No city has become denser and more affordable.

This statement is so common among certain pundits – let’s call them “Market Suburbanists” –that it has become a truism. And at surface level, it seems right: America’s densest cities are indeed its priciest. But the statement ignores certain factors. First, it’s not even accurate–Tokyo is one hyper-dense city that builds far more housing (about 100k units annually) than any U.S. metro, and saw housing prices fall between 2007 and 2014. But secondly, it misidentifies the economic laws behind why any compact city would be expensive. Cities, after all, become dense to begin with because they’re experiencing demand. Their density–and their subsequent price inflation–reflects this demand. It doesn’t cause it. And because they can’t just undensify by pushing inbound migrants away, their only possible direction is to build far more housing to meet the demand. None of America’s dense cities have even tried this build build build strategy–at least not to Tokyo’s extent–and that is why their prices are so high.

In this respect, the notion that U.S. cities can densify and stabilize their prices, by deregulating their housing markets, remains an untested theory. But that doesn’t mean the theory is wrong.

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