Research

Density Restrictions and Housing Inequality (Job market paper) (Maps)

Rising housing prices and rents in the U.S. have led to increased scrutiny of policies that restrict housing density, specifically the number of units that can be built on an acre of land. However, we know little about how these policies affect housing production, prices, and welfare in equilibrium. In this paper, I first infer the stringency of unit density restrictions at the census tract level across 30 U.S. metro areas by estimating the marginal returns to building an additional unit of housing, for each new development. I show that restrictiveness tends to increase with the transition from urban to suburban neighborhoods, and that higher-income neighborhoods—with some notable exceptions—tend to be more restrictive. I then embed these restrictions in an equilibrium model of housing markets where forward-looking landowners choose the size and number of units to build, and households choose locations and units in which to live. I estimate the supply model using parcel-level housing data from CoreLogic and the demand model using household-level microdata from the Census and ACS. I use the estimated model to analyze a wide-reaching counterfactual reduction in density restrictiveness (to the 25th percentile tract level) in San Diego beginning in the year 2000. Preliminary results suggest that this policy change leads to a 2% increase in welfare for the median household (as a share of income) by 2020, with considerably higher gains for lower-income households. High-income households see a slight reduction in welfare due to the smaller selection of large, low-density units. The share of San Diego's population comprised of households from the bottom half of the national income distribution rises from 38% to 40%.