Urban development in big cities is very controversial, and there are politically powerful movements that oppose almost all new construction in big cities.

There is one explanation that in my opinion just doesn't hold water. This explanation focuses on incumbent property owners who want to increase the value of their property. According to this story, incumbent property owners will be for restrictions on new development in order to constrict the supply of available property, therefore driving up the price and the value of their property.

The reason why this explanation doesn't hold water is that the urban cores with the most opposition to development like San Francisco and New York City also have some of the lowest rates of property ownership and compared to the United States average some of the lowest percentages of people who live in owner occupied property versus renting their house. These are markets completely dominated by renters. And renters would have very little personal economic interest in driving up home prices. Some of the markets with more permissive regulations towards development also have some of the highest rates of owner-occupied housing in country. (footnote 1))

Additionally, opposition to development in these cities seems primarily driven by groups that claim to represent tenants, not groups that represent property owners. (footnote 2))

My explanation for where opposition to urban development comes from is based around the fact that the costs and benefits of development are distributed very unequally. Incumbent renters in these markets have very few personal gains from new development except under very long time frames and very large scales.

Externalities of Urban Development

Populist movements that oppose new construction make the claim that new development will cause gentrification which will drive out incumbent renters and displace current residents at the expense of wealthier newcomers. They state that new development will be a net negative for the people who currently live in neighborhoods where new construction occurs.

But is there actual evidence for this, or is this argument just pure economic illiteracy?

I think there is a fair amount of evidence for this.

A 2019 article discusses the economic implications of development. (footnote3) Increased density in urban areas has quite a few benefits, in part because this means a lot more people will be in one place and the activities that benefit from having a lot of people in one place will become much more efficient. There are also social benefits to having a lot of people in one place. Average wages will go up and people will find more job opportunities along with having an easier time searching for a job, there will be more innovation, cities will become less car dependent and public transit will be more effective, denser urban areas produce less environmental impact than sparsely populated areas.) Increased density in urban areas has quite a few benefits, in part because this means a lot more people will be in one place and the activities that benefit from having a lot of people in one place will become much more efficient. There are also social benefits to having a lot of people in one place. Average wages will go up and people will find more job opportunities along with having an easier time searching for a job, there will be more innovation, cities will become less car dependent and public transit will be more effective, denser urban areas produce less environmental impact than sparsely populated areas.

Property values, however, will be increased. Paradoxically, land in urban areas may become more expensive if there are more uses for this land. In fact, a lot of the economic benefits will manifest in property values. This is great if you own property in one of these neighborhoods, it's not so great if you rent.

The article concludes, "the effect on rent exceeds the effect on wages. In a spatial equilibrium framework … there may be a collateral net-cost to renters and first-time buyers if residents are not perfectly mobile and housing supply is inelastic."

New development can be a windfall for property owners even beyond what economic theory would predict because of the sausage making of urban planning and the operation of municipal governments. In practice, each new development is a trench fight between those opposing development and developers. The permits to develop your land can be immensely valuable. Much more valuable than the land itself in many cases. Giving a property owner these permits gives said developer a huge windfall. The property owner gets to in effect charge a monopolist's price on a new development because this developer is the only person to have the right permits.

There is also a dynamic where many of the impacts of development that are positive occur very far away from the new development, while the negative impacts of this new development occur close to home. These positive impacts are very diffuse and subtle, while the negative impacts are immediate for those affected.

A 2015 paper concluded that the benefits of new housing development are huge. (footnote 4 ) Wages would increase drastically on a national scale, and the economy would’ve grown 50% more than it had in the period between 1964 in 2009 if zoning regulations were more permissive. A handful of major metropolitan areas are the main sources of economically destructive restrictive housing policy. ) Wages would increase drastically on a national scale, and the economy would've grown 50% more than it had in the period between 1964 in 2009 if zoning regulations were more permissive. A handful of major metropolitan areas are the main sources of economically destructive restrictive housing policy.

Improving housing policy would create an economic boon on a national level but it is also true that the cost would be reflected on a local level, as the bulk of this new housing development would've occurred in a select few urban areas.

The economic benefits of new housing development are huge, and the United States' major metropolitan areas desperately need more housing and therefore more permissive regulations on the construction of said housing (or at least some other mechanism to actually get this housing built). But the opposition a new housing construction doesn't come out of the blue.

The distributional impacts of new housing construction cannot be ignored and are the primary source of a lot of opposition to new development. Housing development must be done in a way that makes sure that the typical American benefits, and this development should be done in a way that benefits renters and enables more Americans to attain homeownership.

In a way, the discussion of this issue in the economics press and in mainstream news articles, comes from the perspective of a subset of the American population. This is the subset of the American population that works in the fields of employment that are most likely to benefit from higher density, and the subsets of the American population are most likely to own property.

In a way, the economics literature and the elite opinion in general comes from the viewpoint of those most likely to benefit from new development given the rest of the current regulatory environment.- – – – – -1 According to the data here Los Angeles, New York City, the San Francisco Bay Area are the metropolitan areas with the lowest percentage of the population owning their house. The areas of the nation with the highest rates of homeownership, tend to be concentrated in the South and the Midwest. This page is archived at https://advisorsmith.com/data/states-and-cities-with-the-highest-homeownership-rates/ ↩2 See the paper 2 See the paper Resisting the Politics of Displacement in the San Francisco Bay Area: Anti-gentrification Activism in the Tech Boom 2.0 by Florian Opillard for a discussion of populist movements that oppose new construction. An internet archive version is at by Florian Opillard for a discussion of populist movements that oppose new construction. An internet archive version is at ↩3 3 The economic effects of density: A synthesis by Gabriel Ahlfeldt and Elisabetta Pietrostefani, . An internet archive link is at by Gabriel Ahlfeldt and Elisabetta Pietrostefani, . An internet archive link is at ↩4 Housing Constraints and Spatial Misallocation by Chang-Tai Hsieh & Enrico Moretti . An internet archive link can be found at 4 Housing Constraints and Spatial Misallocation by Chang-Tai Hsieh & Enrico Moretti . An internet archive link can be found at ↩######