Thursday, March 22, 2012

Crude Measures of Density

Density is a somewhat nebulous concept. It seems straightforward but it isn't. Recently many proponents of increasing residential density (Glaeser, Avent, Yglesias among others support economic arguments for density) point to the constraints that land development regulations have on denser development. I am sympathetic to these arguments and agree on general terms, though I doubt that regulations are as onerous with respect to density in places like Manhattan. I'll mention two reasons today and return to these issues in future posts.

First, residential units are combined and divided all the time in New York. Within the same building unit density can change dramatically without the building envelop actually changing. For instance, the Wall Street Journal has a piece today about a rental to condo conversion that reduced the total number of units from 845 units to 580. That's about a 35% reduction in the number of units. This likely reduces the total number of people in the building as well. In any event, these types of conversions are very popular in Manhattan, and these reductions reduce density not through regulatory restrictions but through market forces. One takeaway point from this is that by allowing larger buildings to be built you may not actually increase density, rather the larger buildings will just accommodate larger units.

Second, in places like Manhattan south of Central Park--as long as New York is an ascendant world city--I'm not sure you can build your way out of high rents. Consider that upwards of 30% of all new condo development is to foreign buyers. New Yorkers compete for rents in desirable areas of Manhattan with households from around the world. If supply increases to meet demand, there will be more buyers and renters from elsewhere around the world brought into the market. This effect is not nearly as big an issue in places like Houston and Chicago (places lauded for more passive land use regulations). Just as you can't build your way out of congestion by increasing supply, I suspect you can't build your way out of high rents in lower Manhattan, at least not while the city is as safe and popular as it is currently.

Ultimately, we do need to reduce unnecessary barriers to growth, but local regulations are fairly pliable. In Manhattan south of Central Park (Community Boards 1-6) residential population grew by over 110,000 people between 1980 and 2010. About half of that growth happened in the past ten years. Maybe planners could have predicted this kind of demand, but I think that is Hindsight Fallacy.  The real estate market is reacting to revealed demand, and the city is accommodating a lot of growth through aggressive re-zoning.  But as long as units grow larger and nearly a third of buyers are from elsewhere I'm not sure that local zoning and regulations are the leading constraint on additional density in the highest rent places of New York. To better evaluate effects on density, we have to be clear about what kind of density we are talking about. Density isn't easily captured through building size.
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