Auckland, New Zealand: Zoning Reform Slashes Rents by Up to 35%
Why it matters
Housing costs have reached crisis levels in many cities worldwide. Economists often blame restrictive zoning, but there's been little real-world evidence that reforming zoning can actually improve affordability - until now.
A 2023 study (Can Zoning Reform Reduce Housing Costs? Evidence from Rents in Auckland by Ryan Greenaway-McGrevy) shows that large-scale upzoning in Auckland, New Zealand significantly reduced rents, especially for larger homes. The findings offer hope that allowing more density can be an effective policy tool to combat the housing affordability crisis.
By the numbers
The study examined the impact of Auckland's 2016 upzoning using a synthetic control method:
Rents for 3BR homes in 2022 were 22-35% lower than they would have been without the reforms, depending on model specifications
For 2BR homes, rents were 14-22% lower
The decreases were statistically significant at the 5% level for 3BR and sometimes 10% level for 2BR
Rents would have been 28-54% higher for 3BR and 16-28% higher for 2BR in 2022 without the reforms
How it works
In 2016, Auckland upzoned about 75% of its residential land as part of its Unitary Plan, relaxing density restrictions like maximum floor area ratios. This led to a boom in housing construction, concentrated in the upzoned areas.
To isolate the policy impact, the researchers compared actual rents in Auckland to a "synthetic Auckland" - a weighted average of urban areas unaffected by the reforms selected to match Auckland's pre-reform housing market trends closely. The growing gap between actual and synthetic rents after 2016 represents the policy effect.
Yes, but
Some questions remain about how much upzoning can help in the face of other market shifts. Auckland lost about 1% of its population between 2020 and 22, possibly due to COVID-19. Other NZ cities also saw declines.
However, the decreases look robust to statistical checks. Ending the data in 2020 or controlling for population loss doesn't change the core results. Other cities like Dunedin still saw rent spike over 50% despite losing even more population than Auckland.
What's next
As cities worldwide grapple with increasingly unaffordable housing, Auckland's unusually large-scale upzoning offers a potential model for reform. However, local regulatory and market factors mean results could vary in other contexts.
Still, for many Auckland renters, the policy appears to have dramatically slashed housing costs relative to the counterfactual. Time will tell if more cities take note of this evidence (probably not considering how city governments are) and follow suit with their own zoning reforms. However, advocates now have a powerful data point to support their case that allowing more density can meaningfully improve affordability.