NEPPC report: Relaxing density restrictions is most effective way to increase multifamily housing NEPPC report: Relaxing density restrictions is most effective way to increase multifamily housing

New study looks at how zoning reforms affect the housing supply and costs in Greater Boston New study looks at how zoning reforms affect the housing supply and costs in Greater Boston

October 3, 2022

Increasing a community’s housing supply is an effective way to reduce the cost of housing. However, as a new report from the New England Public Policy Center at the Federal Reserve Bank of Boston notes, in 2018 less than 1% of all residential lots in Greater Boston was vacant and developable. This means that most of the area’s cities and towns would have to amend their local zoning regulations before they could add significantly to their housing stock.

The report is called “Local Zoning Laws and the Supply of Multifamily Housing in Greater Boston.” It focuses on the supply of multifamily housing and rents and looks at how they can be affected by three types of regulations: (1) multifamily zoning, (2) maximum-height restrictions for new construction, and (3) density restrictions determining the number of housing units that can be built on a given parcel of land. For its analysis, this report uses residential property tax assessment records coupled with residential zoning data.

The report finds that the most effective way to increase the supply of multifamily housing and reduce rents is to relax density restrictions. It also finds that adopting multifamily zoning or relaxing height regulations does not substantially increase the number of multifamily units built or reduce rents unless either is combined with relaxing density restrictions.

The report was written by Aradhya Sood and Nicholas Chiumenti. Sood is an assistant professor in the Department of Economic Analysis and Policy at the University of Toronto, Scarborough, and the Rotman School of Management. She was a visiting scholar at the Boston Fed when she coauthored the report. Chiumenti is a senior policy analyst with the NEPPC. The report uses analysis from a Boston Fed working paper titled “How to Increase Housing Affordability: Understanding Local Deterrents to Building Multifamily Housing.” The paper was coauthored by Sood, Chiumenti, and Amrita Kulka, an assistant professor in the Department of Economics at the University of Warwick in the United Kingdom.

“Multifamily zoning can change the type of housing available, and allowing taller buildings may change the size of units,” Sood and Chiumenti write in the report. “However, unless there is a change to the number of units that can be built on any given lot, neither will increase the supply of housing.”

The report points to findings from earlier studies and suggests that policymakers in Greater Boston should be concerned with high housing costs because they can prompt residents to move to areas where costs are lower. This loss of workers can result in a loss of productivity for the metro area and hurt its economy.

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House prices would likely fall with rents if greater housing density is allowed

The authors find that zoning reform that relaxes density restrictions doesn’t just reduce rents. It also causes house prices to fall—including single-family house prices. Their analysis shows that allowing one more housing unit per acre in a Greater Boston neighborhood increases the number of units in that neighborhood by an average of 0.4. This increase results in the neighborhood’s rents dropping more than 5% and house prices falling more than 7% on average (see graphic). House prices drop because the housing supply increases. Or they fall because when a neighborhood becomes denser, its perceived quality declines.

The authors acknowledge that zoning regulation reform that reduces housing costs may be welcomed by renters and first-time homebuyers, but current homeowners likely won’t embrace it. “Increasing the supply of homes in a neighborhood or town is one key way to lower costs or at least keep prices from rising rapidly in high-demand areas,” they write. “However, current homeowners have an incentive to oppose new construction that could reduce their home’s value.”

Report finds Chap. 40A amendment effects likely greater in less dense suburbs

The report also looks at the effects or potential effects of two statewide zoning laws in Massachusetts, Chapter 40B and Chapter 40A. Chapter 40B, also known as the Comprehensive Permit Act, allows developers to appeal decisions of local zoning boards to a state authority. The authority may override a board’s decisions if, in the city or town where the housing development would be located, less than 10% of the housing stock meets the affordability criteria, and at least 25% of the housing in the proposed project would be affordable. Housing is considered affordable if the rent is no more than one-third of the income of a household that makes 80% of the area median income.

The report finds that Chapter 40B likely allows developers to build more densely than they could otherwise, but the law’s effect is seen mostly in areas where multifamily housing is already allowed or where density and maximum-height restrictions are more relaxed. This does not necessarily mean the law has failed to increase the supply of affordable housing in Greater Boston. Instead, the authors write, “other location characteristics affect the demand for apartments and influence the decision of where to build multifamily housing.”

In 2021, Chapter 40A, the Zoning Act, was amended to require that communities along transit lines allow the construction of multifamily homes and a density of at least 15 housing units per acre near commuter rail stations. The report finds that the amendment will increase the housing supply and lead to decreases in rents and house prices in the neighborhoods around the stations. But these effects likely will be smaller for cities

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