The United States is not the only country to experience a severe housing shortage in recent years. Canada, the United Kingdom and several continental European countries have similar problems. But one country, New Zealand, has significantly relaxed the zoning regulations that previously severely restricted new home construction through a simple solution: reducing zoning regulations.
Economic policy commentator Joseph Politano explains how they did it.
New Zealand is experiencing a terrible and long-standing housing shortage. About a quarter of New Zealanders are cost burdened (defined as spending more than 40% of their income on rent or mortgage payments), the highest rate among all OECD countries. The majority of the archipelago's housing stock is low density. More than 80% of residents live in single-family homes, 20 percentage points higher than in the highly suburban United States. Auckland, New Zealand's largest city, has consistently been ranked as one of the most expensive places on earth, with house prices far exceeding household incomes…
This story will sound familiar to most Americans, and indeed to people around the world who are facing an increasingly severe housing affordability crisis in their own countries and cities. Many will blame this housing shortage on zoning restrictions and exclusionary planning rules that prevent the building of enough homes. In the United States, most residential areas, even within large cities, are designated exclusively for large single-family homes. In theory, changing rules to allow taller and more dense development on desirable land (a process known as upzoning) would increase housing production and improve affordability.
The difference is that Oakland actually put that theory into practice. The 2016 Auckland Unity Plan (AUP) upscaled three-quarters of the city's residential land, making townhouses, terraced houses or multi-storey apartments legal in areas that previously only permitted detached houses. -Family houses,… This makes Oakland perhaps the largest real-world experiment in what extensive zoning can achieve in a costly, supply-constrained city. And in the seven years since the AUP went into effect, home construction has skyrocketed. While the total number of housing permits issued shattered previous records, permits for multi-unit attached housing projects legalized under the AUP have gone from a small portion of overall construction activity to a dominant source of new housing in the city…
In fact, upzoning in Auckland and other parts of New Zealand has sparked a massive construction boom across the archipelago. In 2023, New Zealand (population: 5.2 million) will allow for 37,000 homes, which is more than the San Francisco and Los Angeles metropolitan areas combined (population: 17.3 million). Oakland, with a population of just 1.7 million people, allowed 15,000 homes last year, while New York City's five boroughs (population: 8.3 million) allowed a paltry 9,200 homes by comparison, according to preliminary data. Overall, New Zealand allowed 9.7 new homes per 1,000 residents in 2022, the highest in 45 years and almost twice the rate in the United States.
Politano said research has shown that upzoning is actually the main driver of New Zealand's housing construction boom.
So what has been the economic impact of these upzonings in Auckland and other parts of New Zealand over the past decade or so? The best evidence came from a series of academic papers written by Professor Ryan Greenaway-McGrevy of the University of Auckland and comprehensive data tracking conducted by Matthew Maltman of the E61 Institute in Australia. Despite some initial academic debate, the evidence is overwhelmingly clear that upzoning significantly increased housing production. The AUP is estimated to have created more than 43,000 additional homes between 2016 and 2022, while the Lower Hutt upzoning increased Wellington's total. Local homes start at 12-17%. As a result, housing affordability has improved significantly. Auckland's rent-to-income ratio has fallen significantly, despite rising steadily in other parts of New Zealand.
New Zealand's experience already supports extensive evidence that zoning reform can increase construction, lower house prices and enable more people to “find opportunity”. As Politano suggests, the United States and other countries can learn from New Zealand's success.
However, the reform mechanisms may be different here. New Zealand is a unitary country, not a federal country. Partly driven by central government's ability to override local authorities, reforms were prompted and resulted in significant national legislation. Additionally, as Politano points out, Auckland itself is home to about a third of New Zealand's population and contains much of the country's most important real estate for housing and employment opportunities.
The United States is clearly a federal system, with relevant powers distributed among many state and local governments. There are also many more jurisdictions in need of reform.
That said, we can provide impetus for nationwide reform by strengthening judicial review of exclusionary zoning. Josh Braver and I explain how and why this could be done in the future. Texas Law Review article. Additionally, state legislative reform could help reduce local NIMBYism. The United States has stronger judicial review rights than New Zealand, and could be used to stamp out exclusionary zoning because such restrictions violate constitutional property rights.
Finally, as in New Zealand, YIMBY zoning reform can be a cross-ideological movement that transcends existing partisan and ideological divides. The collaboration between Braver (a progressive) and me (a liberal) is just a small example of this dynamic.