New Study Finds Transportation Expenses Drive Urban Cost of Living

WASHINGTON (July 7, 2022) – Conventional wisdom in recent years has placed much of the blame for the rising cost of living in American cities on overly strict zoning policies. Economists from the George Washington University, the University of Louisville, and the Federal Housing Finance Agency utilized an advanced version of an urban simulation model to study the determinants of housing cost in cities. They discovered that higher transportation costs have a greater impact on the cost of living than zoning restrictions.

Much of the scholarly work on the factors that influence the cost of living in cities has focused on land use regulation. Previous studies have suggested that policies restricting the density of housing, such as single-family zoning and designating historic districts, have led to an increase in housing prices. Those studies did not use formal models of the city and ignored the effects of transportation expenses on cost of living. While this study finds that housing scarcity caused by land use regulations affects living expenses for workers in urban areas, it concludes that the cost of commuting to work is far more influential. 

Zoning restrictions near a city’s central business district merely force residential development farther away from downtown. Housing units located far from the city center tend to be less expensive, which lowers the average cost of housing in an urban area. However, workers living in cheaper homes in the suburbs must endure longer commutes and more traffic congestion, which lead to higher transportation costs. 

“The city housing market is like a balloon,” Anthony Yezer, professor of economics at GW, said. “Restrictions that limit housing density in some areas cause the balloon to expand in less restricted areas.” 

The study also found that zoning policies had a minimal effect on the amount of compensation employers must offer workers to move to an urban area. Instead, cities would be wise to make transportation improvements, such as expanding public transit and building new highways, in order to offset whatever impacts land use regulations have on the cost of living.

“Housing is expensive in cities, not due to construction cost, but due to the cost of land,” Yezer said. “Nothing drives up the cost of land more than high transportation cost.”

In addition to Yezer, the research team includes two GW Ph.D. graduates: William Larson, senior economist at the Federal Housing Finance Agency, and Weihua Zhao, assistant professor of economics at the University of Louisville. The study, “Urban planning policies and the cost of living in large cities,” will be published in the September 2022 volume of Regional Science and Urban Economics.

-GW-