New Publication on the Effects of Upzoning
Elena Lutz and Simon Büchler have published a paper in the Journal of Urban Economics. The paper investigates the effects of upzoning in the Canton of Zurich. The results show that upzoning is successful in increasing the densification of the built environment. However, the effects are heterogeneous, with upzoning creating more housing more quickly when applied to areas with high housing demand and when the increase in allowed density is relatively large.
Steeply rising rents and subsequent housing affordability problems are a critical challenge for cities across the globe. Extensive literature shows that restrictive land-use regulations and the resulting inability of housing supply to react to demand increases are crucial reasons for cities’ current housing affordability problems. Therefore, relaxing land-use regulations by increasing the allowed floor-to-area ratio (FAR), i.e., “upzoning” has become popular. Half of the ten largest US cities and many cities worldwide have implemented this policy in the past decade, highlighting the importance of understanding the effects of upzoning. The paper investigates the effects of upzoning on housing supply and rents.
The authors use historic zoning plans for the Canton of Zurich from 1996 to 2020 to identify which areas in the Canton were upzoned when and to which degree. Next, they use detailed data from the Swiss building census to understand where and when new housing was built. Through an event study, they compare areas that were upzoned first, e.g. in 2000, to similar areas that were upzoned later, e.g. in 2010. This strategy allows to estimate the causal effect of upzoning on the housing supply. The findings show that upzoning leads to an increase in the square meters of housing and the number of housing units on a given piece of land. While the average increase is around 9 percent within five to ten years after the upzoning, the effects are very heterogeneous. Notably, the effect of upzoning is much stronger in areas where the allowable density was fully utilized before the upzoning and in areas with high rents. Additionally, landowners are much more likely to start a construction project and build more housing when the allowable density is increased significantly. Moreover, the research project shows that it takes around 10 years after the upzoning regulation is passed until more housing units are built. This shows that while upzoning plays an important role in fostering housing affordability, it will not provide immediate relief.
Second, the authors also investigate the effects of upzoning on rent prices. They use rent prices from listings on rental websites from 2005 to 2020. They compare the rent prices of apartments, which are offered for rent in areas that have already been upzoned, to rent prices of similar apartments in areas that will be upzoned in the future to understand whether upzoning increases rent prices. The results indicate that upzoning is not associated with an increase in the average rent when comparing the rent of apartments in upzoned areas to the rent of apartments posted online in areas that will be upzoned soon. Overall, this indicates the importance of upzoning in contributing to affordable housing in Switzerland. The results also shed light on how to best design inclusionary zoning policies, which are currently being newly implemented in Switzerland.
