Zillow study finds more evidence that regulation drives rents

Sarah Mikhitnarian, an economic analyst at real estate listings company Zillow, published an analysis the other day comparing regulation on new construction to rent changes using the Wharton Residential Land Use Regulation Index and Zillow’s own data on rentals and home prices.

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She found that rents grew three times as fast in restrictively-regulated cities over the last five years. Those same highly regulated cities experienced a drop in homes for sale and apartments to rent. She also found that the more regulated cities had more adults per household than in other cities.

“On average,” she wrote, “rents in the nation’s least restrictive cities rose 6.1 percent over the past five years, while rents in the most restrictive cities rose 16.7 percent.”

Boston, marked as a “more restrictive” city, had an increase in rents of around 40 percent since 2011 while San Francisco saw an increase of 42.4 percent while being a “most restrictive” city. Mikhitnarian controlled for demand — most restrictive cities like Seattle and Washington, DC have been very active in keeping up with demand, far outpacing Boston, San Francisco and New York in building new housing.

The chart also doesn’t control for population. Schenectady and Ann Arbor really can’t be compared to San Francisco or San Antonio.

Restrictive regulation was also associated with “Friends”-style living, as The Boston Globe has called it.

“Because in the end – as housing costs rise, new housing construction lags and housing options vanish – residents of these areas may realistically not have many other choices,” Mikhitnarian wrote.

This is a growing regulatory issue. In Boston, people like Northeastern University’s Barry Bluestone, have advocated the construction of “Millenial villages”, which would be denser and more transit-oriented than more conventional developments to free up tripple deckers for family housing and need regulatory relief. But more importantly, many cities, including Boston, have ordinances that restrict the number of unrelated people who can live together, essentially in order to legally harrass students. Since it’s not just students living together, cities and towns will need to change these laws in order to accommodate older people who want a place to live.

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