Would you live in a Blade Runner city for much cheaper housing?

Everybody complains about high housing prices these days. But would you live in a concrete jungle if it meant you could get a much cheaper home?

That’s the question Australia’s Reserve Bank is asking. It put out a report this week on how Australia’s housing market would look in the theoretical world where there were no zoning controls. It finds zoning rules — things like minimum block sizes and height limits — have raised Sydney house prices by 73 per cent.

The price of an average block of land in Sydney is $765,000, which is 36 per cent the true value of that land and 64 per cent the cost of what the RBA calls the Zoning effect.

As this next graph shows the zoning effect (in purple) explains a big chunk of the cost of housing in a range of Australian cities.

Without zoning, you’d get Blade Runner cities full of high rise apartments, but they’d be damn cheap to buy. If a Blade Runner future doesn’t quite sound perfect for your family, that’s probably because zoning can be good. Even the RBA admits it.

Zoning rules mean we pay higher prices but we get a bit more breathing room to live in. More light in our homes and perhaps a bit more beauty. Zoning gets us nice leafy streets of one and two storey homes with big yards (…that we drive past on our way to the home we can afford!).

The question is whether having zoning rules that bring us high prices is worth it. The high cost of housing is a real burden on a human life. Two working parents slave away for years to pay off a mortgage, spending time away from their kids, getting stressed and unhappy at work. Do we really get more benefit from a heritage facade and a front yard than we would from 15 years less mortgage?

(Personally, I’ve always thought front yards are a total waste. We never really use ours and it’d save on gardening if the house went all the way to the street. If I could get rid of one rule, it would be the rule we must have front yards.)

It is worth pointing out that the Blade Runner cities would only be in the inner parts. Once the most valuable land is built up tall, larger houses would be available a bit further out. This map of Sydney shows where zoning is raising up prices.

HOW THEY DO IT

Zoning rules work a bit like a tax — they push up the price of land. The RBA estimates of the effect of zoning rules on land prices are of course debatable. The way they are constructed is this: The RBA measures how much people are willing to pay for a bit more land on their block — it’s not especially much. Then they estimate how much people are willing to pay for a little bit of land — quite a bit. A big block doesn’t cost twice as much as a block half its size, suggesting that if people were allowed to subdivide their land, they would.

The fact we’d like to buy just a little bit of land to build a house on, but we have a buy a big block, suggests some people don’t get much value from being forced to have big blocks. It suggests that zoning rules such as minimum block sizes are making housing more expensive than they would otherwise be.

The RBA paper is partly an intellectual exercise — wrecking balls are not going to come tearing through the beautiful old suburbs tomorrow even if we decide to relax zoning rules. But it is also a political document. In discussing how much it costs us to have the zoning restrictions, it encourages us to think about getting rid of them. If we turfed out heritage controls and height limits and minimum apartment sizes, we really could make housing more affordable.

It’s a question worth thinking about, since to a large extent we seem to be heading that way anyway, with towers shooting up across Australia’s cities.

ZONE FREE

There is one city in the world that is most famous for existing without major zoning laws — Houston Texas. It is famous for having enormous urban sprawl and the lack of rules mean very different kinds of buildings can end up next door. They could build an enormous tower just over your back fence, for example:

But Houston, which is an extremely wealthy city, also has very affordable housing. House price to income ratios have been falling since the 1970s, which says housing is getting easier to buy there. (In San Francisco, where zoning rules are incredibly strict and locals fight back against development, median house prices are the highest in the USA.)

Houston has a few higgledy-piggledy moments, as in the picture above, but it still has a lot of single-family homes. Meanwhile, the commercial parts mostly stick to the commercial areas and residences mostly get built in residential areas. The lack of zoning doesn’t end up changing it too much from a normal city, and it has managed to absorb a huge amount of population growth.

As our cities struggle to absorb big population growth, being just a little bit more like Houston might be in our interests.

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