Friday, October 28, 2011

Why Land Use Zoning Is a Problem

Archive trawling Nathaniel Hood's blog, I found this post with this interesting argument:
To really understand the problem in 2011, you need to rewind to 2003 / 2004. St. Thomas had just spent a decade expanding its student population to around 4,500 plus, and despite new on-campus residential buildings, student populations started to creep further and further into the neighborhood.
Well-intentioned members of the City Council decided to increase restrictions on rental properties and limiting each rental home to include only up to four (4) unrelated people per household. Meaning, large 5, 6 or 7 bedroom houses could only house 4 students.
St. Paul tried to defy the laws of supply and demand. Now, this is where the law of unintended consequences kicks in. They restricted the supply of student housing while the demand remained the same. The market reacted and two things happened as a result:
  • 1. Property owners did what was reasonable and responded by splitting large homes into duplexes so they could fill up the empty space. The market had an increase in duplexes, and often times, landlords took the time to add extra attic studio apartments. This lead to the situation to actually become worse. Now, instead of 5 people in a 5 bedroom house, you now have 6 or 7 people in a recently split duplex or triplex.
  • 2. By limiting supply, the ordinance increased overall rents; thus making it more appealing to convert a single-family home into a rental unit. In a way, the 2003/2004 zoning restrictions actually motivated more homeowners to convert smaller homes into rental properties.
Now, the City Council’s next step is …
The latest moratorium would prohibit conversion of one-family homes into two- or three-family homes and two-family homes into three-family homes. The resolution also would bar one-, two- and three-family homes that are owner-occupied from being exclusively occupied by students unless a student owns the home [Link].
The problem isn’t zoning. The problem is demand.
...Except , um, your conclusion's not what your argument's telling you, bub. The natural conclusion of this argument is the problem is (land use) zoning because zoning artificially constricts supply relative to demand. (Remember that we do have to separate out zoning classification: land use and form-based zoning are two different things.) To put it another way, land use zoning is an attempt to manipulate the market--and market manipulation has some rather nasty unintended consequences. For one thing, demand doesn't go away. When supply is constricted--particularly artificially constricted--this forces the price per unit product (in this case, a student apartment) up. Which, in turn, forces a roundabout way of meeting demand. In the St. Paul case, this involved subdividing the structures in a particular way to meet demand: a particular way that actually increased the student population in the neighborhood--which has, again, become a problem, forcing more draconian supply controls. Which, in their turn, will also force developers into increasingly roundabout and circuitous ways of meeting demand. (By the way the law is worded, boarding houses  or "extended-stay hotels" are possible next steps.)

This is similar to how land-use zoning was first used to enforce segregation (by both race and class), as Charlie Gardner has shown. The difference being that then zoning restricted supply to the point that the price per unit of supply cost more than the customers' willingness to pay (no wonder poorer households flooded into the urban cores where land use was a lot less restrictive! You've gotta live somewhere.) whereas here we're dealing with a relatively monied population--or, more accurately, a population whose parents are well-monied--which, in turn, induces developers to circumvent the increasingly draconian attempts at limiting supply, which in its turn is simply making things more problematic for the surrounding neighborhood.

This St. Paul example is also an example of the natural tendency for politicians to favor (usually organized, wealthier, voting) homeowners over (usually disorganized, poorer, nonvoting) renters. It's playing a constituency game, but such games are almost never what's best for the neighborhood as a whole, since the attempt at promulgation of the status quo leads to serious market imbalances, which in turn produce deeply adverse consequences. In the hands of very competent planners, land use zoning can be made to work to promote a better city (but relatively few planners are competent enough to make it work); in the hands of politicians, it becomes akin to playing with fire: you'll get burned.

The bottom line is: Land use zoning is the problem. It's clunky, inefficient, and oftentimes subverts its own goals (unless your goal is disurbanization). Form-based zoning is much more flexible (keeping in mind Paris' zoning is essentially form-based).

There is also a jurisprudence angle to this. Our land use zoning was legally rooted in nuisance law (in essence, land use zoning is nuisance law on steroids, an attempt to zone away anything that might become a nuisance). It has deep court precedent. Because of this, the need to come up with an effective legal argument against this type of land use abuse is pressing: this zoning is an over-distortion of the market that has become its own nuisance. I would suggest that Friedrich Hayek's key observation--that the government only has access to the same amount of information as the market--would be a place to start*. But I'm not a lawyer...
* Whatever else one may think of Hayek, and the Austrian school he was the grand doyen of. I'm a fan of neither: Hayek mainly winds up arguing that something is complex because it is complex (...uhhh duh?), which misses the point of complexity theory entirely, which is that complexity is a mode of explanation--a place you have to get through from here to there. In this regard, Hayek, like Smith and Keynes, is great precisely because he had one good idea, which is a lot more than most economists can claim. (In case you haven't noticed, I think economics as a discipline has gone completely off the rails. My forays into economics journals, like Urban Economics, don't help things much either. Like sociology, it has devolved to being basically formalist philosophy with kinky numbers attached.)


  1. Just about every legal argument in the big book of constitutional law has been thrown at the basis of zoning ordinances, and none have succeeded. SCOTUS has even given its stamp of approval to blatantly exclusionary measures more restrictive than the one Nathaniel mentions (see Belle Terre v. Boraas). Politicians have a blank check to indulge the worst impulses of their constituents.

    One underlying issue is that in the Euclid decision, it was held that the state could selectively strip an owner of certain of the "sticks," i.e. rights, in the bundle of ownership without being found to have taken the owner's property. This is akin to saying that it's only robbery if, during a stick-up, I take all the money in your wallet; if I leave you few bucks, no harm done (that is actually the Supreme Court's holding, implicit in the majority opinion but explicitly mentioned in the dissent, in Lucas v. South Carolina Coastal Commission).

    There is also a presumption that the state's belief that it can employ use-based regulation to create positive outcomes is "rational," the test for zoning laws being whether they have a "rational basis." But that is more problematic to challenge. The courts examine the benefits of a particular law within a city itself; thus, if a city can exclude, by law, certain undesired uses, even though that makes the region as a whole worse off in certain ways, it will be found to be permissible so long as the city can explain how it creates benefits for that particular city. Those are essentially the facts, and the outcome, of Euclid.

  2. Indeed...which is why we need to develop a legal argument of extraordinary power. Framing a question--and a project--isn't necessarily the same as solving it.

    I am no legal scholar, though, so I can only guess what such an argument would entail.

    The other issue with Nate's argument is that his conclusion has anti-market undertones (i.e. that it wishes to subvert supply-and-demand to pursue bureaucratic structuring). Now I am no believer in a "free" market as such, but I do agree with Hayek that government and capital have equal access to information.

    Additionally, it can be observed neither necessarily have consistent agendas. Indeed, U.S. agenda (policy) can even be blatantly self-contradictory--e.g. promoting healthy eating while at the same time subsidizing corn farmers. Capital can be likewise--but due to the pseudo-monolithic nature of government the expectations for consistent policy are that much greater.

  3. Steve –

    Nathaniel here. Thought I'd clarify. I probably hastily put this post together and didn’t notice it was so off (nor did anyone else for that matter). I didn’t intend to imply that zoning wasn’t part of the problem. It very much is, and it’s hard not to disagree with your statement: “To put it another way, land use zoning is an attempt to manipulate the market--and market manipulation has some rather nasty unintended consequences.”

    I’ll make sure to go back and tweak a few sentences in that post. Thanks for pointing that out. Happy Halloween.

  4. Steve – Richard Epstein came out with a book a couple years ago on this topic (Supreme Neglect: How to Revive Constitutional Protection For Private Property), although he, like some other Libertarians, tends to be obsessed with a mere handful of instances of alleged eminent domain abuse at the expense of more mundane, but ubiquitous, regulations such as use-based zoning and parking regulations.

  5. *Correction: It very much is, and it’s hard to disagree with your statement: “To put it another way, land use zoning is an attempt to manipulate the market--and market manipulation has some rather nasty unintended consequences.”