Up-Zoned: Economists Weigh In

Map: 1924 Cambridge Zoning Ordinance Map (Cambridge Historical Commission)

Here we address the findings of recent Economists on the questions regarding both upzoning and the removal of perceived  barriers to housing development, such as restrictive zoning regulations and other factors. 
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One of the most heated debates in housing policy and pricing revolves around the issue of removing zoning restraints to make it easier for developers to build more quickly without impediments from neighbors and housing preservation advocates. This is one of the central tenets of the debates in Cambridge. On the one side we have advocates like Abundant Housing and A Better Cambridge, and housing experts and/or economists they turn to. On the other hand, we have groups such as the Cambridge Citizens Coalition who have found ready allies in on-the-ground studies by other economists and planners such as Cameron Murray, the Chief Economist at Fresh Economic Thinking or Patrick Condon, the Massachusetts native, a Vancouver transplant urban planner and activist.  Social media is ripe with related counter approaches, sometimes framed as NIMBY-YIMBY that provide neither facts nor insight.
 
In the Cambridge Massachusetts debates about upzoning, affiliates of the political group A Better Cambridge were in contact with Harvard Professor of the Practice in the Economics Department, Jason Furman who in turn wrote a November 9, 2024 Opinion Piece in the Boston Globe, just as the Cambridge City Council final decision was moving toward completion. The article is titled “How Cambridge can increase its housing supply. The Cambridge City Council is advancing a plan that would reduce, simplify, and streamline restrictions”
 
The core premise of the article is that Cambridge was not going to be able to meet its 2030 housing goals of 1,050 new units without some kind of major “reboot” in the form of a plan to “reduce, simplify and streamline…restrictions” and allow taller, larger structures on each property. This proposal was advanced by Furman as a “compromise between Cambridge’s 19th-century character and 21st-century housing needs.” We know now that the estimated new Cambridge housing goals of 1,050 new units are already being met in Cambridge by a combination of both the wide array of new affordable housing units and the new housing coming on board in Alewife. While the core premise of the Furman argument is misplaced, let us look further at the argument itself.

Real Estate Developers and Development Discussions

Jason Furman cites as support for his position, a 2023 NYU Law and Economics Research Paper authored by three NYU Professors, attorney Vicki Been, Director of NYU’s Furman Center for Real Estate and Public Policy, well as Urban Planner Ingrid Gould Ellen and attorney Kathryn O’Regan, both at the Robert F. Wagner Graduate School of Public Service. Jason Furman’s father, Jay Furman, was a real estate and shopping mall developer, who also was a Founding Board Member and Endower of the Furman Center for Real Estate and Urban Policy at NYU and for whom the center is named. In short, Jason Furman grew up in and likely benefited financially from the world of real estate investment and development.
 
The research paper Jason Furman cites from this group in his Boston Globe Opinion, revisits the issue “Supply Skepticism.” The abstract reads in part “Although “supply skeptics” claim that new housing supply does not slow growth in rents…” the authors show that a) housing supply increases do slow regional rent growth; b) in some cases this lowers rents or rent growth in the surrounding area; c) new construction sparks a move to “free up apartments” across incomes; d) although new supply does advance gentrification, this does not significantly displace lower income residents, and; e) easing restricts on land use that remove constraints on development leads to more new homes over time, “but only a fraction of the new capacity created because many other factors constrain the pace of new development.”
 
In essence the authors of this work, like Furman himself, argue while the larger area may benefit from increased housing supply (the targeted area may not). Only sometimes will rents or rent growth be lowered in the process. Building new apartments frees up others.  The gentrification resulting from this change may not impact lower income tenants primarily. And finally, the removal of development constraints does very little to help the housing situation because of other factors in play.
Furman notes accordingly that : “Even building more expensive units can have benefits for affordability that spread throughout the city and beyond. People in booming local industries like finance, tech, and pharma will still want to move to Cambridge. If the city doesn’t increase the number of housing units, would-be residents will outbid moderate-income locals for existing properties and upgrade them, increasing costs in the neighboring areas and leading to more gentrifying displacement.” What he is missing is that lower income and higher income potential buyers alike are being out bid here increasingly by investment firms, including international monies, that strip away any potential benefits. And the recently passed citywide luxury housing upzoning has only made things worse, as we have reported in a recent blogpost HERE

A 2023 Journal of Urban Economics study by economist Evan Mast, is one of the sources cited by Furman. This article addresses the potential mobility benefits in building new housing, specifically that: “Constructing a new market-rate building that houses 100 people ultimately leads 45 to 70 people to move out of below-median income neighborhoods.” While Furnam identifies the work as “a study of 12 major cities” in his link to it, the study actually analyzes 52,000 urban residents living in 686 new market-rate multi-family buildings who move within their city, with the larger premise that “… in the long run, new housing can depreciate and gradually become affordable” He follows the movement for some six rounds of transition from one multi-family home to another. This is a very different scenario than in Cambridge, where many of our renters are students here for only a few years and where owners and longtime residents tend to stay for a longer period in their homes. Moreover, there is no incentive in the current Cambridge upzoning to construct apartment buildings as opposed to luxury condos or one- and two-family homes.  One of the authors cited in this study is urban planner Yonah Freeman who has found the impacts of upzoning, decidedly mixed in a 2023 article in the Journal of Planning Literature: HERE  Moreover here in Cambridge, historic homes are not like cars that depreciate every two years in value. Adding more high-end homes in lower income areas only increases the housing costs for those who live there do to increased property values and taxes.

As this upzoning and deregulating decision is playing out across Cambridge and other cities, we are seeing the results at close hand, with much higher housing costs in high demand cities like Vancouver, Ottawa and Cambridge, MA, mixed results in Chicago, and some decreases in Austin, Texas where high rises are allowed closer to residential areas. In NYC city we are seeing increased gentrification and the decline of minorities among other lower income residents. Stated another way, the neo-liberal supply/demand, trickle down theories of housing, work no better than these same concerns in the political and economic arena more generally. Furman concludes his article with the following: “The economics are clear: When supply increases prices go down.”

In Cambridge, what we are seeing is that increasingly we are losing housing supply, NOT adding to the housing supply with our recent upzoning. This is happening because as wealthier individuals and investment firms purchase smaller one-family, or various two-family and three-family homes to expand into much large one-two-and three-family residences. The Citywide luxury housing upzoning has only poured fuel on the fire, and these developers can now build out to within a few feet of the property line without restrictions, design review, or other impediments.                    

WHAT OTHER ECONOMISTS HAVE TO SAY

In March 2025 an important study was published by three economists in the National Bureau of Economic Research.  The title of their study is "Supply Constraints do not Explain Price and Quantity Growth Across U. S. Cities." The lead author, Johannes Wieland is Associate Professor of Economics and holder of the Distinguished Endowed Chair in Macroeconomics and Public Finance at the University of California, San Diego. In 2024-25 he has been a visiting the Federal Reserve Bank of San Francisco as Senior Research Advisor. The second author is John Mondragon an Economist at the Federal Reserve Bank of San Francisco. The third author, Schuyler Louis, is a Ph.D. student in the Economics department of UC Irvine. 
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The findings of this important study indicate that that constrained housing supply is relatively unimportant in explaining differences in rising house prices among U.S. cities. These results challenge the prevailing view of local housing and labor markets and suggest that easing housing supply constraints may not yield the anticipated improvements in housing affordability." What does matter? Income level Increases among other things.

The authors state that "…using four standard measures of housing supply constraints from the literature, we find that cities measured to have more restrictive housing supply show the same growth in house prices, quantities, population and rooms per person in response to higher income growth from 2000–2020 as cities that seem less constrained. This is true across all the measures of housing constraints, if we extend our sample to cover 1980 to 2020, and if we instrument for housing demand using the plausibly exogenous increase in housing demand from pandemic-era remote work.”
Furthermore, they observe that “Interpreting our empirical approach through a demand-and-supply framework where we allow for arbitrary correlations of income growth with other shocks, we show that our results imply that housing supply constraints are quantitatively unimportant in explaining rising housing costs across U.S. cities. In the simplest case, when income growth is uncorrelated with other housing demand and supply shocks, then the same income growth will translate into more house price growth and less house quantity growth in less elastic cities."  In short, removing zoning constraints (allowing developers to build higher and larger, as of right, and without design oversight) will NOT bring the housing prices down.” 
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In short, according to their set of metrics framed in macro-economic terms, places with high paying jobs, like Cambridge and Boston, causes housing prices to go up. Stated another way, it is income growth itself that causes housing prices to go up, and even if more units are built, the housing costs will change by statistically indistinguishable amounts regardless of how housing-constrained (meaning zoning-constrained) the setting is. Or to note more specifically, even though places like New York City and Vancouver build a lot more housing (even 10,000 units), this wouldn’t really affect the existing housing market since there are enough high-income earners to afford them. Basically, what is clear is that one should not undo zoning restrictions with an aim of building enough houses in desirable cities like Cambridge if one wants to stabilize housing prices or drive them down. Cambridge is one of those high demand, highly desirable centers where we can never build enough homes to satisfy the need. Removing zoning constraints is making the situation worse.
 
Conceivably, the likely federal impacts on the local economy in terms of job displacement and economic losses, along with increased tariffs on critical goods such steel, aluminum, lumber and parts will slow the new housing market enough to stabilize the demolition of current housing to create new larger luxury housing, but only time will tell.Jason Furman cites as support for his position, a 2023 NYU Law and Economics Research Paper authored by three NYU Professors, attorney Vicki Been, Director of NYU’s Furman Center for Real Estate and Public Policy, well as Urban Planner Ingrid Gould Ellen and attorney Kathryn O’Regan, both at the Robert F. Wagner Graduate School of Public Service. Jason Furman’s father, Jay Furman, was a real estate and shopping mall developer, who also was a Founding Board Member and Endower of the Furman Center for Real Estate and Urban Policy at NYU and for whom the center is named. In short, Jason Furman grew up in and likely benefited financially from the world of real estate investment and development.

SUPPLY SKEPTICISM 

 The research paper Jason Furman cites from this group in his Boston Globe Opinion, revisits the issue “Supply Skepticism.” The abstract reads in part “Although “supply skeptics” claim that new housing supply does not slow growth in rents…” the authors show that a) housing supply increases slow regional rent growth; b) in some cases this lowers rents or rent growth in the surrounding area; c)new construction sparks a move to “free up apartments” across incomes; d) although new supply does advance gentrification, this does not significantly displace lower income residents, and; e) easing restricts on land use that remove constraints on development leads to more new homes over time, “but only a fraction of the new capacity created because many other factors constrain the pace of new development.”
 
In essence the authors of this work, like Furman himself, argue while the larger area may benefit from increased housing supply (the targeted area may not). Only sometimes will rents or rent growth be lowered in the process. Building new apartments frees up others.  The gentrification resulting from this change may not impact lower income tenants primarily. And finally, the removal of development constraints does very little to help the housing situation because of other factors in play.
Furman notes accordingly that : “Even building more expensive units can have benefits for affordability that spread throughout the city and beyond. People in booming local industries like finance, tech, and pharma will still want to move to Cambridge. If the city doesn’t increase the number of housing units, would-be residents will outbid moderate-income locals for existing properties and upgrade them, increasing costs in the neighboring areas and leading to more gentrifying displacement.” What he is missing is that lower income and higher income potential buyers alike are being out bid here increasingly by investment firms, including international monies, that strip away any potential benefits. And the recently passed citywide luxury housing upzoning has only made things worse, as we have reported in a recent blogpost HERE

MOBILITY: ANOTHER ECONOMIST IN PLAY

A 2023 Journal of Urban Economics study by economist Evan Mast, is one of the sources cited by Furman. This article addresses the potential mobility benefits in building new housing, specifically that: “Constructing a new market-rate building that houses 100 people ultimately leads 45 to 70 people to move out of below-median income neighborhoods.” While Furnam identifies the work as “a study of 12 major cities” in his link to it, the study actually analyzes 52,000 urban residents living in 686 new market-rate multi-family buildings who move within their city, with the larger premise that “… in the long run, new housing can depreciate and gradually become affordable” He follows the movement for some six rounds of transition from one multi-family home to another. This is a very different scenario than in Cambridge, where many of our renters are students here for only a few years and where owners and longtime residents tend to stay for a longer period in their homes. Moreover, there is no incentive in the current Cambridge upzoning to construct apartment buildings as opposed to luxury condos or one- and two-family homes.  One of the authors cited in this study is urban planner Yonah Freeman who has found the impacts of upzoning, decidedly mixed in a 2023 article in the Journal of Planning Literature: HERE  

 Moreover here in Cambridge, historic homes are not like cars that depreciate every two years in value. Adding more high-end homes in lower income areas only increases the housing costs for those who live there do to increased property values and taxes. As this upzoning and deregulating decision is playing out across Cambridge and other cities, we are seeing the results at close hand, with much higher housing costs in high demand cities like Vancouver, Ottawa and Cambridge, MA, mixed results in Chicago, and some decreases in Austin, Texas where high rises are allowed closer to residential areas. In NYC city we are seeing increased gentrification and the decline of minorities among other lower income residents. Stated another way, the neo-liberal supply/demand, trickle down theories of housing, work no better than these same concerns in the political and economic arena more generally. Furman concludes his article with the following: “The economics are clear: When supply increases prices go down.”
​
 What we are seeing in our city is that increasingly we are losing housing supply, NOT adding to the housing supply with our recent upzoning. This is happening because as wealthier individuals and investment firms purchase smaller one-family, or various two-family and three-family homes to expand into much large one-two-and three-family residences. The Citywide luxury housing upzoning has only poured fuel on the fire, and these developers can now build out to within a few feet of the property line without restrictions, design review, or other impediments.

"IT IS NOT THE ZONING" OTHER ECONOMISTS INSIST

In March 2025 an important study was published by three economists in the National Bureau of Economic Research. The title of their study is "Supply Constraints do not Explain Price and Quantity Growth Across U. S. Cities." The lead author, Johannes Wieland is Associate Professor of Economics and holder of the Distinguished Endowed Chair in Macroeconomics and Public Finance at the University of California, San Diego. In 2024-25 he has been a visiting the Federal Reserve Bank of San Francisco as Senior Research Advisor. The second author is John Mondragon an Economist at the Federal Reserve Bank of San Francisco. The third author, Schuyler Louis, is a Ph.D. student in the Economics Department of the University of California at Irvine. 

The findings of this important study indicate that constrained housing supply is relatively unimportant in explaining differences in rising house prices among U.S. cities. "These results challenge the prevailing view of local housing and labor markets and suggest that easing housing supply constraints may not yield the anticipated improvements in housing affordability.: What does matter? Income level increases among other things. 

The authors state that "...using four standard measures of housing supply constraints from the literature, we find that cities measured to have more restrictive housing supply show the same growth in house prices, quantities, population and rooms per person in response to higher income growth from 2000-2020 as cities that seem less constrained. This is true across all the measures of housing constraints, if we extend our sample to cover 1980 to 2020, and if we instrument for housing demand using the plausibly exogenous increase in housing demand from pandemic-era remote work."

Furthermore, they observe that "Interpreting our empirical approach through a demand-and-supply framework where we allow for arbitrary correlations of income growth with other shocks, we show that our results imply that housing supply constraints are quantitatively unimportant in explaining rising housing costs across U.S. cities. In the simplest case, when income growth is uncorrelated with other housing demand and supply shocks, then the same income growth will translate into more house price growth and less house quantity growth in less elastic cities." In short, removing zoning constraints (allowing developers to build higher and larger, as of right, and without design oversight) will NOT bring the housing prices down."  And, this may encourage housing cost increases as larger and more expensive homes are constructed. 

CONCLUSIONS

In conclusion, economists have come at the issue of zoning and housing from a variety of vantage points. Jason Furman weighs in via the potential broader area impacts of adding more housing, but without much data on the actual success of this solution in bring down existing home prices or rents. The group he cites at the Furman Center for Real Estate and Public Policy, point out that such efforts slow housing price increases,  but also come with concerns about gentrification and do not necessarily bring rents down. Another Economist cited by Furman, focuses only on occupants of multi-family housing (apartments largely) who move from one unit to another. In this case, when new apartment units are built, some residents move to these newer units, leaving behind others for lower income residents. Finally we addressed the recent study of three economists who write that there is no evidence that zoning and related constraints on building, bring up housing prices, or that lowering those constraints results in housing prices coming down. The biggest factor in increasing home prices are increasing incomes. High incomes bring higher cost homes.

Extrapolating from their data, in places with high paying jobs, like Cambridge and Boston, housing prices will rise with the influx of individuals receiving salaries than those already here.. Stated another way, it is income growth itself that causes housing prices to go up. And, even if more units are built, the housing cost changes will be statistically indistinguishable regardless of how housing-constrained (meaning zoning-constrained) the setting is. In short, even though places like New York City and Vancouver build a lot more housing (even 10,000 units), this wouldn’t  affect the existing housing market since there are enough high-income earners to afford them. Basically, removing zoning restrictions solely with an aim of building enough houses to lower costs in high demand, highly desirable cities like Cambridge will not  stabilize housing prices or drive them down. One can never build enough homes to satisfy the need. The recent decision by Cambridge City Council to upzone the city and remove key  zoning constraints is making the situation of high housing costs even worse.