There's lots of data out there to suggest that there is a correlation between urban density and housing unaffordability. Take Hong Kong. It is very dense, and also one of the most expensive housing markets in the world. But I think the real question is: does urban density actually cause housing unaffordability, or do the two simply tend to be correlated when you plot a country's biggest cities?

One the one hand, there are factors that do drive up home prices when you build more densely. Building a reinforced-concrete high-rise is always going to be more expensive on a per square foot basis than building a wood-framed bungalow. But of course, the former also uses land a lot more efficiently, which is what you need to do in big and supply-constrained cities.

Michael Lewyn's view (credit to Robert Wright for sending me the article) is that density is incorrectly used as a scapegoat to fight compact development. It does not actually cause higher rents. One counter example he gives is that of Manhattan, which went from 2.3 million people in 1910 to just under 1.7 million in 2020. In other words, it got less dense, while at the same time its rents grew exponentially.

Like most important city matters, the answer is complicated. But this is an interesting topic that I think we should spend more time on here.

The Sydney Morning Herald recently reported that an oversupply of apartments has started to put downward pressure on rents and upward pressure on vacancy rates in the city. Here are a few excerpts from the article:

Sydney is in the grip of an apartment building boom, with 30,880 multi-unit dwellings built last year, a record for any Australian city. There were 16 multi-unit projects finished in the first three months of 2019, adding another 1948 units.

These numbers are flowing through Domain.com.au, where 17,500 units were listed for rent in June 2017, and ballooned to 32,680 listings in June 2019. The result has been landlords asking for $25 a week less median rent than last year.

Sydney-wide rental vacancy rates have almost doubled from 1.7 per cent 2017 to 3.2 per cent this year. But on the upper and lower north shore, in the hills district and Sydney CBD, apartments are sitting vacant at more than twice this rate, SQM data shows.

The narrative here is that you can build your way to lower rents. Make supply exceed demand, and this is what will happen. But in this case, something else has also impacted the demand curve: China. Beijing has made it harder to get money out of the country in recent years and their overall economy has slowed. China's economy is thought to be growing at its slowest rate since 1992 (which is when the country started official record keeping). The above article suggests that about 80% of new construction apartments in Sydney were sold to investors over the last few years. More than a few were probably Chinese. Though I have no idea if that is an accurate number. What is unclear, to me, is whether this doubling of rental listings over the last two years is a result of previously bought supply simply making its way through the system, or if current market conditions have encouraged more owners to put their units up for rent. Whatever the case may be, supply is up and apartment rents appear to be coming off slightly in Sydney.

This week I saw it reported that in this decade alone, the Seattle area is set to deliver more new rental apartments than it did in the prior 50 years combined. 

And as a result, the sentiment is that new housing supply is finally starting to keep pace with demand and put downward pressure on rents. 

Do you remember who was the crane capital of the US a year ago? They may still have that title.

In some of the most desirable neighborhoods of Seattle – where much of the new supply is coming online – rents dropped 6% compared to the prior quarter. At the county level, this last quarter was by far the biggest drop of the decade according to the Seattle Times.

Funny how that works.

It’s also worth noting that the US as a whole is building far more rental apartments than condominiums. Here is a post I wrote in August 2015 which pegged condos as a percentage of overall multifamily construction at around 5.5%. That’s a tiny percentage.