Can YIMBY Save Us? - Rent Report March 2024

Part Two of our series on why building more housing doesn’t guarantee lower rents. And we’ve got the latest rental data for Hampton Roads.

The total average asking rent in Hampton Roads came in at $1,769

The breakdown for each unit type:

Studios - $1347
1 bedroom - 1524
2 Bedrooms - 1773
3 bedrooms - 2163
4+ Bedrooms - 2592

City by City

Norfolk: $1,728
Virginia Beach: $1920
Chesapeake: $2018
Portsmouth: $1461
Suffolk: $2106
Hampton: $1700
Newport News: $1,554

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Does Building More Housing Lower Rents?

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If you thumb through Norfolk’s new comprehensive housing report, the words supply and demand appear 26 times. The same goes for Norfolk’s 2017 housing report and ODU’s “The Rent is Too Damn High” report. The word profit appears zero times in all of them.

Rent, it would seem, is simply a matter of markets. And right now, markets are out of sync. There’s too much demand and not enough supply of apartments. If we build more housing, upzone, and densify, then we can increase the supply of housing. That in turn will lead to lower rent. It’s Economics 101, right? Release the cranes.

One major movement that advocates for this idea is called YIMBY, or Yes In My Back Yard. A response to NIMBY (Not In My Back Yard), YIMBYism aims to change zoning regulations to enable the inclusion of "missing middle" and high-density housing in neighborhoods historically zoned for single-family homes.  Additionally, it advocates for Section 8 funding, along with decreased regulation and increased tax incentives for developers to build market rate housing. The idea is that as more apartments get built, luxury apartments today become ‘affordable’ apartments tomorrow through a process called “filtering.”

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But it’s not that simple. Things like milk and bread might follow the laws of supply and demand. Rent is not bread.

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One reason simply increasing the supply of housing does not always lead to lower rents is because of the way housing projects are financed. For example, buildings purchased with variable interest rate loans can see rents go up as interest rates rise. If you missed our breakdown on this you can check it out here.

Is there any evidence that increasing housing supply lowers rents? Sort of. There’s very little settled evidence that simply increasing the supply of housing slows or lowers rents. To be fair, there are several prominent studies at the city and neighborhood level in Denver, San Francisco, and New York that show increasing the housing supply does create more rental affordability. One recent Pew study found that in four metro areas that relaxed zoning law “the evidence indicates that adding more housing of any kind helps slow rent growth.”  Rents still went up, Pew researchers say, but not as fast as they would have had the housing supply not increased.

To give some context, in New York City, for every 10% increasing in housing stock rents only dropped by about 1%. That’s close to a 800,000 new housing units needed for a marginal drop. The same goes for the cities in the Pew study. New Rochelle, studied by Pew, needed to build 3,700 new housing units to slow rent growth to 7%. To put that in context for Norfolk, we would need roughly 10,000 more housing units to see a roughly $17 drop in rent.  

Evidence to the Contrary

Sure, New York is not Virginia. Yet other studies out of Minneapolis and Chicago find that increasing development actually raises the cost of housing. A 2020 study on Minneapolis found new apartment construction increased rents by 6.7% in nearby lower-priced apartments.

Probably the most thorough study comes from the Urban Institute. They looked at the effects of zoning reform on housing affordability across 1,136 cities. Their conclusion: Cities that passed zoning reform only saw a “0.8 percent increase in housing supply within three to nine years.” Crucially, they found there was “no statistically significant evidence that additional lower-cost units became available or became less expensive” following zoning reform.

To be clear, we should be building more affordable housing.  Much of Hampton Roads’ single-family zoning is exclusionary and based in a deeply racist history. And restrictive land-use does lead to increased rents. As one affordable housing developer in Norfolk noted “NIMBYism has killed more deals compared to any other factor when it comes to affordable housing.” That may be true. But it doesn’t necessarily mean the inverse is true.

When it comes to housing we are stuck thinking in a hall of mirrors, where every solution to a problem is simply the inverse of the problem. There is good evidence that NIMBY leads to higher rents. The evidence that simply building more housing is the solution is shaky at best.

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In part three we’re going to be looking at the federal cap on public housing in the U.S.

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Publication Date (Internal)

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