Does Density Lower Housing Prices?

No, and That's Not What Housing Advocates Claim

A few days ago, I was on a run on the Burke, minding my own business and listening to KUOW. Soon the conversation got my blood boiling.

During a discussion about Harrel’s 20 year plan to make housing in Seattle more expensive, a guest, John Carlson, kept dropping little gems like “Seattle has been densifying for 30 years… so do we have a more affordable city to live in?”

Carlson, it turns out, is a former Republican candidate for governor, and current conservative talk radio show host. A point worth pondering—the views he expressed on the show significantly align with much of Seattle’s leadership at the moment. 

Regarding density and housing, the other guests did a good job of pushing back. But I thought his straw man argument is worth addressing, if only because I also encountered not-so-smug versions of it on the campaign trail.

First, for those who don’t know–the straw man fallacy is a logical error people make when they attack an argument you didn’t make, instead of your actual argument.

In this case, the straw man is a made-up claim that housing advocates don’t make—namely that density creates affordability.

In other words, housing advocates don’t say density creates affordability.

The closest this straw man comes to reality is in the area of construction costs. Some housing advocates will point out that construction costs per unit are lower at higher densities, because you get to split the cost of land up across more units. 

But I’ve never seen a housing economist or serious political advocate claim that any amount of density per se lowers prices. 

It’s literally just made up.

What they do claim, however, with substantial peer-reviewed empirical evidence, is that adequate housing supply keeps prices in line. Or it’s inverse—that housing scarcity raises prices.

They offer specific claims associated with this–such as that comparing housing production trends against population growth, job creation, household formation, or migration gives a pretty predictive picture of where prices will go in relation to income. When housing production is higher relative to these, prices go down or stay flatter. When production is lower, prices increase. 

They also make claims at the neighborhood level–when there is a sudden supply increase, the new units lower local rents relative to comparable properties outside the neighborhood. There is also emerging evidence that new units create a substantial cascade of moves from older housing, providing pricing pressure relief in older, more down-market units as well.

Interestingly, if there is research about a causal effect of density, it tends to push in the other direction. For instance, there are analyses of whether density attracts new amenities like restaurants, which then increases local demand for housing (people want to move to cool places), pushing up prices. There does indeed appear to be such an “amenity” effect, but it also appears to be swamped by the downward pressure from supply effects.

There is a whole body of peer reviewed literature on this topic, and I know of none that claims that density itself lowers prices. 

Density ≢ Adequate Supply

Most importantly, density and adequate housing supply are not the same thing. 

Sure, one possible consequence of adequate housing supply is density, but it is only a possible consequence. 

Another possible consequence of adequate housing density is sprawl. Here, supply increases are driven by building out over large and increasingly sparse land areas, reducing average density in the process. That’s inadvisable for a host of reasons, but it does keep housing prices relatively in check (transportation costs and climate impacts, not so much!).

In any case, housing economists are quite clear that density per se is not a primary cause of higher or lower housing prices per se–density is much better understood as an effect of demand. 

In fact, this is why higher density places tend to be more expensive. Where there is high demand, there is upward pricing pressure, because it is hard to keep up with high demand in hot places. 

In other words, price and density are often both consequences of high demand. 

Post Hoc Ergo Propter Hoc

Carlson’s quip also commits another logical error–the post-hoc, ergo propter hoc fallacy. This is a form of confusing correlation with causation. His “argument” seems to be something like “Aw shucks, we got denser and more expensive. So density either makes things more expensive or sure doesn’t help.” 

This is a bit like claiming Covid-19 vaccines don’t work since we have more Covid-19 now that we did in 2018. 

Jed Bartlett does a nice job explaining this fallacy here.

CJ’s comeback at the end makes me especially happy.

The way it works for cities–you can have a lot of density and still fall far short of demand (see, San Francisco), which means high prices relative to income. Or you can have high density and effectively keep up with demand (Tokyo), which means lower prices relative to income. 

You can have low density and fall short of meeting demand (Palo Alto), which makes housing expensive, or do a decent job of meeting demand in low density places (Ft Worth), which means lower prices. 

So if you want housing prices to be reasonable relative to income, and it turns out you oppose sprawl and its deleterious effects, the only path to adequate housing supply will involve adding more housing inside your anti-sprawl boundaries (called “infill”). A side effect of that will be some sort of increase in density. 

But the density itself does not cause a higher or lower price. The key question is whether housing growth keeps up with household demand.

And while rules regulating density are likely to affect whether housing growth keeps up (especially in places like Seattle), it is not the density itself that drives the price.

Now, many people, like me, appreciate density for other reasons. We like living close to a lot of amenities, we prefer not to mow down forests and heat up the earth with unnecessary carbon emissions, we get tired of sitting behind the wheel, and we want frequent, fast, reliable transit to be viable. Density makes the life we want to lead easier–and many people agree (that’s part of why demand is high for the places we live!). 

But we don’t say silly things like “if a ton of people lived in tall buildings on this street, housing would be cheaper.” 

We say things like, “if there were as many houses as there are people that really want to live here, housing would be more affordable.”