I believe that your analysis, such as the “Density vs. Land Use Regulations” graph, is too aggregate. It confuses cause and effect and fails to account for different types of regulations. Many cities have abundant housing supply and weak demand so the impacts of regulations are irrelevant, but many attractive and economically successful cities have significant latent housing demand, as indicated by rapidly rising housing prices. In those cities, restrictions on density (often expressed as minimum parcel size or floor area ratios), prohibitions on multi-family housing and mixed-use developments in residential neighborhoods, setback requirements, and minimum parking requirements reduce affordable infill development, which explains why housing prices increase relative to wages.
Considering all costs, including land, construction, operation (utilities and maintenance) and household transportation costs, the most affordable new housing generally consists of mid-rise (three to six story) wood frame townhouses and apartments with unbundled parking, located in walkable urban neighborhoods where residents can minimzie their vehicle expenses.
An efficient and equitable land market is responsive to consumer demands. If the number of people who want to live in a particular area increases by, say 50%, a responsive land market allows densities to increase by that amount. Zoning codes and development policies tend to assume that the local development policies that were optimal in previous decades will be appropriate in future decades. In the past most cities allowed developers to assemble two to four single-family housing parcels and convert them to ten to forty apartment units, but since the 1970s neighborhood associations became very successful at prohibiting such changes, to their benefit (it drives up housing prices) and the disbenefit of younger and poorer people who want to live in such areas.
Our city, Victoria, British Columbia, is a good case study. A decade ago the city allowed higher densities and removed parking requirements in a central neighborhood, after which several thousand new housing units were built in the area, indicating strong demand. However, not everybody wants to live near downtown; developers are using many creative methods to increase densities in residential neighborhoods, such as subdividing single-family houses into two to six units, but they are generally constrained by zoning codes that limit density and require excessive parking supply.
In these situations, reducing these regulations will almost certainly increase local population growth, business activity, economic productivity and tax revenue. An extensive literature on agglomeration efficiencies suggests that can also increase national productivity, as Hsieh and Moretti suggest. More affordable infill can also increase economic mobility (the chance that a child born in a lower-income household becomes economically successful as an adult), as indicated in Reid Ewing, et al. (2016), “Does Urban Sprawl Hold Down Upward Mobility?,” Landscape and Urban Planning, Vol. 148, April, pp. 80–88; www.sciencedirect.com/science/article/pii/S016920461500242X.
For more information see:
Sonia A. Hirt (2014), Zoned in the USA: The Origins and Implications of American Land-Use Regulations, Cornell University Press (www.cornellpress.cornell.edu/book/?GCOI=80140100178220); review at www.h-net.org/reviews/showpdf.php?id=43221.
Jonathan Levine (2006), Zoned Out: Regulation, Markets, and Choices in Transportation and Metropolitan Land-Use, Resources for the Future (www.rff.org).
Patricia C. Melo, Daniel J. Graham, and Robert B. Noland (2009), “A Meta-Analysis Of Estimates Of Urban Agglomeration Economies,” Regional Science and Urban Economics, Vol. 39/3, May, pp. 332–342; at www.sciencedirect.com/science/article/pii/S0166046208001269.
John M. Quigley and Larry A Rosenthal (2005), “The Effects of Land Use Regulation on the Price of Housing: What Do We Know? What Can We Learn?,” Cityscape, Vol. 8, №1, pp. 69- 137, US Department of Housing and Urban Development; at http://urbanpolicy.berkeley.edu/pdf/QR2005.pdf.
Mac Taylor (2015), California’s High Housing Costs: Causes and Consequences, Legislative Analyst’s Office (www.lao.ca.gov); at http://lao.ca.gov/reports/2015/finance/housing-costs/housing-costs.pdf.
Mac Taylor (2016), Perspectives on Helping Low-Income Californians Afford Housing, Legislative Analyst’s Office (www.lao.ca.gov); at www.lao.ca.gov/Reports/2016/3345/Low-Income-Housing-020816.pdf.