A Swiss city cut red tape and ended up with many more homes. It’s a model for the US.

A few countries have already figured out how to do that.

Zurich, Switzerland offers the latest model. As a small, mountainous country with limited buildable land and high demand, Switzerland has long been sensitive to urban sprawl. Starting in the mid-1990s, Swiss citizens voted to densify various parts of the Canton of Zurich, one of the country’s 26 states and home to its biggest city.

The canton didn’t uniformly alter its zoning laws. The citizens of each municipality voted on various proposals to “upzone” or allow more housing units by loosening zoning restrictions. The process was slow and staggered, and the average upzoning was quite incremental — think of a home with three floors that can add one extra floor. Much of the rezoning took place in neighborhoods surrounding Zurich’s medieval city center, which is protected by historic preservation.

Twenty-five years into this process, a new study by Swiss researchers has found that upzoning boosted living space and housing units by a significant amount — about 9% in the subsequent five to 10 years — while keeping rent growth under control. The study found that areas that were hungriest for new housing were the most responsive to the policy changes. Areas with high demand, evidenced by high rents and home prices and already constrained by limits on housing, saw the most new construction. And the more density allowed, the more impactful the effect.

One of the study’s key findings is, “if you upzone, upzone a lot,” said Simon Büchler, coauthor of the study and an assistant professor of finance at Miami University. “Give people the incentive to build.”

It provides more evidence that supply and demand can be harnessed to keep housing prices in check. Another example comes from New Zealand, where Auckland’s upzoning measures legalizing the construction of medium-density housing slowed down skyrocketing housing costs. And a study of São Paulo’s upzoning found similarly positive impacts.

Zurich shows that upzoning is necessary but not sufficient. Allowing for more housing boosts affordability, but it takes time. There are a slew of other necessary fixes to bring housing costs down — from building-code changes to long-term expansion of services, infrastructure, and amenities.

“People think they’re going to upzone and they’re going to solve the affordability crisis in a couple of years. They’re wrong,” Büchler said. “This is a long-term solution, but it is a solution that’s necessary and that works.”

Knee-capping NIMBYism

There are a few elements of Swiss law and society that make parts of the country more welcoming to development and resistant to NIMBYism, or “Not In My Backyard” anti-development sentiment, that cripples so much new construction in the US.

Unlike most American cities, Zurich is a society of renters rather than homeowners. More than 70% of households are tenants. While property owners are incentivized to oppose additional housing in their neighborhoods that would boost supply and depress their home values, renters tend to be much more supportive of development that keeps rents affordable.

It also helps that European cities are generally more accomodating of higher-density living. A whopping 64% of Swiss residents live in apartments, compared to just 28% of US residents, and the country also has an especially comprehensive and well-connected public transportation network. While Zurich’s population has grown significantly over the last quarter century, European cities tend to have more restrictive immigration laws than their counterparts in Canada, the US, and New Zealand.

“This evidence from Europe is important as it shows that upzoning can increase supply even in places where density is relatively more common and accepted, and overseas migration is less of a factor,” Matthew Maltman, an Australian economist who’s closely studied New Zealand’s housing reforms, told Business Insider.

There’s also a lot of certainty around how regulations function in Zurich, as opposed to in the US or New Zealand, which include more veto points in the building process, Maltman said. While developers can’t apply to local authorities to bypass zoning regulations, local residents also can’t lobby to stop a project from happening if it abides by the rules.

At the government level, municipalities are incentivized to welcome new residents because they disproportionately rely on income taxes for revenue, Büchler noted. Property taxes in Switzerland are very low, so the more density a city or town allows, the more income tax they can collect.

Büchler plans to investigate how rent changes in Zurich compare with other parts of Switzerland to get a better sense of the price impacts of upzoning. Ideally, deregulating zoning would bring prices down. But Büchler considers it a win that rents were unchanged in Zurich, when adjusted for housing quality, even as the canton’s population and demand for housing grew. “It doesn’t mean that upzoning didn’t help. What it means is that without the upzoning, we would have seen even more rent increases than what we’ve seen,” he said.

Zurich’s example is crucial in informing policy change in places like the US because real-world evidence of the effects of upzoning can help convince governments and voters to act.

“Economists have argued the case for zoning reform based upon other evidence — usually based upon economic theory or sophisticated economic models,” Maltman said. “It can be easier to sell the public on place X implemented policy Y and it had Z effect.”