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Economists love this one weird trick to fix the housing market
CityWork turned 2 this month! In honor of our birthday, 1 bedroom rents have fallen for the second straight month. Plus, we take a look at ODU’s new State of the Region report, and Chesapeake’s rental vacancies. As always, if you like this work consider supporting us here to help keep it free. We are entirely donor funded.
In September, average asking rent for all units in Hampton Roads was $1,864, the median was $1,755. That’s down $18 and $22, respectively, from August. 1 bedroom rents have fallen for two consecutive months. The average asking price for a 1 bedroom apartment came in at $1,557, down from $1,581 in August.
Studios:
Average Rent: $1,425 | Median Rent: $1,480
1 Bedroom:
Average Rent: $1,557 | Median Rent: $1,575
2 Bedrooms:
Average Rent: $1,821 | Median Rent: $1,792
3 Bedrooms:
Average Rent: $2,210 | Median Rent: $2,159
4+ Bedrooms:
Average Rent: $2,817 | Median Rent: $2,700
I have a bit of a soft spot for ODU’s State of the Region report. Partly because one of their faculty remarked of CityWork data “I don’t get my research on Twitter.” But more so because their housing analyses are rather like those old internet ads: economists hate this one weird trick to fix the housing market!
The new ODU Dragas Center report is filled with quips about the housing market like “what follows is a simple lesson in economics: if demand is increasing, and supply is increasingly constrained, prices will rise.” And “the rise in…multifamily rents is undoubtedly a function of supply.” At CityWork, we think those sentences should end with question marks, not periods.
The Claim
The authors argue that to correct runaway rents, cities should re-zone land for higher-density uses, like multifamily properties, while easing regulatory construction burdens. This, they argue, will spur construction and bring down rents. While the report doesn’t list any citations to support their theory, they do cite examples out of Minneapolis where sweeping zoning reforms “added 12% to the housing stock between 2017 and 2022,” while capping rent growth at “1% compared to 14% for the state.”
It is true that in Minneapolis rents have barely budged since 2020. But the why is far from settled.
First of all, Minneapolis passed its zoning reform laws in 2018, but they did not go into effect until 2020.
This chart shows new multifamily units in Minneapolis. 2019, pre-zoning reform, saw a huge upswing in apartments. Yet, according to the Minneapolis Fed, after the passage of the plan, new multifamily units fell from 4,646 in 2019 down to 3,207 in 2020.
Data: Federal Reserve Bank of Minneapolis, updated December 7, 2023.
Pulling permitting data from Minneapolis Planning Commission further complicates the picture. In the chart below we see housing unit construction spike in 2020. But new units plummet in later years.
In the four years prior to Minneapolis zoning reform, Minneapolis averaged 4,369 new housing units a year. In the four years after implementation, they averaged 3,604.
Arguing for zoning reform by setting the benchmark in Minneapolis at 2017 is misleading, at best.
Data: Zak Yudhishthu, Minneapolis Planning Commission 2011-11/24, CityWork
So what was happening before 2019? Minneapolis instituted gradual bans on parking minimums for multifamily buildings with 3 – 50 units near high transit areas (think downtown). That ruling lowered development cost for properties, which could be one of the reasons for the construction boom. But we don’t have a clear-eyed study yet controlling for these variables.Funny enough, the Dragas report cites a Pew study on Minneapolis for their data. That same study in turn cites a blog post for their data; the same blog that cautions against drawing conclusions too quickly from Minneapolis.They might have caught that had they been on Twitter.
Another housing report made the news recently, this time by the non-profit ForKids. In a recent presser the group pitched the need for the city to bump up the supply of housing in order to bring down rents. Specifically, they asked for 15,000 new units, with inclusionary zoning requirements that 35% of those units be rented at affordable levels.We’ve woefully undercovered Chesapeake here. But one thing that’s always curious in supply- side arguments is at what scale should we increase the housing supply to see the effect on rents? Nationally? MSA? City? The argument is rarely made that if you increase housing in a neighborhood that neighborhood's rent will go down. Why? If rents are “simple economics” shouldn’t we see that simplicity work at all scales?
Data: US Census 2010-2022 | CityWork
Looking at neighborhood data from 2010-2022, housing supply and rents don't show any clear relationship in Chesapeake.This chart above shows neighborhood changes in housing units vs Median Rent Growth. Each dot is a neighborhood. The neighborhood with the largest supply drop had mild rent growth, though the Great Bridge with a 20% drop in housing supply saw rent jump by 300%. Still, neighborhoods that added over 50% of their housing units saw rent go up, in some cases over 50%.Well, since Chesapeake has such little multifamily housing, maybe rental vacancy rates will give a better picture.
Data: US Census 2010-2022 | CityWorkNo.
Some neighborhoods with the highest increase in available rentals saw rents rise over 50%. Some neighborhoods with drops in vacancy saw some of the lowest rent hikes. At least on the neighborhood level, flooding the zone with apartments doesn't seem to lower rents.A big caveat: this data is from a small sample set, and the smaller the data pool the bigger the margin of error. Plus Chesapeake gained more census tracts in since 2010. But it's enough to raise more questions about assumptions in our housing policy. So what's happening in Great Bridge?
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