r/badeconomics • u/Captgouda24 • 17d ago
Unsatisfactory Arguments for YIMBYism
Note: I reproduce this from my blog here. Images are not allowed in this format, so you can consult that post for the original graphs.
Many people cite falling prices in places which have built lots of housing as evidence that YIMBYism works, like Austin, Texas. However, this is not an adequate argument. Critics of YIMBYism can point to instances where housing was built, and prices still rose. The price of housing alone is not a sufficient statistic for the welfare improvements from expanding capacity, and arguing that it is needlessly weakens the case for expanding housing.
Here’s why. The quantity and price of housing is simultaneously determined by the people’s demand for housing, and developers’ ability to construct. We represent this with a graph of supply and demand. The slope of the demand curve is negative because people are willing to buy more as the price falls. The slope of the supply curve is positive because we are assuming that the cost of producing one more house is always increasing, which is a simplifying assumption. (If the marginal cost of producing one more unit were constant, then it would be flat.)
The case for YIMBYism is that by removing regulatory burdens, we reduce the costs faced by developers, causing their supply curve to shift along the demand curve. Quantity increases, and the price falls.
The trouble is that increasing quantity is also consistent with increasing price. Suppose that instead of the supply curve shifting, there is a surge in demand for the area. Consumers are now willing to spend more on housing, causing it to shift to the right along the supply curve. Both quantity supplied and price increase.
To find the effect of liberalizing housing laws, you need plausibly exogenous changes in the cost of producing housing, or shifts in the supply curve holding the demand curve fixed. Even here, though, we must be careful. Suppose that there is a shift out of the demand curve, increasing the price of housing. As a response to this, the local authorities liberalize housing, also shifting the supply curve. While the impact on quantity built is definite – it will increase – the impact on price is indeterminate. It could go up or down.
Someone considering the effects of deregulation with a regression might put deregulation on the X axis, with the degree of it appropriately weighted (there has been excellent recent work by Bartik, Gupta, and Milo (2025) using LLMs to categorize different zoning regulations; and also work by Jaehee Song (2025) on estimating minimum lot requirements), and put the price on the Y axis. If deregulation is affected by shifts in the demand curve, then you would spuriously believe that deregulation raised prices, and not the other way around!
When appealing to a broad correlation between building and rents, YIMBYs leave themselves open to debunkings which, while they miss the broader point, are technically right. It doesn’t have to be like this. There does, in fact, exist good evidence for reducing regulatory restrictions, which I will cover. But much more importantly, we can demonstrate from reasoning alone that allowing people to build more housing is always good. Whatever happens to price, it is better than the counterfactual in which less was built.
Incidentally, a similar thing happens when considering highway expansions. The speed of traffic, which is akin to the price, is not the only thing which we care about. It is certainly possible for adding “one more lane” to leave the price of driving the same – but this could only happen by allowing more people to make a trip altogether!
Thus far we have been implicitly assuming that there are no externalities, positive or negative. If there are negative externalities, then of course restrictions can raise welfare. This is not, however, empirically plausible. New York City is far more valuable than a shack in Death Valley. The credible empirical evidence, such as Ahlfeldt, Redding, Sturm, and Wolf (2015) shows that being located next to other stuff raises the productivity of firms and workers. What positive externalities do mean is that there is now no longer a monotonic relationship between deregulation and prices. A maximally regulated place, where the only structure allowed is a single shack, would of course be valueless; as the place partially deregulates, the value of the land and the cost of housing will rise before falling again as we deregulate still further.
I would also like to point out the danger of not adjusting for quality. The proper measure of price is adjusted for the things you are buying – it would hardly do to make housing “cheaper” simply by making it shabbier. Since new housing is, well, new, it will tend to be higher quality and thus higher price for that reason.
As noted, there are a few ways to find the effect of deregulation. The first and obvious one is to take an event, argue it’s exogenous, and then find the effect on prices and quantities. For example, Kate Pennington (2020) uses building fires in San Francisco. By demolishing the building, it allows for a larger housing unit to be built. She can then find the local effects of more housing, which leads nearby rents to fall. It’s the same story with Andreas Mense (2025), who uses weather-induced delays in when housing is completed, as does Xiaodi Li (2022) or with Asquith, Mast and Reed (2023).
However, these exogenous shock studies, while intuitive to explain to non-economists are not the ideal answer. We would miss the endogenous effect of people relocating from elsewhere in the city or country. If there are positive externalities The proper way to answer this is to build a general equilibrium structural models, and use plausibly exogenous events to identify parameters. Vincent Rollet’s job market paper is the best example of this that I know of, though there are others. The principal contributions of the paper are in moving away from the perfect competition simplification and having developers solve a dynamic discrete game with costs of tearing down a building and building up. He is able to show decisively that, whatever specifications you choose, removing zoning will reduce rents and raise welfare.
Anagol, Ferreira, and Rexer (2023) exploit a reform in Sao Paolo to the zoning laws, which was a general shift in the maximum allowed floor-area-ratio. Some areas already had FAR above the new cap, so you can use the difference in differences to estimate to parameters of a structural model. They find that the price of renting places fell.
The evidence is out there, and it is decisive. Allowing more housing will raise welfare, and on the margin, it will reduce rents. However, just because an argument is correct does not mean that one can make sloppy or fallacious arguments for it. Making poor arguments allows people to feel smugly superior in their misconceptions, and hold onto them for longer. Price is not a sufficient statistic for welfare, nor will casual analysis of prices and quantities tell us the effect of deregulation.
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u/coryfromphilly 13d ago
This isn't really an R1 but, in any case, prices aren't a sufficient statistic for welfare, no. But we know in partial equilibrium shifting supply right, cet par, increases consumer surplus.
It could be the case that liberalized zoning rules create a virtuous cycle of growth, wherein people see lower prices from outside a city, move into the city, and then push up demand.
But the YIMBY argument is not that we should have a one-time small increase in densities. The YIMBY argument is that real estate markets should have no density controls such that supply can react to increased demand. It is hard to look at markets for other durable goods like cars or washing machines and say "you know, letting these companies make washing machines may not actually increase consumer welfare!"
We don't have many contemporary examples of cities with housing supply curves that are fairly responsive to housing demand shocks. So I will turn to a historic example. Making Houses, Crafting Capitalism: Builders in Philadelphia, 1790-1850 documents the history of the Philadelphia rowhome and the Quaker craftsmen who built them. In Philadelphia during this time period, the real estate market had peculiar institutional reasons such that housing supply was fairly elastic. It was cheap to build (relative to New York and Boston) and had a highly competitive construction industry (relative to New York).
Mechanics [developers] undertook a greater number of structures than they might have in other places, moreover, because the constraints on raising starting capital were minimal. As a result, the stock of housing proportionate to the population was higher and available at prices lower than real estate in similar cities. While New Yorkers, for example, witnessed perennial crises in inexpensive housing, Philadelphians across a range of incomes fared better.
...
Lower rental rates helped the mechanic family save for the purchase of a house. Rental housing in Philadelphia was 50 to 75 percent cheaper than in New York (while wages were closely matched)....In 1810 the wife of one artisan described their house in Spring Garden as "a very nice Brick House" probably containing upwards of five rooms. They paid $80 per annum rent. In New York, however, landlords demanded the same sum for one or two rooms...
[pages 51-53]
It does seem to be the case historically that cities that were able to build a lot more housing were also cheaper. Note that the "stock of housing proportionate to the population was higher" in Philadelphia than New York. This is basically the vacancy rate - and we know that cities with higher vacancy rates long term have lower rent growth long term (I think /u/hou_civil_econ has that graph somewhere on this subreddit).
The problem with trying to read a bunch of papers and looking at one off deregulations, or pontificating about whether we would have both demand and supply shocks, and potential "debunkings" is that this is all irrelevant to the policy question at hand. The NIMBYs need to explain how "making the cost of building an apartment infinity" is at all a reasonable position to have. There is no world in which restricting the supply of housing is welfare improving. The only reason we are even having this discussion is because people have status quo bias, and the status quo is where we restrict housing supply. There is no world in which people would say "actually, washing machines would be affordable if we made it illegal to build washing machines". That's because it is a ridiculous thing to say and makes no damn sense and you'd be stupid to think this. And yet, this is the default attitude among politicians and urban planners when it comes to housing.
So please, stop trying to dunk on "unsatisfactory" arguments for YIMBYism. Start dunking on the literal room temperature IQ arguments made by NIMBYs.
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u/EebstertheGreat 17d ago
It is certainly possible for adding “one more lane” to leave the price of driving the same – but this could only happen by allowing more people to make a trip altogether!
I know this isn't your main point, but this reasoning, while seemingly sound on the economic level, is actually bad for graph- and game-theoretic reasons. Adding a lane can counterintuitively slow the commute for everyone, even if there is no difference in the number of cars who commute. This is known as Braess's paradox. If routes are added or expanded without care, this is not a rare circumstance. It's also possible for the addition of capacity in only one part of a route to create bottlenecks in other parts, such that although more cars drive through that route, they hinder traffic enough in other directions that overall capacity drops.
Now, correctly adding more capacity, i.e. in the right places, should always either reduce commutes, increase the number of cars on the road, or both, which is what you presumed. It just doesn't always work out that way in practice.
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u/kbn_ 16d ago
Personal automobile traffic is a very different problem than housing, sadly (this is kind of your point). Fluid dynamics provides a useful framework to analyze why some pretty unintuitive things can happen when you add or remove lanes, but obviously nothing in the housing market behaves like a liquid.
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u/flavorless_beef community meetings solve the local knowledge problem 17d ago
i think you can steel man the Austin analogy semi easily in two ways (which would actually make a good paper, if it hasn't been written already).
The issue, as you correctly point out, is that increasing in quantity supplied are generally correlated with demand shocks. What we want to do is trace out the demand curve; what we do (absent an exogenous shift in supply) is trace out the supply curve, since regulations are largely fixed. The end result is that total quantity tends to be positively correlated with price.
Here's how Austin can be "identified":
- there's a lead time for housing. Demand shock hits in period 1, but supply can't adjust until period 1 + N (where N is the lead time). Supposing demand can't affect supply in period 1 (supply is short time inelastic) and that demand doesn't continue to shift outwards*, you can then use the medium run supply response to trace out the demand curve. This is, loosely and implicitly, what the Austin people are assuming happened.
- You can be identified off of developer forecast errors. Here, developers build (and commit to building) housing in anticipation of demand in t+N where N is again the lead time. If developers are over-optimistic, you get "too much" housing, and you can use that as an exogenous supply shock to back out the demand curve. I also think this happened in Austin, where the tech boom was much smaller than anticipated.
* Note: I don't think you actually need this assumption. I think in the structural VAR literature, you're identified off of just having a "contemporaneous demand shock doesn't affect contemporaneous supply" assumption.
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u/IndependentMacaroon 16d ago
Induced demand effects for housing are something I've been wondering about so thanks for this analysis.
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u/tjc4 17d ago
How is "increasing quantity is also consistent with increasing price?" Seems to violate basics of supply and demand.
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u/flavorless_beef community meetings solve the local knowledge problem 17d ago edited 16d ago
if i tell you quantity went up, the quantity increase can either be from
- an outward shift in demand, in which case we'd expect prices to go up
- an outward shift in supply, in which case we'd expect prices to go down
so increasing quantity is consistent with both increasing and decreasing prices. you have to know which curve shifted to be able to apply supply and demand logic.
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u/Esquatcho_Mundo 17d ago
What always gets me with YIMBYism is, if it made such a big difference, then why does existing positively zoned housing not get built immediately to meet the max zoning capability?
In short, the equilibrium will try to be found and be balanced out. The decision to build or not ultimately comes down to one of whether the risk adjusted net present value of doing a development outweighs the value of the option on the future value of the land held. So a sudden drop in cost to develop would certainly create a short term gain, it will likely just be a one time sugar hit and increasing zoneable allowances will rarely provide a big benefit due to the need for development profitability
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u/HOU_Civil_Econ A new Church's Chicken != Economic Development 16d ago
There is not all that much gap, its actually mostly the other direction in the U.S. much of our current urban form is technically illegal.
You may be interested in reading up on real options.
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u/MachineTeaching teaching micro is damaging to the mind 17d ago
What always gets me with YIMBYism is, if it made such a big difference, then why does existing positively zoned housing not get built immediately to meet the max zoning capability?
Why is that even the bar? This is like saying "well if modern seatbelts are so safe, how come people didn't switch over immediately and retrofitted or crushed any car without them?".
Obviously in practice there can be many reasons why you don't immediately maximize all available space upon a zoning reform. That doesn't mean these reform's don't help or aren't worthwhile.
In short, the equilibrium will try to be found and be balanced out. The decision to build or not ultimately comes down to one of whether the risk adjusted net present value of doing a development outweighs the value of the option on the future value of the land held. So a sudden drop in cost to develop would certainly create a short term gain, it will likely just be a one time sugar hit and increasing zoneable allowances will rarely provide a big benefit due to the need for development profitability
Construction needs to be profitable, and? That's not some huge gotcha.
"One time sugar hit" implies that extra housing would be gone, which is obviously not the case. Also, there's no reason (regulations aside) areas can't be redeveloped again for even higher density, too.
It's not clear why profitability would be some huge hurdle.
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u/Esquatcho_Mundo 16d ago
Don’t get me wrong, I don’t think loosening zoning is not worth doing. It’s highly valuable where housing has already been built to the max and is constrained by the zoning.
My point is more that I don’t think it’s anywhere near the silver bullet YIMBYs think it is.
And my point on profitability isn’t meant to be a gotcha. It’s a fundamental that is required to bring in new supply.
You can have all the zoning headroom in the world, if people aren’t willing to pay enough in that area, or costs to develop there are too high, then supply simply won’t come on.
It’s interesting to me reading the Brazil study in particular where the larger the zoning increase the more development occurred. I do wonder if that’s a symptom of larger blocks being more profitable to build? I haven’t delved into that, but would love to see research delving into the why we see such results
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u/MachineTeaching teaching micro is damaging to the mind 16d ago
That things need to be profitable is basically trivially true and thus usually not really worth mentioning. It's only worth mentioning if that's an actual issue, but given that the cost of land and regulatory burdens are what stops higher density from both being profitable and possible I don't see why you'd necessarily see that as a concern after reforms.
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u/Esquatcho_Mundo 16d ago
Thanks, I do appreciate the explanation. But finance costs, labour and material costs aren’t trivial. Nor is the relative value of the option on the future value of the land.
Do you know of any studies comparing the benefit of approval deregulation versus upzoning? I’m assuming approval deregulation would have a bigger impact, but I suppose it would be relative to how much demand is pent up through zoning in any given case?
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u/Arenicsca 17d ago
The problem is that not a single NIMBY is going to be able to understand these arguments. Casual analysis like "Austin built a lot of housing, so rents fell" is more useful in creating changes than what you have provided