What Would Mass Upzoning *Actually* Do to Property Values?

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This one neighborhood or corridor would now be absorbing all the development pressure from a much larger region around it that has not been upzoned. You would see a construction frenzy, and a speculative feeding frenzy on land. And you’d likely see property owners not only selling to apartment developers, but others holding out for a similar deal, driving prices up into the stratosphere.

This is a story well chronicled in many cities. The one hot neighborhood with a conspicuous flock of construction cranes, fueling the widespread perception of a development boom even though most residents live in neighborhoods untouched by it.

Most of the research on the economic effects of upzoning has looked at scenarios in which specific neighborhoods were micro-targeted for it. For example, a 2020 study by Yonah Freemark found that upzoning of select, transit-served areas in Chicago caused property values to increase. This study is often cited by opponents of upzoning to argue that it will not aid the cause of housing affordability, but it’s not at all clear that it is applicable to the blanket upzoning of a whole city, because of that pesky Fallacy of Composition. Freemark has responded to the misuse of his study to this effect, pointing out that the Chicago rezoning he studied involved “a relatively small portion of land (just about 6 percent of the city’s total parcel area), [thus] it encouraged intense interest just in the areas that were affected.”

Broad But Shallow Upzonings Are Different

Think of our boiling pot analogy. This time, instead of cracking a corner of the lid, lift it straight off the pot vertically. You don’t get the same rush of steam, because the effect is distributed and thus muted. This is, essentially, the hope of advocates of broad but incremental upzoning applied to an entire city or state at once.

With tens of thousands of new potential development sites to accommodate pent-up housing demand, it’s a mathematical certainty that only a fraction of them will be developed. There’s not enough population growth to support more than that. (Most U.S. metro areas are growing by 1% to 2% per year or less.) And there are also limits to development capacity: there are only so many construction materials and skilled tradespeople, and in fact a crippling shortage of the latter.

The development that does occur will not be spread like an even blanket across the entire city or region, of course: it will tend to concentrate in areas where demand is strongest and potential profits are highest. But it is unlikely to be anywhere near as concentrated as under the targeted-upzoning scenario, where local government policy forces development into one or two neighborhoods only. If I had to guess at where we’ll see the most triplex and fourplex activity in the states and cities that have allowed it, I would say, “Look at the neighborhoods that already have a lot of single-family teardowns and renovations.” What would have been a new McMansion might instead be four townhome units. The construction methods and economics are similar, but the result is a greater amount of somewhat less expensive housing.

In fact, the first project application under California’s SB-9—a state law allowing four units on most residential lots, which took effect on January 1, 2022—was filed on January 3 in the extremely wealthy and exclusive Silicon Valley suburb of Palo Alto, a place where modest twentieth-century bungalows are bought for exorbitant sums in order to demolish them and build back bigger. An architect intends to build four units on what was a single-family lot: No doubt they will not be cheap, but no doubt they will be cheaper than Palo Alto’s median home price of $3.5 million.

Outside of those places, the market value of every residential lot isn’t going to reflect a fourplex—only in places where buyers are willing to pay the amount that requires building a fourplex to recoup their investment. And they’re only willing to pay that amount where they have some reasonable expectation of being able to build one and rent it.

Upzoning an entire city is not going to double or triple the total amount of development that happens in that city. (Though it ought to increase it, by bringing more and, more importantly, different developers into the game.) It is going to redistribute where that development happens, on balance away from the suburban fringe and a small handful of hot neighborhoods where things are happening at a very large scale, and toward, well, everywhere else.

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