Zoning Out

“Arguably,” writes economist Edward Glaeser,

Image result for zoning lawsland use controls have a more widespread impact on the lives of ordinary Americans than any other regulation. These controls, typically imposed by localities, make housing more expensive and restrict the growth of America’s most successful metropolitan areas. These regulations have accreted over time with virtually no cost-benefit analysis. Restricting growth is often locally popular.  Promoting affordability is hardly a financially attractive aim for someone who owns a home.  Yet the maze of local land use controls imposes costs on outsiders, and on the American economy as a whole.

…[The] most productive parts of America are unaffordable. The National Association of Realtors data shows median sales prices over $1,000,000 in the San Jose metropolitan area and over $500,000 in Los Angeles…America’s affordability problem is local, not national, but that doesn’t mean that land use regulations don’t have national implications. Historically, when parts of America experienced outsized economic success, they built enormous amounts of housing. New housing allowed thousands of Americans to participate in the productivity of that locality. Between 1880 and 1910, bustling Chicago’s population grew by an average of 56,000 each year. Today, San Francisco is one of the great capitals of the information age, yet from 1980 to 2010, that city’s population grew by only 4200 people per year.

…Land use controls that limit the growth of such successful cities mean that Americans increasingly live in places that make it easy to build, not in places with higher levels of productivity. Hsieh and Moretti (2015) have estimated that “lowering regulatory constraints” in areas like New York and Silicon Valley would “increase U.S. GDP by 9.5%.” Whether these exact figures are correct, they provide a basis for the claim that America’s most important, and potentially costly, regulations are land use controls.

…Land use controls may be benign even if they restrict growth and increase prices. Their proponents argue that they prevent environmental damage and reduce the downsides of local growth to the community. Theoretically, it is at least conceivable that America’s web of locally-constructed zoning codes have worked out to be a finely tuned system that functions like a perfect Pigouvian tax internalizing all the offsetting externalities of all new construction.

Yet such a view seems untenable. Getting the right national policy requires comparing the social costs of building in one location versus the costs of building elsewhere. Few localities seriously consider the negative impact that restricting buying will have on non-residents of their town. No locality considers the impact that their local rules may induce more building elsewhere.

We’ve written on zoning laws before. As Glaeser concludes, “Reforming local land use controls is one of those rare areas in which the libertarian and the progressive agree. The current system restricts the freedom of the property owner, and also makes life harder for poorer Americans. The politics of zoning reform may be hard, but our land use regulations are badly in need of rethinking.”