Want to Fight Climate Change? Legalize More Multi-family Housing

How does legalizing apartments help combat climate change? A compelling new study by Berrill et al (2021) shows the dramatic energy efficiency benefits of multifamily housing, with strong evidence that a world with more apartments is a world with fewer greenhouse gas (GHG) emissions.

In particular, the United States could have avoided a large share of emissions simply by maintaining earlier policies that encouraged multifamily housing construction.

Here are the key takeaways:

  1. Modeling a counterfactual world in which the US never enacts prohibitions or other barriers to apartments in the 1970s and ‘80s, and builds more public housing, 14% of the country’s urban housing would be multifamily instead of single-family homes, with up to 50% less floor area.
  2. In this counterfactual, the average household’s energy demand would be 27-47% lower, or up to 8.3% lower for all urban residential energy in the aggregate.
  3. Legalizing and encouraging more apartment homes “can unlock a large potential for reducing residential energy demand and GHG emissions in the coming decades.”

The hypothesis here is straightforward: “If policy can influence housing outcomes by type, then there may be an indirect effect on residential energy consumption and GHG emissions, to the extent that housing typology influences energy demand.”

In other words, given that zoning restrictions prohibit multifamily apartments where residential demand is high, maintaining the policy regime that promotes single-family housing in lieu of multifamily also promotes less energy-efficient lifestyles.

The paper studies three major federal policy initiatives undertaken during Republican presidencies: the Public Housing Moratorium (PHM) in 1973, the Tax Reform Act of 1986 (TRA 86), and the Financial Institutions Reform Recovery and Enforcement Act (FIRREA) in 1989. The PHM effectively ended federal investment in public housing construction and ownership, coinciding with a major uptick in single-family housing starts and fewer multifamily units built per year. In 1986, the Tax Reform Act made it much harder to deduct building depreciation from federal taxes, and consequently multifamily buildings were less worth the financial risk. In 1989, the FIRREA cracked down on the savings and loans crisis by restricting certain types of loans, cutting off access to capital that could have otherwise gone to multifamily housing.

In the modeling, the researchers controlled for real GDP, population, 30-year mortgage rates, and seasonal changes, while keeping the focus on federal (rather than local) regulations. To keep things simple, these three policies are studied in isolation, rather than compounding with other policies. “To the extent that the policy effects are independent of each other, our model estimates the independent effect of each policy,” the authors explain. “If the effectiveness of one policy is correlated with a previous policy, then our model estimates the effects of the second policy conditional on the first policy being implemented.”

The researchers were then able to model a counterfactual scenario of the national housing stock in 2015 in which multifamily construction was not impared by these policies, and ended up roughly maintaining parity with new single-family homes. “The model suggests that housing starts would have followed a trend of decreasing single-family share without the influence of the three policies considered,” the paper argues, “producing 13.96 million more multifamily units since 1974, exerting a sizable influence on the current makeup of U.S. housing.”

It is difficult to model exactly how household energy consumption changes in this counterfactual, so the researchers took a few different routes. “We calculate four scenarios of urban residential energy demand in 2015, reflecting different assumptions of how selection effects influence which households may move to multifamily, and how the average floor area of affected multifamily units may change,” Berrill et al explain. In general, controlling for household income, household size, and weather, the key variable changing in these counterfactuals is less floor area that needs heating in the house. This part is common sense: a smaller apartment home takes less energy to heat up than a single-family house.

Single-family homes are less energy efficient because “single-family detached houses use more energy than multi-family homes for all end-uses, but especially space heating.” In the counterfactual United States, where 14% of the national housing stock is multi-family instead of single-family, total residential energy usage was between 4.6-8.3% lower. Even assuming no reduction in residential floor area, energy consumption per household would have been lower by 27% or 28%—or up to 47% lower in counterfactuals with reduced floor area.

Federal, state and local policies encourage single-family homes, and disincentivize or ban multi-family, on most of the urban land in American cities. But the conclusion is clear: “This policy preference is at odds with climate mitigation.”