Most US cities make it hard for housing supply to meet demand because of rules that prevent large apartment buildings. Usually cities do this with zoning rules that limit the number of homes per parcel, often to as low as 1. New York City relies more on rules about Floor Area Ratio (the ratio of the floor area to the area of the parcel). But how binding are these rules? If we relaxed or repealed them, how much new construction would we see, and where would we see it?
MIT PhD student Vincent Rollet has calculated this for New York City:
I build a dynamic general equilibrium model of the supply and demand of floorspace in a city , which I estimate using a novel parcel-level panel dataset of land use and zoning in New York City. I validate the model using quasi-experimental variation from recent zoning reforms and use it to simulate the effects of zoning changes on construction and prices.
He finds that eliminating these rules in NYC would lead to a construction boom, with a 79% increase in the amount of floor space available by 2060. This would allow many more people to live in New York, with a 52% increase in population; but many of the benefits would go to existing NYC residents, with more floor space per person and modestly lower rents leading to higher wellbeing:
Where exactly would we see the building boom? Not Manhattan, but Brooklyn and Queens. The intuition is that zoning is most binding in places where housing prices are currently high but where the buildings are currently small; this is where there is the biggest incentive to tear down existing buildings and build taller if you are allowed to.
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