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.

Fischel Zoning Rules cover

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:

The great down-zoning of Los Angeles (Source: Morrow, 2013)

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.

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  1. Absolutely the issue is the property owning cartel.

    I am not sure that the lack of a capital gains tax can really be characterized as a subsidy. Certainly though the government’s new “bright line” tax as well as Labour’s proposed capital gains tax with an exemption for owner occupiers amount to an unlevel playing field effectively subsidising home owners – so I agree if that is what you mean. The bigger subsidy is the lack of an income tax on imputed rents for owner occupiers to me, in NZ anyway (in the US they have the egregious policy of tax deductible mortgages for home owners without a corresponding tax on imputed rents obviously). I am not sure how removing subsidies is any easier politically than changing zoning rules but perhaps it can be done incrementally and eroding any subsidies is certainly a good place to start.

    1. “the issue is the property owning cartel.”
      There’s a cartel? Evidence please.

      “I am not sure that the lack of a capital gains tax can really be characterized as a subsidy.”
      You can play semantics but taxing productive effort while not taxing income from speculation or not taxing unearned income is perverse and sends the message that gambling is preferred to work.

      “The bigger subsidy is the lack of an income tax on imputed rents for owner occupiers”.
      How is this a subsidy? Neither the interest or the principal for home purchases is tax deductible in this country. No income is involved so how do you propose imposing income tax on this non-income and what would be the purpose?

      1. A definition of cartel (amongst others):

        “An association of manufacturers or suppliers with the purpose of maintaining prices at a high level and restricting competition”

        I give you [Insert suburb name] Residents Association. Auckland 2040. Any NIMBYs who organise and/or support a political movement.

        CGT is arguably double taxation. Returns (profit/interest/dividends/rent) on investment are taxed. Capital gains reflect an increase in the expected future returns of an investment. The future returns will be taxed.

        Anyway I thought the point here was about subsidies to owner occupiers. On the basis that people will invest savings somewhere, a comprehensive capital gains tax that applies to all investment isnt going to favour one investment class over another, and certainly not different forms of residential property ownership.

        Re imputed rent – people derive a benefit in kind from owning a house. Effectively they rent it to themselves. If you take two unleveraged properties, one owned by an investor the other owned by an owner occupier, one of those properties is paying income tax on the housing that property provides, the other is not. Renters are disadvantaged in this way compared to owner occupiers. Taxing imputed rent would be fairer, yes this would mean that owner occupier expenses (e.g. interest) would be tax deductible.

        1. Agreed with Matthew on the tax issues. The key issue is that our tax system doesn’t treat all forms of income equally – i.e. capital gains from housing isn’t taxed at all, and the rent that we (implicitly) pay to ourselves when we live in our own houses isn’t taxed.

          It’s worth noting, however, that there are a lot of fishhooks in setting comprehensive, non-distortionary taxes on property. For example, as Matthew alluded to, taxing imputed rents would basically turn every homeowner into a business owner who could then deduct mortgage and maintenance costs from the value of said imputed rents.

        2. “An association of manufacturers or suppliers with the purpose of maintaining prices at a high level and restricting competition”

          A multiplicity of housing associations doesn’t fit that definition and even if it did it would be a multiplicity of cartels; an oxymoron.

          “CGT is arguably double taxation. Returns (profit/interest/dividends/rent) on investment are taxed. Capital gains reflect an increase in the expected future returns of an investment. The future returns will be taxed.”

          The profit on sale of a residential property is generally NOT taxed and in the context of the discussion that is the salient point. Capital gain in this context is simply the sale price less the purchase price (assuming no material change in the asset). The capital gain reflects supply and demand for an asset that is also the means of providing a basic human need (unlike shares).

          “Re imputed rent – people derive a benefit in kind from owning a house.”

          They derive a benefit but it is not in kind – no other party is providing this benefit. The benefit derives from having incurred a series of disbenefits such as interest payments, transactional costs, rates, insurance, maintenance etc none of which are tax or gst deductible.

          “Effectively they rent it to themselves.”
          Effectively they do no such thing. What possible reason would anybody have for indulging in such artifice?

          “If you take two unleveraged properties, one owned by an investor the other owned by an owner occupier, one of those properties is paying income tax on the housing that property provides, the other is not.”

          Firstly, properties do not pay income tax; individuals do. In the case of the owner-occupier there is no income and hence no income tax. In the case of the unleverage rental property (good luck finding one of those) income tax is paid by the owner on profits across their whole portfolio. It is not paid by the tenants and, because so-called property investors look to minimise income tax they run as leveraged as they can – the aim is to make untaxed capital gains. Secondly, the expenses incurred by the “investor” in obtaining the unleveraged asset have all been tax-deductible, unlike those of the owner-occupier.

          My proposal is to treat a commercial rental endeavour as, ipso facto, a business for tax purposes. Unlike investing in shares or bonds where the investor is passive, buying and running rental accommodation looks awfully like running a business; customers need to be found, the assets need to be maintained (in theory at least) and the asset owner makes the managerial decisions (ie far from passive). As such the assets of the business would be subject to tax if they sold for more than book value (gain on sale is treated as income). At present “investors” in domestic rental property get the benefits of a business in respect of tax-deductibility of expenses but the primary profit (capital gain) is treated as a personal untaxed windfall (unlike a business).

        3. MFD

          Businesses don’t pay tax on capital gains from asset sales either. Rental properties are tolerant treated like businesses, there is no distinction.

          “It is not paid by the tenants”

          Remember, the party who has to formally hand over the tax to the IRD isn’t necessarily the party paying the tax in an economic sense, it depends on relative elasticises etc. Tenants pay this tax, in the long run (ie if we changed the income tax rate today, the investor would face the burden of the tax change, but in the long run market prices would adjust to place the burden on the tenant.

          As for imputed rent. Look it up this is a well established concept. Income doesn’t have to be in the form of money. Unleveraged owner occupiers are recieving an income stream (that,yes, is a result of them paying for an investment in the past, like any other investment income). They happen to consume the income stream as it is produce, that is the nature of it. But it is an income stream nonetheless. As an analogy think of two businesses. One business owns its own factory and buildings, the other rents them. The two business’s are otherwise identical. The first business makes more profit because it doesn’t pay rent. So where is that extra profit “coming from”? The answer is obviously from the value generated by use of the buildings.

          Cartels aren’t monopolies necessarily. OPEC is a cartel, it doesn’t have every oil producer as a member. There is nothing from stopping other cartels forming in the oil market (other than laws). I think cartel is an appropriate description for politically active NIMBYs, they are engaged in limiting the supply of housing to maintain or increase prices.

        4. “Businesses don’t pay tax on capital gains from asset sales either.”

          Gain on sale of an asset makes its way into the bottom line of the business as income and hence affects company tax payable. A quote straight from the IRD website (http://www.ird.govt.nz/yoursituation-bus/ceasing/business-ceasing-depreciationrecovery.html):

          When you sell or dispose of an asset (other than a pooled asset) for a different amount from its adjusted tax value, you must make an adjustment in your end of year tax return to account for the loss or gain. The adjustment is generally made in the year you sell or dispose of an asset except when the business has ceased.

          “Tenants pay this tax, in the long run (ie if we changed the income tax rate today, the investor would face the burden of the tax change, but in the long run market prices would adjust to place the burden on the tenant.”

          Nonsense. You have a point in respect of, say, GST on rates which is an expense directly attributable to the running of the business but you have no case in respect of the income tax payed by the landlord. Do you really believe that profitable businesses are able charge more for their products or services than unprofitable business to account for the tax on their profits? Let’s, however, suspend disbelief and pretend that the market can absorb the increase in rents due to this increase in cost to the landlord. What would be the effect? An increase in profit (since the IRD does not accept that an increase in income tax constitutes an expense of the business), a consequential increase in income tax and a further increase in this hypothetical “cost”. The fact of the matter is that the amount of income tax the landlord pays is not a cost of providing the service nor is it a charge that applies to all landlords equally across the board. The ability of landlords to pass on the cost of their income tax to their tenants is about nil.

          “As for imputed rent. Look it up this is a well established concept”.

          I know exactly what it is..a concept. Income tax is payable based on actual transfers, not concepts.

          “But it is an income stream nonetheless.”
          That is a matter of definition. My definition is that there is no income stream and it is a definition shared by numerous tax authorities including our own IRD.

          “As an analogy think of two businesses. One business owns its own factory and buildings, the other rents them. The two business’s are otherwise identical. The first business makes more profit because it doesn’t pay rent. So where is that extra profit “coming from”? The answer is obviously from the value generated by use of the buildings.

          Poor analogy: individuals pay income tax on gross income, companies pay it on net income. If you want to treat individuals the same as companies then they would pay a whole lot less tax than they do at the moment.

          The key issue in respect of rental properties run by “investors” (per the IRD’s definition) is that for tax purposes their expenses are tax deductable (like a company) but the largest portion of their income (appreciation in the value of the asset which is realised on sale) is treated as tax free (like an individual).

        5. MFD, yes you have to pay tax on recovered depreciation on depreciable assets. That is basically tax you didn’t pay in previous years because you claimed the depreciation as an expense to your business. This almost never amounts to a capital gains tax because most assets do in fact depreciate over time. The exception to this is land which isnt depreciable and hence does not need to have depreciation recovered. I dont know where you got this idea that rental property investment has some special status? You have to claim recovered depreciation as a residential property investor on buildings just like anyone else (unles you have elected them to not be depreciable which will be the case for anyone buying a building now as the depreciation rate on buildings is zero). Even still this will not result in a tax payable on capital gain as in almost all cases you can attribute capital gain to land not the building (which is the reality in most cases).

          “The fact of the matter is that the amount of income tax the landlord pays is not a cost of providing the service nor is it a charge that applies to all landlords equally across the board. The ability of landlords to pass on the cost of their income tax to their tenants is about nil.”

          I am finding your argument very hard to follow here. But lets take a step back here for a second. Landlords, as individual businesses, can’t “pass on”
          any costs of operating their business to tenants. All they can do is charge the market price for rent. (Just like how oil and iron ore producers are currently finding they can’t pass on the costs of operating their business, just charge the market price!). So how is the market price determined? Well it is by a lot of factors obviously, but on the supply side more (or less) rental supply will be made available (in the long run) depending on the amount of investment in residential property. What affects the level of investment in residential property? The level of investment in residential property will, ceritus paribus, depend on the expected risk adjusted return on residential property relative to other investments. So when investors are deciding whether to invest in residential rental property, they have to form a view on the expected return they will receive. And what will be considered when they make this desicion? Well to a greater or lesser extent everything that will affect their return on investment This includes market conditions, expenses, and yes, tax. A tax bill of $1000 affects an investors return no differently to an expense bill to fix the gutters for $1000.

          Right imputed rent. You didn’t like my business analogy because individual cant claim expenses. As I have noted if the government were to charge imputed rent they would obviously have to allow expense claims, so that isn’t really an argument against charging imputed rent.

          Let me give you another example. The point I am trying to make it is more tax advantageous to own your own home than to rent. Lets say there are two individuals, Bob and Linda. They are good mates. One of them lives in Wellington and the other in Auckland. They both own their own homes. Now by way of chance, Bob the Wellingtonian gets a job in Auckland while Linda at the same time is transferred to Wellington. After some discussion they decide that the easiest thing will be for them to simply swap houses. Now they have two options. One is they retain ownership of their former houses and just swap accomodation. The other is they transfer ownership. In the first case they will be renting the houses to each other. In the second case they will continue to be owner occupiers with their new homes. So what is the difference? Well in the first case the IRD will be knocking on the door for their pound of flesh, and in the second case there is no tax to pay. Now this is a contrived expample. But lets scale it up to something meaningful. Imagine a NZ where property owners are largely not the same people as the occupiers of the property. In this scenario the IRD gets its pound of flesh. In the second scenario everyone owns their own home – no tax to pay.

          So what is the moral of the story – there is a significant tax advantage to an owner occupier home ownership structure than an investor/renter home ownership structure. Hence the government is incentivising home ownership. Hence the government is incentivising “homevotership”.

        6. I agree with Mathew W on the cartel issues. There are two solutions to cartels. One is to treat them like monopolies and regulate them better. The other is to expose them to competition. I think game theory states that if there are greater than 5 or 6 roughly equal sized entities then anti-competitive behaviour will break down. So I still think there is the potential for bottom-up reforms if carefully regulated to improve housing affordability.

          This summer when I visited Wellington and also my home city of Christchurch I have looked at infill housing and wondered how can we make that better. In other words how do we make the supply response of building up more responsive, higher quality and lower cost to give more value to the community?

          This was something I tried to tackle with my article -‘Where does top down meet bottom up’ – https://makingchristchurch.com/where-does-top-down-meet-bottom-up-755823328ca5#.3fjqu7xjg. Unfortunately the article was too long/complicated, abstract, confusing and probably missed the target.

        7. To me there is several problems to building up. One is excessive regulatory constraints -planning rules -recession planes, balcony requirements, minimum plot requirements, minimum parking requirements….. that are arbitrary and should not necessarily apply to every neighbourhood. The other is accumulating large enough plots of land in already built up urban areas to efficiently build up on.

          I think the Asian village examples were fascinating because it showed that it is not a given that when communities have control over planning rules in fast developing cities that they restrict development to maximise capitalise gains.

          I think it is possible to adapt that idea for our fast growing cities in NZ to solve two of the problems of building up.

        8. If that’s the case, why wouldn’t all ownership involve imputed rents? I could rent not buy a car. I could rent not buy my tv. Why stop at property?

        9. Its true Early commuter, you are right. I and I am sure most people would draw the line at real estate given its overall value and durability compared to other consumer durables.

  2. The Super City (thank you Rodney Hide) is our creation of a NZ equivalent – “state legislation that established multilayered review of many projects that were formerly regarded as entirely local.”

    1. A better analogy might be the establishment of overlapping district and regional councils that in some cases are both required to grant resource consent.

      Arguably, the establishment of a unitary council could be expected to reduce the stringency of the “double veto” system.

  3. The government are the only ones that can fix it, and I think they probably will. Remove the ability for councils to impose stupid zoning rules and the problem will go away. I doubt the government are as scared of the vocal minority as the council are.
    I get the feeling the government has already been in the council’s ear, hence the late changes to the unitary plan. ‘If you don’t fix the problem you have created, we will take your planning powers away completely’

    1. You’d think so, but those changes did include a new category called “large lot – residential”. All the spatial inefficiency of countryside living on metro urban land. The negative changes have occurred with the positive changes.

    2. I doubt it, Jimbo. Suburban homeowners are the key swing voters that get governments elected. No government can afford to upset them.

      1. You really think they may swing to Labour or Greens?
        Most rich NIMBYs would only ever consider swinging to Act, and I think National would be quite happy with that outcome anyway.

        1. Zoning doesn’t just affect Remuera and Orakei, Jimbo. It also has profound effects in more left-leaning places like New Lynn, Te Atatu, and Mt Roskill. It’s the sheer number of suburban homeowners that makes them politically powerful.

        2. Yep, but there are a lot of people who are wanting the government to do something to fix the housing crisis, so it might actually be a positive swing. I personally would be more likely to vote National if they managed to fix Auckland’s zoning.

  4. Bill English is a politician and understands that people are multifaceted beings, who want many things. People want better paying jobs, lower taxes, a fair society, environmental protection, asset growth and a plethora of other things. His own National Party chooses to prioritise for lower taxes and better paying jobs, they win elections on this basis. But as a politician he also acknowledges the other wants of society. So what Bill English narrates is true.

    William Fischel focuses solely on asset growth and pretends the other wants of society do not exist. Strip away the pretence to present Fischel’s theory in the negative and it becomes absurd. Fischel thinks urban planning rules come about because there is bottom up democratic pressure for lower growth, less equitable society and higher taxes.

    1. I don’t think most people think that far down the track. The risks associated with change feel direct to people, while the risks associated with stopping change feel indirect and speculative. The people opposing development (and favouring tight planning rules) generally think that they’re protecting valuable things, not imposing costs on others.

      I discussed this issue, sort of, in a post late last year: http://greaterakl.wpengine.com/2015/10/20/urban-policies-economists-and-anchoring-bias-2/

      1. High rates/taxation and high rents are actually very immediate, people can see their money vanish every month. You don’t need to speculate on the rent going up.

        My point is all competing wants are of immediate things and politicians have to decide which want to focus on. Fischel denies there are good competing choices and presents his theory as if it were the only game in town, but it is not. Acceding to any of these competing demands is a political choice.

        The choice Auckland Mayor Len Brown (Labour Party) made was to accede to coddling land values. The beneficiaries of the policy are middle class and above, not traditionally strong Labour supporters. Traditional Labour voters have seen their rents go up by about 25-30% during his two terms, a period of where inflation rose 12%. It has been an interesting political choice by Labour, if Fischel is correct it might even be the strongest choice, but I don’t know if it is to be the correct choice for Phil Goff.

        1. How has Goff shown a “more balanced approach” than Brown? Goff has made a massive dog whistle to the NIMBYs with this statement: “It shouldn’t be as people in the leafy suburbs are fearful of – going in with a bulldozer and knocking over the old villa in the beautiful streets.”

          No one is seriously proposing bulldozing villas. What Goff is really saying here is that he won’t support any new housing supply in central areas where demand is highest. The areas he mentions for intensification: Panmure, Mount Wellington, and New Lynn are all 11 -13 km from the city. So Goff is proposing prohibiting new housing in areas of high demand and low transport costs and pushing it to the outskirts and adding to transport problems.

          Brown hasn’t been perfect on housing but he has shown more courage in standing up to the home owning cartel than Goff has so far.

  5. Thanks Peter for your productive Christmas reading/writing. Excellent write up.

    I planned some holiday reading -‘Urban Economics and Urban Policy -Challenging Convention Policy Wisdom’ by Cheshire, Nathan and Overman, ‘Economics, Real Estate and the Supply of Land’ by Alan Evans and ‘The Death and Life of Great American Cities’ by Jane Jacobs. But unfortunately my order was late so they didn’t arrive in time for my holidays -doh.

    So far I have almost finished the Cheshire et al book which mainly looks at planning from a UK perspective but is pretty comprehensive.

  6. Regarding the home-voting thesis. Homeowners are less prevalent than commonly thought. The most commonly used statistic measures the proportion of owner-occupied homes. This peaked in the mid 70% level in 1991 and has been dropping since and is somewhere in the 60% range currently.

    But this doesn’t tell the full story. The proportion of people (adults over the age of 15) living in a owner-occupied home is only 49% and 43% in Auckland. This is because rental accommodation is more crowded than owner occupied housing. This percentage is dropping too (‘Generation Rent’ by the Eaqubs).

    This has several implications.

    Politically -the raw power of renters is on the rise -it may be hard to harness because as a group renters have many factors that make them less engaged in politics -they tend to younger, poorer and move more frequently (the average tenancy is two? years compared to owner occupiers being 6/7? years). But numerically the number of tenants exceed owner-occupiers and are rising.

    At the local government level it is not clear that when Councils/planners are consulting the community, which many legislations indicate they have to do, whether they take into account that the vocal home-owner group is actually the minority.

    1. Its also an assumption that all home owners want strict planning rules to protect their investment. There are plenty that would like their children to be able to afford to buy a house nearby,or that would like to live in a more dense and interesting area, or that believe in land rights, or that understand that higher density zoning makes their land worth more, or that just don’t care that much at all.

      1. I think you are right Jimbo. Most people I talk to think that the cost of housing has gone beyond ridiculous and just want something done about it. That includes home owners for the reasons you indicate. Those that want to restrict development -up or out – are mostly a vocal minority who are ignorant/uncaring of the wider effects on the community.

    2. Great summary Brendon. The political power of the homeowner lobby could turn out to be a self-limiting phenomenon. By voting to restrict supply in desirable areas, they prevent the number of homeowners from increasing.

      But numbers don’t mean much by themselves – they have to be matched by engagement and participation. In the past, I’ve argued that Councils have an active responsibility to seek representative input from their citizens: http://greaterakl.wpengine.com/2015/03/10/the-consultation-problem-who-submits-on-the-plan/

      Also, interesting list of books for summer reading. I’ve gotten a lot out of Jane Jacobs – in particular, her discussion of beneficial neighbourhood change is excellent.

  7. I totally agree with Bill English’s whole speech. Having worked with planners and politicians for decades I can give numerous examples of stupid planning for the wrong reasons, no planning when it was patently obvious planning was required and quite a few examples of pure corruption by politicians and planners. Planners quite frankly do not have the skills or knowledge to do a good job of planning our cities. I have seen far better work coming from non planners including from this blog than the current crop of auckland planners responsible for the unitary plan. I have sat through several hearings so far and although the panel are on to it, the auckland council planning team have created a nightmare raft of rules that are often illogical and will suffocate development. Scrap the unitary plan and expand the building code to provide some standards for light and air and let the real people building our cities get on with our job.
    Fischels premise that the homeowners drive zoning restrictions may be true outside NZ but that hasnt been my experience on the ground working with planners and councils. What I have noticed is the desire of planners to impose their own personal design philosophies( usually middleclass liberals ) on private property without any real understanding of what makes good design and what makes good cities.
    The endless red tape of micro planning drives up costs, delays supply, and forces people to make living choices that decades ago would never happen.For example the recent article about hot bedding where people share beds to reduce costs is directly a result of planners not allowing the market to provide enough housing . If we had an urban boundary, but had no height limits, then as the price of land rose then we would have gone up. If we didnt have rules stopping terrace housing we would have gone up and snuggled closer. Instead the planners vision is of more suburban housing on increasingly smaller lots with a slight relaxation on height to boundary so that the planner can have smaller ;lots. Micro infill to the extreme.
    Imagine if we hadnt adopted townplanning as slavishly as we had then we would have gone denser and higher as most other cities did throughout europe and america. Tighter building rules around light and air and fire would have prevented the worst of the hobson street towers. In my view planners do far too much damage to cities that is not justified by the little that planners do right.Certainly we would not have the blights of the suburbs that were planned by planners such as Manukau and beyond.By the way almost all the planners who designed Manukau drove their cars from old leafy inner suburbs where they lived in nice twee villas but ensured that the working class could never share the same environment because the rules they developed made it impossible to create anything other than suburban boxes on wide bland streets.

    1. I don’t always agree with the outcomes of planning processes – or the arguments that are advanced by the people responsible for the process. I think that planning practices could be improved in some areas.

      But, frankly, the worst ideas I’ve heard about urban planning have come from engaged community members at public meetings, not planners. When I attended a local meeting on the Unitary Plan and argued that zoning for more apartments would be good as it would give renters like me a shot at home ownership, a woman turned around and told me, in as many words, to come back when I had more money. For her, unaffordable housing was a feature, not a bug. And she was letting her democratically elected representatives know about it.

      Eric Crampton had a similar reaction upon attending a planning consultation meeting in Wellington, and he’s not exactly a cheerleader for planning: http://nzinitiative.org.nz/Media/Insights_newsletter/Insights_newsletter.html?uid=1118

        1. Reddell is so dry as to be combustible; somewhat to the right of Thatcher. Everything he writes is about protecting privilege and keeping out the plebs.

        2. Maybe but he wrote a pretty good first hand account of what happened in a community planning meeting.

    2. If we had an urban boundary, but had no height limits, then as the price of land rose then we would have gone up.

      I agree, this is totally absurd. By having an urban limit we increase the cost of building, making it less profitable to build here. It is hard to fathom how anybody can think if we make something more expensive we will get more of it, but Auckland.

  8. Page 20
    “Flat land in a rectangular survey area sold for 25 percent more than similar land in the metes and bounds area”
    Interested to know of more examples showing this value difference. Almost all suburban land developments look to avoid simple rectangular type development.

    1. Yes, that was one of the more interesting throwaway comments Fischel made in the book. I don’t know how land was surveyed in NZ – given NZ’s scale and topography I would imagine that there wasn’t much of an opportunity to implement rectangular grids. I wonder what they did in Australia.

  9. I find discussions on planning rules rather depressing for two reasons.

    The first reason is because, as Fischel notes, the planning profession has largely been captured by middle/upper class and political interests who seek to impose their (materialistic/expensive) values/preferences on others. The end result is that many planning rules unintentionally create large costs for low income households, which seriously detract from people’s quality of life. Minimum balcony requirements being a prime example.

    The second reason is because the planning profession doesn’t seem willing to acknowledge that it has been influenced by middle/upper class and political interests. Indeed, the planning profession is, in my experience, largely impervious to criticism. I get the impression that many planners lump critics of planning rules into the “raging neoliberal” basket , rather than recognizing that many critics are motivated by genuine concerns for people’s welfare.

    It’s hard to escape the somewhat ironic conclusion that the planning profession is now primarily a tool through which the middle/upper classes advance their interests. Much the pity.

    1. Chin up Stu the previous generation always leaves a few problems for the next generation to solve.

      There could be worse problems to fix….. I believe these problems are fixable in New Zealand.

      It is not exactly the Four Horsemen of the Apocalypse -Conquest, War, Famine and Death.

    2. I’d tend to take a more nuanced view on the issue. To the extent that the planning profession has been “captured” by certain political interests, it’s because it is sincerely interested/concerned about public feedback. It’s undoubtedly too uncritical about where that feedback is coming from, and how representative it truly is of society’s interests and desires. But I do think that it’s sincere.

      Elsewhere in the book, Fischel makes the point that stringent zoning and local democracy coincide in the US. The places that have the least planning – mainly in the former Confederacy – are that way because they have a history of undemocratic politics. Thanks to slavery and Jim Crow, the South doesn’t have as many channels for homeowner politics – no local referenda and no town councils.

      That being said, urban planning rules are so complex that there is plenty of room for a motivated technocrat to tweak them in one direction or another without attracting much notice.

      1. Planning and planners is far too focussed on ‘mitigation’; the starting point of the profession has become, and this is enshrined in the whole approach of the RMA, that all human activity is destructive and their job is always to wind it back.

        This is a reaction formed late last century in response to the excesses of modernist themes of planned progress from the first half of that century and earlier, essentially it is a late response to the externalities of the industrial revolution.

        Interesting the point about zoning being a response to the ‘chaos’ brought about by powered road vehicles: The Garden City movement was of course a reaction to the horror of the railway/factory world of 19th Britain.

        1. “Planning and planners is far too focussed on ‘mitigation’; the starting point of the profession has become, and this is enshrined in the whole approach of the RMA, that all human activity is destructive and their job is always to wind it back.”

          Also the environmental effects of a project are usually only examined at the local level. Little thought is given to the regional effect and what development will happen instead if a given development is declined. All development will have “adverse effects” if compared against doing nothing at all. But development needs to be compared against what is likely to happen instead. If an apartment block in central Auckland is declined then that pressure for growth doesn’t disappear – instead it is likely to show up as suburban growth on the city’s outskirts. It is ironic that development can be declined on environmental grounds when the net effect of declining it is much worse for the environment if examined at a regional scale.

      2. I think you’ve provided a “nuanced” view of intentions, which may be accurate – i simply dont know.

        However Im commenting more on outcomes, i.e. the planning profession has become a tool by which vested middle/upper class residents advance their interests. I dont think that’s particularly unique in terms of NZ’s democratic systems and processes, but i do think it has negative outcomes for low income households. Plus i don’t see a lot of critical awareness within the profession of how much damage it is doing …

        That’s why im depressed. Macroeconomics may also have something to do with it …

        1. Hell, many people say the same about economists: “They may have good intentions, but the outcomes of their recommendations are sometimes awful and I’m not sure they understand the resulting harms.”

          And there would be some truth to that. However, from the inside of the profession things often look quite a bit different. Instead of seeing only the outcomes, you also see the processes that people follow – i.e. the ways they’ve applied the available tools (or developed new tools) to address challenging problems.

          Think of the research you’ve done on planning regulations – e.g. MPRs and minimum apartment sizes. Somebody could look at that and say, “Oh, an economist recommends deregulation. He’s obviously ideologically motivated and ignorant of the risks.” But that obviously doesn’t do justice to the thought process (and analysis) leading up to that recommendation.

          Do planners have all the right tools? Probably not. University training and professional development could be more attentive to relevant economic principles, and more discipline around consultation process would be desirable. But Fischel’s work indicates that would not be a sufficient solution to urban planning problems by itself.

  10. Also, maybe I am stupid, but… as a home owner, what do I benefit if house prices go up?

    I can’t spend the increase. Yeah, I could get a loan against it, but I’d still have to pay it back.

    If I want to move to another, better house, the increased mortgage is much higher (e.g. let’s say my house is 200k, a home 2x as nice was 400k, extra 200k mortage. But if it’s 500/1000, that’s an extra 500k for the same improvement).

    I’m more likely to have investor rather than owner:occupier neighbours (also a negative)

    I can’t step off the treadmill e.g. move to TGA for a couple years then back.

    There are zero benefits from rising house prices for someone like me, with a little weatherboard 3 bedroom in a distant suburb.

    Well, one benefit: sell up and move to Rotorua, I guess?

    1. There are two things going on here.

      The first is that increasing house prices lead to a wealth effect – people often (but not always) respond to increased paper wealth by increasing their consumption. But, as you say, actually releasing the capital would mean moving out of the rising market. So the incentives to vote for restrictions that push up prices seem a bit confused.

      The second factor, though, is that people tend to be loss-averse, and they measure losses not against where they originally started by against their most recent position. For example, say you buy a house for $200,000 and it then doubles in price to $400,000 before falling back to $350,000. You will probably experience that as a loss of $50,000 rather than a gain of $150,000.

      My intuition is that homeowners voting for tight planning policies are probably more concerned about avoiding such losses in value from developments with adverse effects on their property. That’s why some people in Grey Lynn agitated against opening a Bunnings in their neighbourhood. Stopping a DIY store wouldn’t reduce residential property supply and hence drive up prices, but it might prevent some (hypothetical) negative externalities.

      Incidentally, this is why I find the language above about homeowner “cartels” a bit unsatisfactory – it implies that the aim is to keep prices rising, rather than minimising the risk that prices will fall in any given area.

      1. Re your second point… I have no idea what my house is worth so what I might lose. I bought it for X in 2010. It might be worth 1.5X in 2016. There’s no visible loss.

        1. Yes, but councils helpfully correct that information gap by publishing new rates assessments every three years.

      2. Honestly I think it is as much or more about suburb “status” (i.e. snobbish reasons) as it is about the actual dollar value of a house. People get utils from “status”. So it is about the relative value/status of their suburb compared to other suburbs.

        1. Interesting mechanic that is. If that were true, then it would also be a powerful driving force behind that tendency to build the largest possible house on a given lot. If you look at recent subdivisions there’s some pretty ridiculous looking ones out there.

          Although that can also be explained by the very limited zoning—if you can only build N houses (with N significantly lower than demand), then you’ll make the most profit by building N large luxury homes.

        2. I think that is a big part of it roeland. It is not (just) about bumping up average house values by requiring large homes, it is also because wealthier high status people live in bigger homes. Nice upper middle class families. Hence why its OK to have an enormous house on a given site, but illegal to split the exact same sized structure into multiple units. Less desirable people (for your suburbs status anyway) live in attached flats. Similarly the push to enforce higher quality – minimum balcony sizes / stud heights etc.

        3. That, and the eternal rant about “where are those people going to park and drive their car”?

          But wait: the funny thing is what happens next: someone rents / buys one of these big houses and then gets 4 flatmates. That how we work around not having smaller units available.

          So, the plebs moves into that suburb anyway, and those flatmates bring their own cars anyway. Problems avoided: zero.

  11. One of the main problems seem to be that the political side of the planning process has been captured by older middle class people who have no concept that not everybody wants to live like the did in the 1950’s. On Sunday I was at the Sculpture in the Gardens exhibition in Manurewa and after wandering around the exhibits, we went on the little train run by the “Friends of the Gardens” . The commentary – by an older woman, included quite a rave about how sad it was that people were being made to live on smaller sections these days and children could not climb plum trees in the back yard like she did in her young days. It was all about people being forced into a lesser standard of living.

    Just after the Unitary Plan was notified I was at the Albert/Eden bungalow festival and our meeting on the Sunday morning was interrupted by two older ladies who had come all the way from St Heliers to complain about the Unitary Plan. They had no interest in Bungalows – it was a Council meeting and they were quite prepared to hijack it – including a complaint about how dreadful it was that the Unitary Plan would have a height limit of 12m in the St Heliers Bay shops. Someone asked them what the limit was now . They had no idea. It was pointed out to them that the present limit was 12m and that there was no change proposed. Someone had wound those old girls up to the point where they would give up their Sunday morning to hijack a Council meeting from a position of absolute ignorance. And they all vote!

    1. Ha, classic! How did they react to being given information on the current height limits? Any sign of a change in position?

  12. 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.

    We are going to get more houses by taxing them?

    Is this mode of thinking like the MUL = anti-sprawl thing – where it was argued by people who favour harsh zoning that we’d get more apartments by making land more expensive?

    1. Consistent taxation of capital gains would tend to reduce land values, not increase them, as the expected value of future capital gains accruing from land ownership would be lower. Given your constant refrain of “land’s too expensive due to distortionary policy” I can’t see why you’d oppose this.

      In other words, it would encourage people to think of housing more as a consumption good – a place to live – rather than an investment good – a place to sell to someone else for a higher price in the future.

      1. Because I see it as a two part equation. Profit = Value – Cost. And yes I understand it can be much more complicated than that, but that is my basic understanding. There is a difference between value and cost.

        Hence my constant complaint with this blog – an artificial restriction on land availability ramps up the costs, profits become lower, less is built. And also my near constant agreement with this blog – make any restriction of the value of realisable (carparks, height restrictions, balconies…) in an investment, profits become lower, less is built. I want more stuff (primarily apartments) to be built.

        I categorise a capital gains tax as a loss of value in making the investment. Capital gains tax removes value from the investment, profits become lower, less is built. Then we add in the complications like where they act in tandem, if a state were to enact a capital gains tax it would improve its receipts by restricting land use to a greater degree. For instance America has a capital gains tax, I believe Fischel cites many examples where America has some zoning restrictions – the existence of America’s capital gains tax has not solved the problem.

      2. How do you think capital gains occur in the absence of an artificial restriction on land supply?

        It is derived from increasing agglomeration value of the land and therefore an investment for capital gain means investing to increase agglomeration values. We want to see much higher agglomeration values, taxing the mechanism by which these gains are realised is going to be unhelpful.

  13. I think a Land Value Tax is better than a Capital Gains tax, CGT punishes productive use of property as well. For example building an apartment block would increase the RV & thus when you sold it you have to pay tax on it, or under Rates you would have to pay higher rates. Under LVT an increase in the RV wouldn’t make a difference in your LV thus your tax burden wouldn’t be effected however the profits from the Property have increased. LVT punishes speculation, land banking & misuse of land, while CGT & Rates punish you for using your land more effectively. Economists from Milton Friedman to Krugman agree on the LVT. If the LVT was introduce to replace Rates, Resident Withholding Tax, Company Tax as well as create a Tax Free Freshhold allowing Low Income earners to keep more money we would have a stronger economy.

    “So the question is, which are the least bad taxes? In my opinion the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago.” Milton Friedman

    “Not only was Henry George correct that a tax on land is non-distortionary, but in an equilibrium society tax on land raises just enough revenue to finance the (optimally chosen) level of government expenditure.” Joseph Stiglitz

  14. I like the idea of a land value tax, but in NZ there is a lot of Maori land in collective ownership and with a tribal spiritual connection.

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