What Housing Shortage?


Why do Seattle rents continue to rise to higher and higher levels of unaffordability?

A new narrative has taken hold to explain this: the housing shortage.

The housing shortage narrative has largely replaced the language of supply-and-demand, which has recently been criticized for being too reminiscent of trickle-down economics or too simplistic (although some still favor it).

The essence of the shortage argument is the same as the supply-and-demand argument, though. Simply, when the production of housing outpaces the demand for housing we have a housing surplus. When housing production falls behind demand we have a housing shortage. But pictures speak louder than words (or supply curves) so local think tank Sightline provides an infographic to demonstrate the housing shortage in Seattle. It’s just one example of the shortage argument but it’s a popular one and provides actual figures. It was employed recently during a presentation at the Capitol Hill Renters’ Summit (with heavies like Mayor Murray, Councilmember Sawant, and House Speaker Chopp speaking) to drive home the point that we aren’t building enough housing units to keep up with demand.


And the reason we’re not building enough, the argument goes, is “restrictive land use regulations.” How can we possibly solve the affordable housing crisis when government is getting in the way of building new housing? This reinforces the common refrain that regulations are the primary cause of the housing crisis.

In this piece I will argue that there is no general housing shortage, that the catastrophic figures above are a product of the Great Recession and the normal lag in construction. Because the market appears to be duly responding to demand, efforts to “free” the housing market are not as effective as efforts to shape the market toward more just ends.

Returning to the evidence for the shortage argument, the numbers in the infographic, upon closer examination, are a little suspicious. To begin, the graphic uses “people” instead of “households” which has caused some confusion. Each housing unit shelters about two people in Seattle so we can conveniently convert “people” into “households” to be more readily compared to housing units. Taking this into account, the graphic actually shows a deficit of about eight housing units (40 people means 20 households minus 12 housing units produced) per day from 2010 to 2015. An eight unit daily deficit from 2010 to 2015 adds up. In fact, it wipes out nearly all vacant housing in Seattle. If these numbers are right the vacancy rate would have fallen to almost 0% by the end of 2015. It didn’t. Vacancy rates did drop but much less than the graphic implies: about 6% to 4% (give or take a half a percent depending on the survey).[1] There are, however, two other explanations for the dramatic deficit:

  • The number of people per housing unit increased, putting more people in each housing unit.

(The opposite happened: the trend of smaller households continued, going from 2.06 people per household in 2010 to 2.02 people per household in 2015),


  • The number of homeless people–living without housing units–increased.

(This did happen: Seattle’s homeless population went from about 2,000 to 2,800, an alarming increase but nothing near the scale needed to explain the deficit.)

This is the first indication that something is wrong. The figures don’t make sense. You can verify the figures for yourself, including population, jobs, and housing units going as far back as 2005 (the earliest year the city breaks out new housing units and demolitions) in the attached spreadsheet.

Below, the Sightline infographic is reproduced based on the same sources but going back to 2005 and, because population is not directly comparable to housing units and the confusion that has caused, household growth is used instead of population growth.


That’s not the catastrophe the Sightline infographic depicts but still not quite enough housing units to meet the new demand. Going back to the vacancy rate sniff test, we find that the 2005 to 2015 data does make sense with the vacancy rate change over the same period–6% to 4%–or, a roughly 6,000 unit deficit.[2]

So, is the private market working by responding to new demand? Housing development takes time–6 to 12 months for residential projects and longer for larger commercial projects. It can be a year or more before a hiring boom is spotted until units go up and even longer if other frictions like tight credit or limited labor supply slow projects. When you compare population growth to housing growth over a period that begins in the very dumps of the Great Recession with a lingering credit crunch to boot, is it any wonder that it looks like a near-impossible housing shortage? When you go back to 2005 (the earliest available year for annual housing units) the shortage all but disappears.

Data Sources: Census, PSRC, Seattle OPCD
Data Sources: Census, PSRC, Seattle OPCD

What becomes clear in the longer timeframe is a lag between demand (households and jobs) and supply (housing units). As jobs dramatically fell from 2008 to 2009, housing units actually increased as projects that had already been started before the downturn were completed. Then beginning in 2010 and going through 2012, unit production falls to relatively low levels. Meanwhile, job and population growth rebounded quickly starting in 2011, led by the unexpected hiring boom at Amazon. But it wasn’t until 2013 that housing production responded in kind. Since then, growth in new housing units have matched growth in new households.

Data Source: Commercial Mortgage Alert
Data Source: Commercial Mortgage Alert

“Restrictive land use regulations” are not to blame for the drop in housing production from 2010 through 2013. The rich irony of the Sightline infographic and the housing shortage narrative that accompanies it is that, upon closer examination, the housing shortage between 2010 to 2015 was not the result of restrictive local regulations but restrictive global capital.

Based on the expanded survey of supply and demand in Seattle, there is virtually no general shortage of housing. The data show supply responds to demand, just not immediately. The delay is likely due to the natural lag in construction and, beginning in 2010 the effects of a global financial crisis. Not only are Seattle builders now matching new population growth with new housing units, they are building at or near the construction industry’s capacity. Skilled construction workers are hard to come by. Seattle has more cranes than any American city yet they are still in short supply.

But haven’t restrictive land use regulations made it harder to build new units? Anecdotes abound but you wouldn’t know it from looking at the data. In fact, permitting turnaround time for medium and complex projects (the kind of projects that produce new housing units) in Seattle appear to have no relationship with the number of units that get built. Permitting times were typically shortest in the recession years following 2008 when, not coincidentally, there were fewer applications. Which isn’t to say that bad land use regulations don’t have bad social consequences, just that the regulations we have aren’t preventing the market from responding to new people with new housing. So, in this sense, the “just build” crowd have gotten what they want: no regulatory yokes on the market bull. And, yet, here we still are.

The housing shortage narrative obscures the real problem: out of control rents. There is, however, a specific housing shortage for those without the means to afford all this plentiful new housing. And it’s because of this specific shortage that simply building more housing doesn’t address the fundamental problem. To address the specific shortage, it’s time we started looking at specific solutions including a progressive income tax, rent stabilization, and aggressively capturing the value concentrating in urban land so it can be funneled into affordable housing. In a future article, I will lay out a housing affordability program that blueprints specific solutions, particularly a politically and economically feasible concentrate-and-capture land value scheme. In the meantime, a housing affordability program that says “just build” and nothing more is pouring water into a glass that’s already full.

[1] 2008-2011 was a period of unusually rapid change in the housing market. Not only did vacancy rates swing wildly but, according to the Dupre+Scott Seattle rental vacancy survey, the spread between gross vacancy and market vacancy (which excludes vacant units during lease-up) quickly expanded to historic levels before contracting during a 24 month period that includes 2010, a possible explanation for the discrepancy in the Sightline infographic – albeit one that I could not corroborate with other vacancy surveys that provide less fine detail.

[2] If you do the math from the expanded survey infographic, you get 2 unit daily deficit * 365 days in a year * 11 years = 8,030 units. The discrepancy between 6,000 units and 8,030 units is a rounding error. Net population change over that 11 year period is 113,490. Net housing unit change over that 11 year period is 49,486. 1134,490 people / 2.06 people per unit – 49,486 units = 5,606 unit deficit. See the linked spreadsheet for more information.

Top image:  What Housing Deficit by Christine Hou

We hope you loved this article. If so, please consider subscribing or donating. The Urbanist is a 501(c)(4) nonprofit that depends on donations from readers like you.

Michael works as a real estate valuation analyst. He graduated from the University of Washington with a Masters in Urban Planning and a specialization in real estate. Before Serial broke the long-form true crime scene wide open, he had a podcast about pet adoption.

Inline Feedbacks
View all comments
Ben Phelps

Your analysis has a major flaw. This has been well pointed out by others, but Michael you just don’t seem to understand that you are completely ignoring all the people who would *like* to move to Seattle but can’t because there is no housing for them- or more specifically, no housing they can afford. They don’t show up in the number of people who moved to Seattle, because they didn’t actually move to Seattle. These people are just not factored in at all.

These are the people that end up moving to far-flung suburbs and exurbs, or other cities (like Bend, Oregon or sunbelt cities) with less economic opportunity, lower median incomes, but cheaper land. How do we know these people exist? Precisely because rent and housing costs in Seattle are so high: if there was no pent-up demand for this housing, landlords wouldn’t be able to charge so much (an example of an urban area where demand for housing is low: Detroit). So while it might seem that housing construction is meeting demand, you only reach that conclusion by completely ignoring everybody that doesn’t have a place to live in Seattle already that would like one.

The Hamilton analogy is particularly apt and simple to understand here- surely you can see that if you only look at the people who actually see Hamilton, and ignore everyone unable to obtain or afford tickets, you might conclude that there were no shortage of seats at all. But the sky-high resale ticket price tells us that something is amiss with this analysis. There is unquenched demand that is going unserved.

BTW your “demand side” constraints- not sure exactly what you mean- generally only serve to make the problem worse, unfortunately. I am in favor of rent stabilization if we can’t find the political will to reduce zoning restrictions and build denser- because it’s better than nothing- but this is putting a bandaid over a gaping wound that really only helps the people that ALREADY have housing in the city. It doesn’t do anything, again, for all those people that would like to be here but don’t have the privilege to be, and leads to the slow neglect and dereliction of the property to boot. Land tax, vs. property tax, is an interesting idea that would encourage maximum densification of property and in my opinion is more useful than income tax. Income tax at the city level is very problematic indeed, many problems of capital flight etc. But you can’t hide the land, and the land is what is the valuable commodity here. Land is the real limited resource that is at play here, not housing. But zoning restrictions create a false housing shortage: by making land close enough to where people want to live- on which one is permitted to build enough housing to serve demand- very rare indeed.

I only hope that progressives can think about these issues more clearly- this is truly one of the great causes of wealth inequality in our country. It’s weird how political ideologies seem to get so confused and scrambled when it comes to zoning and housing. (BTW, I don’t let conservatives off the hook here at all, they are for the most part the strictest enforcers of the anti-free market zoning laws that have lead to the forced suburbinization of America. They only seem to wake up to free-markets in land use when it seems environmentalists are trying to protect a wetland. But laws preventing the construction of multi-family housing or God-forbid Granny flats on private property? The more the better!).

Concerned Citizen

Very short and simple-if the City of Seattle (council members) would stop having so much “red tape”, there would be more affordable housing. Owners like me, do not rent out their house or basement or adu because to get a renter out whom violates the contract (like brings a pet in or smokes when contract specifically says it is prohibited), or especially if the renter is late on rent or in most cases, does not pay, it is way too cumbersome financially and timewise, to evict a renter. Washington is not a property rights state and homeowners know that, so they do not rent out affordable parts of their house (or their house at all).

Michael Lewyn

So if we are looking only at a rental housing crisis, maybe it makes more sense to compare the growth of RENTAL housing (or lack thereof) to the growth of RENTAL households than to focus on the overall number of households. I suspect that if this was the case, the first infographic above would look MORE alarming, not less. And given the economic circumstances of the past decade (e.g. flat or declining incomes, declining rates of homeownership), I suspect renter households grew much more rapidly than overall households.

James Madden

I think you misunderstand vacancy data and how the real estate industry perceives it. Zero vacancy would never be allowed in an efficient real estate market. A vacancy rate of 4-6% is considered healthy residential vacancy by the industry, but you are using it as evidence that there is an adequate supply of housing. When reports of vacancy dip below 5% or so, landlords respond by raising rents to maintain that 4-6% vacancy. In a situation with a general shortage of housing supply, vacancy is maintained primarily through rent increases. In a situation where the development market is allowed to respond to demand, vacancy is maintained primarily through the addition of new supply. Rents are a much better measure of the adequacy of housing supply than vacancy rates, but the analysis in this article ignores them.

Rodney Rutherford

The article notes that vacancy drops from 6% to 4% rather than dropping to 0% as one would expect from the reported housing supply shortage. However, the article fails to point out that this 4% was probably not filled because it was too expensive–with prices driven up due to lack of supply–and so those people moved further out to areas where housing was more affordable.


The primary reason this article is interesting to me is that the graphic is so clearly misleading. Why did the graphic choose 2010 – 2015 instead of 2005 – 20015 or even 2013 – 2015? Why did the graphic use people instead of households?

Most of the comments below push back by suggesting there is, in fact, a housing shortage. The article doesn’t really dispute this. In fact it does point to a time when household growth was faster than unit growth. It also indicates a drop in the vacancy rate. But these suggest Michael agrees there is not enough housing and he says in the article there is a specific shortage. The article then goes on to show that construction has basically kept up with new household growth over the last couple years even though rents continue to climb.

I think probably the most controversial part of the article is that Michael suggests regulatory rules are not the biggest obstacle to more housing. This is hard to prove but there’s a compelling argument here. Is the vacancy rate lower because of things like design review or is it lower because of the evaporation of capital after the great recession coincided with massive housing demand growth?

The answer to this question and others should guide what policies we prioritize. I look forward to seeing other people presenting data supporting their narratives.

Dan Bertolet

Misleading, Owen, because you agree with Michael that Seattle has “no general shortage of housing”?

Aleksandra Culver


You write: “If these numbers are right the vacancy rate would have fallen to almost 0% by the end of 2015. It didn’t.” I want to push back strongly against this idea, since I think it’s wrong, and I think the rest of your article depends on this incorrect assumption.

Except in the smallest or most specialized rental markets [1], a 0% vacancy rate is almost unheard of. As a thought experiment, consider what a 0% vacancy rate would mean for someone who is moving. If Alice wanted to move to the home where Bob is currently living, she can’t do so until Bob moves out. But Bob is moving to Carol’s home, and so he can’t move until Carol moves out. The cycle can only be broken when one of them exits the market — e.g. by moving into a truck for a day, or moving to a different city. You would end up with very long chains of moves, and if a single one went wrong, it would have cascading impacts on multiple households.

There’s also the fact that rental homes take time to turn over. There’s cleaning, and the need to find a tenant, and application processing / lease signing, and the fact that most people are unwilling/unable to pay double rent for an extended period of time.

For all of these reasons, frictional vacancy is not only expected, but actively desirable.

The expected/ideal frictional vacancy rate can be hard to pin down. But as a reference point, Sound Transit’s “Capitol Hill Apartment Market Analysis” cites 5% as an ideal frictional vacancy rate. Based on your own numbers, the vacancy rate is currently below that number.

Economists interpret “full employment” as an unemployment rate of somewhere between 4-6%. And likewise, the vacancy rates we currently see in Seattle should be treated as “full occupancy”.

Come back to me when the vacancy rate starts exceeding historical medians, and then we can talk about whether there’s really a housing shortage.

[1] Exceptions include places with very little rental housing (e.g. moving from one rental home to another is uncommon), and places where everyone is on the exact same schedule (e.g. college towns). Neither describes the Seattle market.

Shane Phillips

This is very important, and when I saw the author talking about 0 percent vacancy rates I knew they were coming at this from the wrong perspective. Every good landlord or investor includes vacancy rate that reduces the potential gross income of their property—usually set at 5 percent—to account for the frictional vacancy that Aleksandra is referring to. And really that’s mostly JUST frictional vacancy: If you’ve actually got an “oversupply” of housing, the vacancy rate should be even higher than that, which would represent landlords being unable to lease up their vacant units at the earliest opportunity (which is a good thing for tenants, because more desperate landlords = lower rents).

Shane Phillips

Also, your assumptions about persons per household may be mistaken. I’m not sure where the Seattle DPD’s info comes from, but here’s data from the 1-year ACS in a few key years:

2005: 2.05 residents per household in occupied units (+/- 0.04)
2010: 2.10 residents per household (+/- 0.04)
2015: 2.13 residents per household (+/- 0.04)

And that’s during a time when the share of households that are occupied has almost certainly increased. It looks like we’re getting more crowded, not less. At best, if you assume the margins all swing in favor of your argument (up to 2.09 residents per household in 2005 and as few as 2.09 per household in 2015), we’re roughly holding steady.

michael goldman

Thanks. The Seattle data comes from the first chart on http://www.seattle.gov/dpd/cityplanning/populationdemographics/default.htm and they may get their data from the state Office of Financial Management (not clear in the chart). I hadn’t checked the Census data but they do show increasing household sizes, like you say.

This does make me wonder why the disagreement but I think the argument still holds that household size changes can’t explain the discrepancy in the infographic (assuming 2.11 people per household instead of 2.06 changes the number of households per day from 19.7 to 19.2). If we were only producing 12 housing units per day, where did all those people go?

Shane Phillips

I can’t really speculate with much confidence since we don’t even know exactly what the numbers are. I think there are a lot of possibilities though. I would be surprised if the average occupancy of a unit built in Seattle in the last 5 years is greater than 2.0 (very surprised, honestly), so my own guess would be that new units have an occupancy around 1.5 or 1.75 on average, while larger, older units are seeing more doubling and tripling up, such that average total occupancy is still climbing.

The trend for younger people is to wait to get married later and a much stronger preference for privacy than we saw mid-century, which you would think would reduce average occupancy over time. If newer units are indeed being occupied by smaller households (they’re certainly built smaller, on average), we should be concerned that average occupancy is nonetheless increasing. That leads me to believe people are being forced by economic circumstances to live in more crowded circumstances than they would prefer. And the reverse logic also applies somewhat, because when residents are more likely to need to find roommates because of a shortage of housing, landlords find it easier to charger higher rents—from their perspective, two income-earners in one household is better than one.

michael goldman

The 0% vacancy is implied by the sightline inforgraphic. I agree it’s absurd and that natural vacancy rate in Seattle is 5%. It’s this absurdity that led me to look deeper into the numbers.

What I found is the market responding to demand with a lag — population changes preceded production changes. And, for the 2010-2015 period used in the infographic, which has been repeated in various forms, including by Councilmember Johnson, that lag was compounded by the credit crisis.

The irony is that while regulations were blamed for that short-term shortage the real culprit appears to be the natural lag of construction and the failure of global capital to provide financing for new housing. It was out of our hands. In the meantime, the tech sector exploded, including all the knock-on effects that had on other industries, drawing lots of new people to the city. This was not anticipated. And so we are still at about 4% vacancy, below the natural vacancy of 5%, but that’s what a boom looks like.

Aleksandra Culver

I think the absurdity can be perfectly explained by the known discrepancies between the decennial census, the American Community Survey annual population estimate, and the WA Office of Financial Management annual estimates. If we’re to believe the ACS, for example, then Seattle’s population shrunk by about 6,000 between 2009 and 2010, but grew by 11,000 between 2010 and 2011.

If we use the OFM numbers, then we find that Seattle added 34.5 people per day (which, sensibly, about matches the number of jobs) and 15 housing units per day over the past 4 years. Assuming a constant average household size of 2.09, that works out to a loss of about 1.5 vacant housing units per day over the past 4 years, or about 2200 vacant units total. That should translate into a roughly 0.7% drop in vacancy rate.

That said, I think focusing on the exact numbers is besides the point. It’s fair to point out the error in Sightline’s graph, but if you fix that problem, it still points to an alarming drop in vacancy. It means that Seattle has gone from having a bit of a buffer to having essentially full occupancy, which is another way of saying there’s a shortage.

michael goldman

It’s worth thinking about a housing shortage as any period where vacancy falls below natural vacancy. And think about ways to lessen that. But I think that gets into talking about flattening out the boom-bust cycle, which is a worthwhile discussion to have. It’s just that when people talk about the housing shortage in Seattle they’re not talking about below-natural vacancy, but the gap between net housing production and net population change — like is used in the Sightline infographic.

Dan Bertolet

Overheard at the office:

“By the same reasoning, there’s also no shortage of seats to see Hamilton on Broadway. Sure, tickets now run >$1K per seat, and every show sells out…but, you see, the number of people who attend each performance has barely budged in over a year!!”

michael goldman

Yes, this is an example of the bad social outcomes the logic of the infographic implies. What your theater analogy describes is the outcome when you only think about housing in general number of units. There is no general shortage but there are specific shortages.

If we are already building at capacity, or what developers are willing and able to build in total number of units, we need to think about who those units are for.

Dan Bertolet

Didn’t think I’d need to spell it out: The analogy is meant to illustrate how silly it is to claim, as you do several times, that there can be no housing shortage if housing unit growth is keeping up with household growth.

michael goldman

If you look at the sightline infographic above, you see a large gap in the number of net households a day and the number of net people a day. That gap, imbalance between supply and demand, is what people typically call the housing shortage, what people call the fundamental problem of housing affordability. If the gap is the shortage, what do you call no gap? No shortage. So, yes, the logic in your theater analogy comes from the logic of the shortage narrative, exemplified by the infographic.

I don’t understand the incredulousness is coming from. Just last week, you re-affirmed the belief in the housing shortage narrative. Is that not your belief now? Is the Sightline infographic wrong or misleading or mischaracterizing the issue? Is the way people talk about the housing shortage, as a regulation-caused failure to adequately respond to new population with new housing, the wrong way to talk about it? I say yes, and that’s why this article is necessary.
comment image


I don’t think you get it. I’ll walk you through it Assume that the hall that holds the Hamilton show holds 3,000 people (similar to the Paramount). How many tickets to they sell a night? Given the demand, the answer is obvious — 3,000. Why don’t they sell 6,000 or 60,000? Because the hall only holds 3,000. So what do the folks do who want to see Hamilton? They pay a huge amount of money for a ticket, or they go see a different show.

So now apply this to Seattle. Why are only 40 people a day moving to Seattle? Why not 80, or 800? Because there aren’t places for them. There is no room — just like where Hamilton is playing.

But unlike the Hamilton show, we can build more units. So why aren’t we? Because it is extremely expensive to do so. It’s that simple.

So why is it so expensive to add units? One reason is regulation. Let’s say I rent out a house. I could double the number of units quite easily. This type of construction is actually pretty cheap. I could add a nice little bungalow out back. Again, this is pretty cheap. I retain the value of the current building, but simply add to it. Unfortunately, in most of the city, this is illegal. Regulation adds to the cost of construction, which limits the financial incentive to build new units. Without new units, there are fewer people moving to the city — they live elsewhere.

michael goldman

Thank you for your response.

But I have to ask, what is the housing deficit? 400 units a day? Can you say with any certainty? Because the Sightline infographic says with certainty. It says 8 units a day. Councilmember Johnson says 12 (!) units a day.

If you get a bunch of important people to agree with you and repeat that the deficit is actually around 400 units a day, maybe I’ll write an article about that. But like Donald Rumsfeld said, you go to war with the army you have, not the one you want.


What is the deficit with regards to Hamilton tickets? 100 tickets? 1000? 10,000? Who cares — if we bumped the number of seats, the prices would be lower.

The same is true here. If you allowed more housing to be built — guess what — more housing would be built. How much extra housing would be built? 4? 8? 400? Who knows?

Eventually you run across other limitations. Eventually the cost of actually building new units (lumber, labor, etc.) catches up with you. But we are obviously nowhere near that, or folks wouldn’t care about zoning. If it wasn’t highly likely that very cheap to build ADU and DADU units would be built if the city allowed them, then folks wouldn’t fight them so strongly. Why fight something that won’t happen? They would have simply allowed the HALA compromise to go through as the committee proposed.

But opponents of growth were right to be afraid. People would, if allowed, build a lot of ADU and DADUs, because they are cheap to build. The feared new tenants (and their cars) so the mayor — of course — capitulated and gave in to their demands.

It is absurd to think that more units wouldn’t be built if they allowed them, just as it is absurd to state that this wouldn’t put downward pressure on rents.

michael goldman

Actually, the links in the article say we are at that limit.


You are still obviously confused. Ignore these so called limits you are obsessing about and go back to the two points I mentioned:

1) If they any kind of development anywhere in the city, would you see an increase in units?

2) If so, would you see see lower rents?

michael goldman

I don’t think you are considering the evidence in the piece. I don’t necessarily disagree with your hypothetical. It’s just not what this is about.

You say, “Eventually you run across other limitations. Eventually the cost of actually building new units (lumber, labor, etc.) catches up with you. But we are obviously nowhere near that, or folks wouldn’t care about zoning.”

And I say, again, check out the Seattle Times article quoting builders saying just that.


If you don’t necessarily disagree (otherwise known as agreeing) with my hypothetical, then your entire argument falls apart. If you allow development of any kind anywhere in the city, then rents will fall.

As far as the article (and limitations) are concerned, those apply to the situation *right now*. That, of course, includes the zoning laws *right now*. Change the zoning laws, and more development occurs.

You are ignoring the obvious development that would occur if they liberalized the ADU rules. This is — by far — the cheapest type of construction. This is what would happen a lot if they allowed it. This is just one example of why rents would drop if they allowed more construction.

michael goldman

Ok. Thanks.


“There is no general shortage but there are specific shortages.”

Nice analysis, insight, and synthesis. Great article.

Bryan Kirschner

The impact of land use regulations on housing prices is so settled it’s not even funny….

– Gyourko and Molloy (2015) shows, the gap between real house prices and construction costs has grown over time, even if we exclude the period of rapid house price increases in the mid-2000s. Real house prices in 2010 to 2013 were 56 percent above real construction costs, a 23 percentage point increase over the average gap during the 1990s.
– Glaeser, Gyourko, and Saks (2005) found that while house prices have been rising since 1950, construction costs and quality improvements in housing stock drove this appreciation between roughly 1950 and 1970. The authors conclude that after around 1970, more stringent regulations played a much bigger role proportionally, implying that relaxing zoning constraints could bring house prices more in line with construction costs and reduce the economic rents accruing to landowners.
-In the Greater Boston area, Glaeser and Ward (2009) find that three forms of regulatory barriers related to wetlands, septic systems, and subdivision requirements, as well as cluster zoning have all increased dramatically since the mid- 1970s. In addition, Been et al. (2014) find that the growth of historic preservation designations in New York City neighborhoods have brought about house price appreciation both in these neighborhoods as well as in those surrounding it.
– Mayer and Somerville (2000) conclude that land use regulation and levels of new housing construction are inversely correlated, with the ability of housing supply to expand to meet greater demand being much lower in the most heavily regulated metro areas. Quigley and Raphael (2005) show that new construction is not as prevalent in areas characterized by growth restrictions. Glaeser and Ward (2009) found that an increase of one acre in a Greater Boston town’s average minimum lot size is associated with about 40 percent fewer new permits
– Ten years ago, the Department of Housing and Urban Development summarized the literature then available on regulatory barriers to affordable housing. Sundig and Swoboda (2004) found that housing regulations depressed housing market supply and increased prices by as much as $40,000. Similarly, Malpezzi (1996) concludes that home values in tight regulatory environments are more than 50 percent higher than in lax ones. Luger and Temkin (2000) find similar results in New Jersey, where excessive regulation can raise new home prices by up to 35 percent.

Summarized here: https://www.whitehouse.gov/sites/default/files/page/files/20151120_barriers_shared_growth_land_use_regulation_and_economic_rents.pdf

comment image

michael goldman

Like I said in the article, “Which isn’t to say that bad land use regulations don’t have bad social consequences, just that the regulations we have aren’t preventing the market from responding to new people with new housing. So, in this sense, the “just build” crowd have gotten what they want: no regulatory yokes on the market bull. And, yet, here we still are.”

This is for the people who say we’re not building enough units for the people who are moving here. Because it looks like we are. And if we are, we ought to think about how we are using our building capacity.

I don’t necessarily disagree with any of the links you provided. It’s just off topic.

Bryan Kirschner

“This is for the people who say we’re not building enough units for the people who are moving here. Because it looks like we are”

Not even close if we want significantly lower rent…
comment image

michael goldman

Again, this is about number of units built, not unit rent. I.e., “the housing shortage.”

In any case, you’re proposing a build it and they will come model. What builder wants to risk that? Why build for more people than are already moving to the city? That’s the first question. The second is, how. How do builders build more when they say they are running up against limits of skilled labor and construction equipment?


>> Why build for more people than are already moving to the city?

Again you have it completely backwards. The reason more people aren’t moving to the city is because there aren’t places to put them! It is the same reason that the Hamilton show doesn’t have a bigger audience. Build more seats and of course more people will attend. Eventually you have empty seats. Then they lower the price. It is still worth it, because more people paying a little less is. This is basic capitalism that any middle schooler can understand. Ask the kid who runs the lemonade stand.

The builders are running up against limits of skilled labor, construction equipment *and available property*. Imagine you have a two story building, and the city allows six stories. Do you build? Only if labor and construction equipment is really cheap. But what if you have a big lot with a small, broken down house on it? Building on that lot makes sense even when labor or construction equipment is fairly expensive. Unlike the two story building, the owner is making nothing from the property, so building is a lot more profitable. I can break this down even further if you want — but do I really have to? This is all pretty basic. It is just simple game theory. Use your imagination — think of someone who owns property of various types and imagine when it makes sense to build and when it makes sense not to.

Now remember that the second lot I mentioned does not allow construction of that type. You can mow the house down and put up a monster house (which is quite common) but you can’t put up row houses, or a small, cheap apartment. It doesn’t cost any more to put up three small houses instead of a huge million dollar house. The developer would make more money on the latter. But they don’t build the three houses, because it is illegal.

If you own a big house, you can’t even convert it to an apartment! Have you bothered to ask *those types* of developers whether such construction costs are too expensive? Of course not, because it is a moot point — it is illegal! You can’t do it. You can’t just convert a house into an apartment in most of the city. You are basically claiming it is too expensive to do something they don’t allow.

Another example: Apodments. Why are they now illegal? Because people were building them. But according to your logic, they are too expensive to build. The city banned something no developer wanted to build. Same with FAR limits. No reason to have those — developers don’t want to build things that big. I could go on, but it is just absurd.

michael goldman

I think, in a way, we are actually in agreement. I’m saying we don’t really have a general shortage because we are building as many housing units as households are moving here, minus the lag and credit crisis. But despite this, we are still not building enough of the right kind of housing, the housing that serves more people than what we are currently building. That’s the specific shortage. This is where getting regulations right, even deregulations like more mixed housing types in SFR zones or lower parking requirements, can help a lot. But it’s also where more intervention in the market, like land-value capture, rent stabilization, and a progressive income tax can really make a difference.

But the problem isn’t simply, we aren’t building enough units.

Bryan Kirschner

We may indeed agree in some ways then, about the nexus of regulation and “housing type shortage” as a subset of overall housing shortage. Seattle for example effectively bans apodments and three flats (illegal in SFZs, economically uncompetitive in LRZs) – those are types of units we’re extra short on, so to speak. But I’d say it not so much we need “intervention in the market” as we need “bad interventions in the market unwound” (ie anti-apodment rules and exclusionary zoning). The neighborhood I grew up in back east (75% or so 3 flats) wasn’t built because of “intervention in the market,” it was built because there was a big market of immigrants with some money but not enough for a single family house – which developers were happy to address prior to the creation of zoning that made it illegal to do so.


Hi Michael,

Thanks for the article. I’m curious, having been removed from the Seattle scene since my family moved around 2000, how well matched homes for rent production vs. homes to buy production is with market demands.

As a young-ish adult in San Francisco, it feels like most of the younger transplants like myself rent, largely out of necessity, whether due to lack of capital saved, the reduced lending you mentioned, or what I’ll call an actual housing shortage here (though I admit ignorance to what the newcomers renter/owner ratio looks like). People who are moving here are relatively more affluent than current residents (because only wealthy people can afford the move), and since renters are typically less affluent than home owners anyway, the new competition, with basically zero growth in supply, has caused significant displacement and lifted rents to infamous heights.

Surprisingly, the price-to-rent ratio both here and in Seattle is near the historic average http://www.economist.com/blogs/graphicdetail/2016/08/daily-chart-20
So, someone must be buying up property…I guess?

Do you think that the price-to-rent ratio remaining stable ensures that there has been adequate construction in both the rental and ownership markets? It’d be interesting to look at the breakdown of both markets separately to see whether there might be a shortage in the rental market, that, while jacking up rents, also leads to speculation that bubbles up to the ownership market.



I think the price-to-rent ratio is long term stable because if the ratio shifts, people buy vs rent decisions will shift accordingly – so the long term ratio is an equilibrium point. Basically, people are being rational on their rent vs buy decisions over the long term.

If rent costs spike, more people will buy, driving up housing costs; housing costs rise, more people will rent. In the short term, new arrivals & young people may prefer renting, but that effect should go away in the long term.

With a housing shortage, in the long term both prices and rent will rise in tandem – looking at the market in aggregate, I don’t think income matters for the price-to-rent ratio.

A. P. Walker

I found the evidence you use to be really weak. First, you admit the vacancy rate is dropping and is quite low now, which suggests a shortage. But even if the vacancy rate were stable, high rents in Seattle could be (and I would assume they are) causing overcrowding in low-income households, causing low- and middle-income people to move away (and be replaced by higher earners), and discouraging people from moving to Seattle who would otherwise do so. How is that not a “housing shortage” for all the people who want to live in Seattle but cannot afford it, or who are living in overcrowded conditions? Demand is exceeding supply. Is it only a “housing shortage” if there is a 0% vacancy rate and the homeless population is rising even faster?

Secondly, your focus on permitting timelines does not support your argument at all. A town that only allows gigantic mansions to be built on 5-acre plots could also handle development applications very quickly, but it would be absurd to say that it had no restrictive land use regulations. The real question is: what would be built if land use regulations were not a constraining factor?

Finally, on your overall point, I think that the vast majority of pro-housing advocates agree that you need to subsidize housing for those who can’t afford it. But if you don’t address the housing shortage itself, government subsidies will be stretched thinner and thinner as housing prices rise, and more and more people will need subsidies. Building housing lowers its market price, which allows the government to provide much more affordable housing.

michael goldman

Thanks for the detailed reply.

The low vacancy rate goes back a few years as construction was not able to keep up with new population. Again, this is likely due to the natural lag in construction and the credit crunch. For the last couple years, though, construction has caught up with growth and, builders are reporting that they are building at or near capacity presently. And that capacity is limited by the availability of skilled construction workers and equipment, per the Times articles linked in the article.

I agree that high rents create their own kinds of shortages, specific shortages, I call them in the article. But this is a response to how “housing shortage” is typically used (not how I wish it were used) — units not keeping up with population.

The permitting response time provided by the city is to give further evidence that land use restrictions were not the cause of the housing shortage (that is, deficit of number of units) during the Great Recession.

To your final paragraph, I ask, what shortage? Will builders build more housing units than new households? They only do that when they misjudge demand.

If we’re building at capacity, we need to make that capacity work for more people.


I wouldn’t say they are misjudging demand, just that some builders will tolerate a higher vacancy rate in their new units will still being profitable.

This construction boom will eventually turn into a construction bust. The bust will be bad for developers, constructions workers, and most home owners (as the upside value of their property goes away) – and will be better for everyone else, namely renters & new home buyers.


@disqus_SzelM7Arg6:disqus, I am totally with @apwalker:disqus here.

Land is “perfectly inelastic”, but “land available for redevelopment” is not as inelastic. At a higher price, more parking lots, or single family structures in multiple-family zoned area are willing to sell.

High rent is driven by insufficient supply.

The good side of high rent is that it also creates supply. High rents generates a higher NOI and make more apartment / housing projects financially feasible (incentive for more land for redevelopment). The supply will eventually stabilize rent.

But, supply only happens when the higher rents are high enough to overcome the high degree of land-use restrictions and “affordability performance fee (or affordability housing requirements)”.

Without “land use restriction” and “affordability housing requirements”, supply would have happened sooner (when rent rise was not as severe).

There is a segment of people needs housing subsidies, and it is fine and could be the right things to do in many cases. But if land-use restriction and subsidies causes the supply and demand not being balance, “more and more people will need subsidies.”

Bryan Kirschner

The armchair speculation here has already been actually analyzed empirically:

Over the past five years, rents in cities with the most-restrictive land use regulations grew almost three times as quickly as in cities with the least-restrictive regulations.
Controlling for changes in demand, more-regulated cities experienced a larger drop in inventory than less-regulated cities.
Tightly regulated cities with higher rents and lower inventory have more adults living with roommates


michael goldman

This isn’t about land use regulations relation to rent. It’s about land use regulations relation to number of units built, or lack thereof in Seattle. You commonly hear how we need to be building more units. Full stop. I’m saying that’s not quite the right message.


The title of this piece as well as the tone of it does not match what you’ve written in this reply to Bryan. “That’s not quite the right message” vs. we don’t have a housing shortage is completely different info for the average reader of The Urbanist.

michael goldman

The “housing shortage” language, commonly used, refers to the gap between people and housing units. That’s what this is about. That language is demonstrated in the infographic at the top of this piece and in a number of other articles and statements that define the shortage in these terms. “Not quite the right message” refers to the fact that the shortage is, in fact, specific, and not general. We need policies that address the specific shortages, where total number of units is not an adequate response.


Wouldn’t those cities that people don’t like (are moving away from) tend to represent a big portion of the cities that have lighter land use regulations (as an incentive to bring more people and jobs)?

That would skew this data. Meaning, for a portion of these cities, the housing in those places is cheap because no one wants to live there, not because of the permissive land use regulations.

Ian Michael Williams

That Zillow article is very misleading.

It starts with: “Over the past five years, rents in cities with the most-restrictive land use regulations grew almost three times as quickly as in cities with the least-restrictive regulations.” This is a correlation statement: cities that a highly regulated happen to be be the cities that also are growing rapidly. The Zillow article shows no data to display any causal links between any those factors, or any of the other ones it discusses, though it implies causal links in it’s presentation and language throughout the article. Highly misleading.

Mike Carr

Ok, so we need to mandate more people per housing unit. That will help. Rent growth is pretty flat, so rent remains high. New housing units are coming on at market rates and are higher than existing units (older units). Seattle is growing it’s housing market at higher rental rates, but currently the rate of rental increase maybe slowing. How much new housing is needed to make rental rates come down? 10% more, 20%,???. Can’t just say more housing will decrease prices. There is too much demand for housing close to downtown. Demand is far greater than current and near term supply. No one can accurately forecast demand for the next 5-10, 20 years. There are enough people who will pay the current rates for housing with more coming. It’s the same argument as traffic. The more roads you have for cars, the more cars you have on the road. You can’t build your way out of this, the price of land and construction costs are too high to price the units at below market rates. Developers are creating more and more high priced housing. Avg rentals rates continue to move up.


Really it’s more people per acre. It doesn’t matter as much if a lot builds 10 1br units or 5 2 br units if the total number of people is the same. Hence, urbanists advocating for density.
(Also, allow for micro apartments. Current zoning puts a price floor on 1 person units)

As for “how much,” the rule of thumb I’ve heard is a healthy market should have a vacancy rate between 5~10%. So construction needs to outpace population growth to boost the vacancy rate by ~2 percentage points.

Amy Taylor

Those regulations you think don’t matter are driving up land prices which drive up rent. Sure, construction costs are up, but the majority of the rise in rent and real estate is because of the rising cost of land which is driven up by restrictive zoning.

michael goldman

My contention is that regulations do not appear to have prevented the supply of new housing units to meet demand. I agree that rents are rising primarily due to land (and also the quality of construction — more high-end housing) but think this is because of increased demand (average income * population) instead of regulations. I’m all for rezones that create more development capacity, especially capacity for more modest housing, but just think it’s too small a piece of the housing affordability puzzle to solely focus on. We should be looking at demand-side solutions too.


What “demand-side solutions”? Less jobs? Can whatever you do be the first one to go?

michael goldman

Income tax is one way to do that. So is rent stabilization (by putting an effective ceiling on demand).


How does income tax and rent stabilization but a celiing on demand? My job will still be here whether or not my income is taxed and whether or not my neighbor’s rent increases at 1% or 10%.

Again, if you’re talking about restricting jobs, lets start with yours.

michael goldman

Again, not talking about jobs. Rent is largely determined by income or, rather, after-tax income. An income tax could reduce high-end income that’s been driving rent increases and at the same time, plug that tax money back into construction of affordable housing. Check out this piece I wrote about the demand component in a survey of rents in San Francisco: https://www.theurbanist.org/2016/05/27/rents-in-san-francisco-are-determined-by-demand-new-data-show/


Any tax would have a knock on effect towards jobs – But yes, the primary driver of housing consumption is income level, and an income tax would address that.

I object to an income tax for a number of other reasons, but looking at it strictly from a housing policy perspective, yes I think this would be an effective policy solution.

Bryan Kirschner

No, rent is determined by the pricing power of landlords.

If they have no pricing power, rents will be low.

If a city has 100,000 available available but only 10,000 people who want to live there a year, rents will be very cheap indeed even if every one of those inhabitants makes a million dollars a year.

michael goldman

The pricing power of landlords is determined by demand in a growing city. Cost plays a larger role in shrinking cities like the one you cite. But Seattle is the former.

Bryan Kirschner

Demand and supply are the equation. If you can make a pricing model without both you have a shot at Nobel prize.


Seriously Zach, if you can’t be civil we’re going to ban you.

Howard Metzenberg

Owen, I would like to see what Zach has to say that you deleted. Zach is correct. Michael’s proposals about “demand side” solutions to this problem are vague, and fail to understand that managing market demand through rent stabilization (in other words, rent control) or an income tax are both impossible to achieve in Seattle’s case and would have many unintended consequences.

Investors supply new Seattle housing because Washington State law overrides local option on rent control, making Seattle a safe market for investing. Kill the goose and it stops laying golden eggs.

It’s unfortunate that Washington politics make it so difficult to enact more progressive taxation, and the state suffers from lost opportunities as a consequence. The other obvious lost revenue source is the gas tax.

But a state income tax would also have unintended consequences, driving businesses to invest elsewhere and skilled workers to relocate elsewhere. Seattle’s rapid urbanization and growth came about because the city is a favorable place for tech investment.

Amy Taylor

Be nice Zach. I think he is making an interesting point, that he knew would be picked apart in the comments. But I don’t think rezoning is too small a piece of the puzzle to focus on. It is the greatest opportunity we have to increase housing supply while stabilizing rents. Close to 75% of Seattle’s land where housing is allowed (i.e. subtracting Industrial zones), is zoned single family. That is CRAZY for a big city. We could triple the amount of housing capacity in single family zones by allowing triplexes, and the character of these historically single family neighborhoods wouldn’t change very much. That is not insignificant.


Michael – I think you are correct if you only look at it from a # of units perspective. Amy (and I) would counter that you are missing the price aspect of it. If there was less restrictive zoning, we’d see same (or more?) # of units, but the units would be cheaper. Less giant condo towers in First Hill and more duplexes, triplexes, wood-frame apartments, etc. The zoning drives up 1) land prices, and 2) construction costs b/c higher land values means only big expensive projects pencil out.

Thought experiment – If Seattle says you can only build housings in Ballard and freezes it everywhere else – but you are build infinite amount of houses in Ballard. Ballard land suddenly becomes super expensive because that’s where all the excess zoning is. The market will add units, but only in the form of sixty story towers in Ballard, which will be pricey. Meanwhile, the rest of Seattle gets more and more expensive because still want to live in places other than Ballard.

The zoning concentrates where the housing growth is. There are clear urban policy benefits to this, but if the zoning concentrates the growth too tightly, prices will rise rapidly. The “just build” crowd wants two solutions – allow for more density in the existing growth centers (generally increases to FAR & height limits), and allow for some growth in the non-growth areas (generally things like duplexes, rowhouses, ADUs, etc.).


A significant amount of new housing construction are 1 Brs, Studios, and micro units, so those 12 units can’t all fit 2 person households.

But basically, the figures don’t “make sense” because they are estimates, have sampling errors, and come from different sources that use different sampling methodologies. Trying to tie them out with algebra ignores all of that.

Yes, net households construction is now on par with household formation – and hey, rent growth is pretty flat this summer. But that means we need to maintain the current pace of construction, which by any definition is a “boom.” Supply is able to response to demand because there exists neighborhoods with excess zoning capacity, especially in First Hill & SLU. When those neighborhoods are built out, how then will supply response? There’s some zoning slack in the RV, but not of the same magnitude. This is why upzoning the *next* neighborhood is important – U District needs to be upzoned not to meet 2017 housing demand, but to meet 2021 demand.

michael goldman

If you have permit data for number of bedrooms produced, I’d thank you for sharing it. There are also a not insignificant portion of new housing that are 2, 3 and 4 bedroom townhouses.

I recognize that there are sampling errors in the data. But not so much that when you expand the survey back to 2005 that you get a deficit that actually matches the vacancy rate change over the same period. That’s why I reproduced the data — to show that it does make sense with the longer time frame.

I also agree that the current pace of construction is on par with new population. That’s great. We should keep doing what we’ve been doing to make that possible. But really, it’s the market that has created the current pace, by responding to demand less normal lag in construction and less the credit crunch in 2008-2012.

But along with this current pace of construction, we need to make the market work for more people. That will be the topic of a future article.


No I don’t sorry. And I still really liked the 3rd chart. I think I just didn’t like the way you framed the initial discrepancy.

As for the construction lag due to the recession – yes, indeed that is the critical piece. Because there was that gap in construction 2010-2011, the current pace of construction is behind where it needs to be – i.e. the housing shortage. The vacancy rate shifting from 6% to 4% – driven by construction gap paired with population growth – is what is meant by a “housing shortage.” A healthy housing market has a vacancy rates between 5-10%; dropping below 5% is what allows for rapid rise in rents. (if we have a 4% vacancy rate but not rise in rent, then sure there would not be a housing shortage).

So I think you correctly show that supply has responded to demand, but I don’t think that indicates that the housing shortage doesn’t exist – it just means the market is responding to the housing shortage. For the market to “overcome” the housing shortage – boosting the vacancy rate above 5% – rather than simply keep pace with demand requires policy support from the city.

Additionally, I would argue that the market is responding *in spite of* restrictive land use regulation, i.e. the shortage is so extreme, and therefore rents are rising so fast, that developers are willing to build. Further, growth is occurring where there are upzones, so you have to take into accounting recent zoning changes that took place that are enabling the spike in construction 2011-2015, such as the 2013 SLU upzone.

“Making the market work for more people” is, indeed, a separate issue. Looking forward to the next article.


Putting aside my sniping at your statistics (hope it didn’t come across as too harsh) – what do you say about excess zoning capacity? The market can only response insofar as there is zoned capacity for new housing. The “restrictive land use regulations” may not be capping development now, but they certainly will once the existing capacity is consumed, no?

michael goldman

Right. They do not appear to be suppressing development (in terms of units built, which is the contention I am responding to) but would if the existing capacity is consumed. When that happens is a matter of debate but it’s generally thought to be in the 20-year range for Seattle, which is the base requirement from the Growth Management Act.


Hmm, OK. So you would be looking at housing policy from the perspective that Seattle already has the needed zoning capacity for the medium term (~20 years)?