America’s shortage of cities offers a cautionary tale for London’s housing debate

By London Urbanism Desk

A new essay published by City Observatory challenges the dominant narrative that America’s suburban growth reflects a clear consumer preference for low-density living. Instead, it argues that the continued expansion of the suburban periphery is driven by a profound shortage of urban neighbourhoods – a shortage created by land-use monopolies, restrictive zoning and decades of infrastructure subsidies. While the analysis is rooted in US metropolitan data, its central logic holds striking relevance for London, where a similar scarcity of dense, walkable housing forces households into outer boroughs and commuter towns, inflates rents across the board, and distorts the housing market for all income groups.

The core argument: ‘suburban triumphalism’ is a misreading of market signals

The article takes issue with what it calls “suburban triumphalism” – the idea that because more people move to the suburbs, suburbs must be what people want. The economist Noah Smith’s recent piece “America’s suburbs are better than you think” is cited as a representative example. City Observatory’s response argues that this interpretation confuses budget constraints with preferences. When urban housing is artificially scarce, people do not choose the suburbs freely; they are priced out of the city. The real market failure is on the supply side.

“In a healthy market, ‘revealed preference’ is the choice a consumer makes among varied options,” the article notes. “But when the urban option is priced at a considerable premium due to scarcity, ‘revealed preference’ ceases to be a measure of taste – it becomes a measure of a budget constraint.”

The essay warns that treating suburban growth as an unalloyed success ignores the social and environmental costs of car dependency, the decline of social capital in low-density environments, and the regressive impact of mandatory car ownership on household finances.

The evidence from US cities: Levine’s zoning research

The article draws heavily on the work of urban planning scholar Jonathan Levine. In his book *Zoned Out*, Levine compared housing “matches” in Boston and Atlanta by classifying neighbourhoods on an urban-ness scale from A (dense and pedestrian-friendly) to E (sprawl, exurban). The findings revealed a stark mismatch. In Boston, a relatively constrained region with strong zoning controls, the supply of urban housing was tight, forcing a bidding war for the few walkable neighbourhoods. In Atlanta, a region with abundant peripheral land but an almost total lack of dense urban zoning, the market failed to provide the type of housing that a substantial share of households actually wanted.

“Atlanta is not a particularly high-cost region overall; it has a surplus of housing on the periphery. However, it suffers from a specific urban shortage,” the article states. “The market fails to clear for urban-preferrers because zoning prohibits the construction of new urban neighbourhoods.”

The implications for London are direct. Greater London’s Green Belt, conservation areas, height restrictions and tight planning laws act as a similar supply constraint on urban housing. While London has more walkable neighbourhoods than most US cities, the demand for such environments far outstrips supply. Property prices and rents in central and inner London have risen to levels that exclude large swathes of the workforce, pushing households to outer boroughs, commuter towns in the Home Counties, and even farther.

Key facts

How London’s housing shortage echoes the US pattern

London’s housing crisis is often described as a simple undersupply of homes. But the City Observatory analysis suggests it is more precise to diagnose a shortage of the *right kind* of homes in the *right locations* – specifically, dense, walkable urban neighbourhoods with good access to jobs, public transport and amenities. The London Plan’s target of 65,000 new homes per year has not been met; delivery has averaged around 35,000–40,000 annually. Even when new homes are built, they are disproportionately concentrated in outer suburbs or in high-end central developments that do not meet the needs of younger households, key workers or families seeking affordable urban living.

The result is a bifurcated market. Those who can afford to live in central or inner London compete for a limited stock of period terraces, mansion blocks and new-build apartments in regenerated zones like King’s Cross, Stratford or Nine Elms. Those who cannot afford these prices move outward, accepting longer commutes, higher transport costs and less access to cultural and economic opportunities. This outward pressure also raises rents in outer suburbs and commuter towns, pushing out traditional suburban residents who may have preferred lower-density living.

The article’s comment on the transportation cost burden is particularly relevant for London. While TfL’s public transport network is extensive, the cost of commuting from Zone 4, 5 or beyond can consume a significant share of household income. Car ownership becomes nearly mandatory in areas with poor public transport links, adding to household expense and carbon emissions.

Policy implications for London’s planning system

If the diagnosis is correct – that London suffers from an acute shortage of urban housing, not just housing per se – then the prescription shifts. Simply building more homes on the urban fringe, in greenfield sites or by extending the suburbs does not solve the core problem. What is needed is a deliberate expansion of the supply of dense, walkable, mixed-use neighbourhoods within and close to the existing urban fabric.

This requires changes to planning policy:

• Density and land-use reform – The GLA and boroughs could relax density limits in areas near transport hubs and high streets, allowing taller buildings and more compact development without sacrificing quality or design.
• Green Belt release – A selective, targeted release of low-quality Green Belt land around railway stations and existing urban edges could provide land for new garden suburbs or town extensions with good transit links.
• Infrastructure-led densification – Major transport projects such as Crossrail 2, the Bakerloo line extension and the DLR upgrades should be paired with density zones that guarantee high-density housing along those corridors.
• Zoning and permitted development – Expanding permitted development rights for additional storeys, conversions and infill, while maintaining design and amenity standards, could unlock housing in existing urban areas.

The essay also warns against treating suburban growth as an unalloyed success. London’s own suburbanisation – driven by rail expansion in the 19th and 20th centuries – has produced many desirable suburbs. But the continued outward push raises environmental costs, increases travel times and entrenches car dependency. A city that fails to offer enough urban housing for its residents is a city that loses its economic dynamism and social cohesion.

Caveats and unknowns

It is important to note that this analysis draws primarily on US data and research. London’s planning system, land ownership patterns, public transport infrastructure and cultural preferences are different. The UK has stronger national planning guidance, a more active social housing sector and a greater acceptance of urban living than many US metro areas. Nevertheless, the underlying market failure – a shortage of urban housing due to supply constraints – is recognisable.

The article does not provide specific policy prescriptions for London, nor does it quantify the exact shortfall in urban housing. The argument is structural and comparative. For London planners, policymakers and housing campaigners, the message is clear: the debate should shift from “build more homes” to “build more of the right homes in the right places.”

What to watch next

Readers with an interest in housing supply and planning reform can follow upcoming GLA consultations on the next London Plan review, borough-level local plan examinations, and research from the London Housing Panel and the Centre for London. The question of how to increase density without sacrificing quality or affordability remains one of the most pressing urban challenges for London.

Source: City Observatory, “America’s shortage of cities”, https://cityobservatory.org/americas-shortage-of-cities/