Over the holidays, I read William Fischel’s new (2015) book on urban planning, Zoning Rules! The Economics of Land Use Regulation. It’s an important, interesting, and – fortunately for me – readable book on the topic. Fischel draws upon three or four decades of research on the topic, as well as his experience as a member of his local zoning board in New Hampshire.
Zoning, or urban planning more generally, exerts a strong influence on the shape of cities. It influences where people live and work, as well as the housing choices and prices that they face. It is a dull-sounding topic with important ramifications – very similar to transport policy in that regard. And, like transport, it arouses a surprising level of passion.
In the book, Fischel addresses two main topics:
- First, how did zoning / urban planning arise and proliferate? A century ago, cities did not have comprehensive zoning codes that defined how intensely people can develop land and what types of activities can happen in different places. Now, virtually every city has zoning / planning regulations. What changed?
- Second, under what conditions is zoning economically efficient? Many commentators and researchers have critiqued the cost of planning rules, but there are also benefits – and complex interactions with other policies such as local government property taxation. What ties all this together?
In the first part of this review, I’ll discuss Fischel’s (convincing and well researched) answer to the first question.
Let’s start with a common story about why bad planning regulations exist. Here’s Finance Minister Bill English fingering some suspects in his recent speech on the topic:
Your prospects of being able to buy a house are directly related to the decisions made by planning officials about the availability of land, the environmental standards they apply to building, and the way infrastructure is allocated.
It’s very difficult to understand how planners do that, even though the consequences for the community and the economy are significant.
Central government has had the opportunity to sit alongside councils to understand how they make their decisions.
Some of those decisions appear quite arbitrary.
They can be driven by the tastes of individuals who have the power to make decisions.
English argues that planning rules are imposed in top-down fashion by council planning staff. In this narrative, planning rules exist because local governments have chosen to supply them to us in preference to other models.
Fischel argues that this story is backwards: urban planning rules have generally not come about due to top-down bureaucratic decision-making, but as a result of bottom-up democratic pressure. Politically active home-owners, or “homevoters”, advocate for tighter planning restrictions. Because the majority of the average homeowner’s wealth is tied up in their home, they have a strong incentive to vote to prevent developments that might put the value of their home at risk. In planning, ideas are secondary to self-interest:
Public officials respond to the interests of their constituents, and public ideologies such as city beautification, hearth-and-home, and environmentalism come to the fore when they serve the interests of property owners. [Zoning Rules!, p 215]
There is a significant amount of empirical support for the “homevoter hypothesis”. Saiz (2010) found that US cities with more severe geographic constraints also have more restrictive planning rules – suggesting that people who own expensive property are more likely to vote to limit development. (I recently reviewed Saiz’s paper.) At an international level, Germany and Switzerland have the lowest home ownership rates in the OECD and also some of the most affordable housing. At a hyper-local level, case studies of the great down-zoning of Los Angeles reveal the key role played by a relatively small number of vocal homeowner activists.
But timing also matters, as zoning is a relatively new phenomenon. Fischel identifies two critical periods in the development of urban planning. First, zoning was invented and subsequently spread quickly through America in the 1920s. Second, in the 1970s, zoning was tightened significantly, with increasing restrictions on both density and suburban expansion. Here was the result in Los Angeles:
Synchronised changes of this nature require synchronised causes. Fischel argues that zoning first arose as a result of a transport revolution in the 1910s and 20s:
As trucks, buses, and cars replaced rail-bound modes of transportation, suburban residential districts could no longer rely on nuisance law, informal pressures, control of rail routes, and piecemeal covenants to protect their residential investments from incompatible use. Zoning was a response to potential insults to their homes from near-nuisances transported to their neighborhoods by footloose trucks and buses. [Zoning Rules!, p 216]
The urban planning clampdown of the 1970s occurred as a result of a more complex mix of factors. The backdrop to these changes was the subsidised expansion of home ownership after World War II: governments handed out subsidised mortgages like candy, thus expanding the number of homevoters. Fischel identifies six main factors that increased homeowners’ demand for tighter zoning controls, and made it easier for them to get what they wanted:
…the three demand factors that led to the 1970s growth control movement were (a) the growing suburbanization of employment (as opposed to just residences) resulting from the construction of the interstate highway system and the spread of containerized shipping; (b) the expansion of equalitarian legal principles that derived from the civil rights movement of the 1960s; and (c) the sudden growth of housing values in the portfolio of homeowners [resulting from high 1970s inflation]. The three elements that facilitated the supply of exclusion were (a) the expansion of legal standing to opponents of development; (b) the federalization of the environmental movement that dawned on the national scene in 1970; and (c) state legislation that established multilayered review of many projects that were formerly regarded as entirely local. [Zoning Rules!, p. 217]
The details of the story are different in New Zealand than in the US. Our history with zoning as a means of racial exclusion is nowhere near as shameful as America’s. And planning legislation has followed a different (and, I hope, more efficient) course than in the US. But many of the key elements are likely to be similar. New Zealand cities have experienced the same revolutions in urban transport and suburbanised population and employment to a similar extent. And, of course, we also have a class of stroppy “homevoters” who will advocate for tighter planning regulations to maintain or increase their property values.
If you think that urban planning rules should be changed, it’s essential to understand the bottom-up drivers of those rules. Many critics of zoning are oblivious to the popularity of zoning among a vocal segment of home-owners. As City Observatory’s Daniel Hertz recently wrote:
anyone who thinks there is a “consensus” about the damage caused by too-strict zoning ought to attend the next community development meeting in their neighborhood.
Fischel’s excellent history of zoning is a useful reminder that urban planning policies generally arise as a result of pressure from homeowners, not as a result of a conspiracy of planners. Consequently, the path to reform or liberalisation of planning rules is a difficult one for local government politicians to walk. If they vote for significant loosening of planning rules, they increase their risk of losing the next election. And successful challengers may simply turn around and tighten the rules back up again.
Fischel’s awareness of that dynamic flavours his policy recommendations. Zoning Rules! closes with no proposals for sweeping change. Instead, it proposes various ideas for how a challenging “bottom-up” dynamic could be incrementally improved. At the top of the list is an important long-term play: reduce the demand for strict planning rules by cutting back tax subsidies for home ownership, like New Zealand’s lack of a comprehensive capital gains tax.
Next week: Fischel’s analysis of the economic efficiency of zoning.