which low-income housing gets produced. As the research on moving chains shows, we should not fear high-rise luxury construction in gentrifying neighborhoods, though we cannot rely on it either.

Middle-class housing—and lots of it—needs to be built where land values make it affordable to construct, primarily outside the central areas in urban residential and suburban neighborhoods and ideally along key transportation routes and mass transit lines.

The key is to establish a housing market that can quickly and flexibly adapt based on demand conditions. To this end, here’s what cities and states can do.

Flexible Housing

  1. Allow—even encourage—the construction of accessory dwelling units (ADUs) and the subdivision of larger homes into two- or three-family houses. These extra units can generate additional income for the property owner and provide a small and cheap unit for people who need it.

 

  1. Reform zoning to allow and promote the construction of mid-rise apartment buildings around transportation hubs and along transportation lines, particularly in the suburbs. Cities need to relax their overly stringent zoning regulations massively. Full stop.

 

  1. Allow for office buildings to contain mixed uses. All those half-empty office buildings should be allowed to have several different uses. Keep the offices on the lowest floors and maybe even at the very top ones too. Allow for shopping, schools, and retail in the middle, and permit housing everywhere else. If landlords can earn money by allocating floors to different uses, they should be allowed to do so.

 

  1. Encourage the construction of rental units rather than owner-occupied ones since middle-class rentals are more likely to filter down to low-income housing. Ways to do this include providing more generous subsidies to developers of middle-income rental housing and establishing tax-free renter savings accounts for tenants, where an extra part of their rent payment is set aside each month in a savings account (and can be used to pay rents in a time of emergency).

 

  1. Move to a land value tax program that taxes the land values at a greater rate than the building value. This taxing scheme will incentivize property owners to densify their land, providing more housing.

Flexible Cities

But as the fierce debates between the Nimbyists and Yimbyists show, change does not come easily. Making the housing market more flexible requires people to be confident that changes will improve their lives. To this end, governments need to create policies that enhance trust and mitigate fear.

As I have discussed elsewhere, two key elements include creating a new type of master plan and a land value insurance program. The master plan would, among other things, provide a blueprint for how new schools, parks, and local services get produced as population density rises. The point is that cities need to get ahead of the services curve to show that quality of life can improve even as neighborhoods densify.

Additionally, cities need to allow property owners to buy land-value insurance, protecting them against possible, though unlikely, drops in their land value because of neighborhood changes. Since homeowners fear drops in their house values, they prevent more housing in their neighborhoods. If they had insurance, they would be more likely to go along with rezonings, densification, and allowing the filtering process to work.

Affordable Cities

If history is any guide, big cities like New York need not suffer from affordability problems. But fear of change and stringent regulations have gummed up the works. Leaders need to do a better job in demonstrating that the lack of affordable housing is harming everyone, not just those in the missing bottom.

New policies cannot focus only on housing but must also address the fear of change and the additional services that will be needed as neighborhoods densify. After all, cities are not just places with houses, but are places where people live.

While filtering has gained a bad reputation because of the historical problems of overcrowding, it has traditionally been the primary source of low-income housing. We need to re-learn this if we truly want our cities to be more affordable.

  

Works Cited

Bratu, C., Harjunen, O., & Saarimaa, T. (2023). “JUE insight: City-wide effects of new housing supply: Evidence from moving chains.” Journal of Urban Economics, 103528.

Liu, L., McManus, D., & Yannopoulos, E. (2022). “Geographic and temporal variation in housing filtering rates.” Regional Science and Urban Economics, 93, 103758.

Mast, E. (2021). “JUE Insight: The effect of new market-rate housing construction on the low-income housing market.” Journal of Urban Economics, 103383.

Rosenthal, S. S. (2014). “Are private markets and filtering a viable source of low-income housing? Estimates from a ‘repeat income’ model.” American Economic Review, 104(2), 687-706.

 

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[i] There are carbon implications to this. On the one hand, as old housing is destroyed or completely refurbished, it can be upgraded to the latest standards that minimize energy usage. Also, except for very tall buildings, mass timber structures can be used to minimize embodied carbon. For that matter, densification is good for reducing carbon footprints.

[ii] These cities are New York City, Chicago, Dallas, Houston, Washington, Philadelphia, Atlanta, Boston, San Francisco/Oakland, Denver, Seattle, and Minneapolis.

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