The last thirty years in the study of the economics of cities fairly can be described as ironic. Perhaps for the first time in the discipline’s history, studying cities became central to economic work on issues ranging from trade to growth. Both theory and empirics have pointed to the crucial role “agglomeration economies”—or the benefits workers and firms get from locating near one another—play in determining both how much the economy produces and how innovative it is.
But, over almost the exact same span, public policy has moved almost exactly in the opposite direction of scholars’ suggestions. By inhibiting new construction in the nation’s most productive metropolitan regions, land use laws have increased the price of housing and office space in, and thus restricted access to, the most productive locations for workers and firms. The normative side of modern agglomeration economics is the good advice we just can’t take. To solve the problem of America’s low growth rate, we will need to develop political tools to bring policy closer to the recommendations of economic theory about cities.
Starting in the 1980s, economists like Edward Glaeser, Paul Krugman, Robert Lucas, and Paul Romer engaged in path-breaking research that showed physical location is a crucial factor in determining both how much wealth any given rate of technology produces and the rate at which new ideas are generated.1 Locating in urban areas provides both firms and workers access to deep labor and consumption markets, allowing for specialization and providing insurance against firm- or employee-specific risk. Information spillovers between proximate workers can increase human capital and generate new ideas. And, firms that locate near suppliers face lower shipping costs. Agglomeration economies can increase both the rate at which new ideas are generated and the efficiency with which ideas, labor, and capital are exploited.
The central finding of this work is that capital, labor, and entrepreneurs will be more or less productive and creative depending on who and what else is nearby. An actress can be more productive in the labor market of Los Angeles than she is in the labor market of Phoenix. A firm might be more effective if it is nestled amid the dense set of similar (or usefully different) firms than it is if it is on its own. And individuals become more productive and produce more useful innovations by being near other people from whom they can learn.
But just as economic scholarship began focusing on how places can influence the productivity of labor and capital, legal restrictions began restricting access for new workers or firms to our most productive regions. Starting in the 1980s, demand to live in our most productive regions rose—particularly San Francisco, Silicon Valley, Los Angeles, New York, Boston, and Washington, D.C.—but new construction did not follow, resulting in increasing housing prices.
Economists and legal scholars like Peter Ganong, Glaeser, Joseph Gyourko, Andrew Haughwout, Rick Hills, Enrico Moretti, Daniel Shoag, and me (among many, many others) have shown that these housing price increases are the result of land use law regimes that have restricted growth.2, I Traditionally, commentators believed that, while rich suburbs might be able to substantially restrict new supply, land use rules would only limit where in a metropolitan area housing would be located. Whether it was in big cities or in the exurbs, there always would be somewhere where new housing could be constructed easily.3
But this belief has been overtaken by events. Prices have increased across entire metropolitan areas as a result of both greater land use restrictions in suburbs and newly restrictive center cities. These productive, rich metropolitan areas have either lost population or barely grown, while poorer but more housing-growth-friendly places have seen massive inflows. Notably, Silicon Valley lost population during the first dot-com boom, 1995–2000, and has barely seen any increase since, while less-rich places like Atlanta, Houston, and Phoenix have seen huge population inflows over the same period.4
Land use laws have had a huge effect on static efficiency of the economy and, perhaps, on the long-run growth rate. The magnitudes are enormous. Moretti and Chiang Tai-Hsieh estimate that land use restrictions have stopped enough workers from moving to higher productivity and high-wage positions to cost the economy nearly 13.5 percent of GDP!5 And that is just the static cost, or the benefit we would see if housing restrictions were fixed overnight.II There may be even greater losses in dynamic efficiency, in terms of all of the ideas that would have been generated if people were interacting in denser areas. But, even if the only losses are static, Moretti and Hsieh’s finding suggests we could goose economic growth for a substantial period of time by progressively removing these barriers.
Not only have land use restrictions limited growth, but they also play a central role in problems of inequality. In his review of Thomas Piketty’s work, Matthew Rognile showed that almost all of the gains to capital over the last seventy years have accrued to house and land ownership.6 The holders of scarce assets that play such a big role Piketty’s work are not like the landed aristocracy of yore, but are, in fact, the landed rich. But, rather than choice farmland, they own access to rich labor and consumption markets in the form of houses and apartments.
Similarly, restrictive land use restrictions affect virtually all of the other subjects discussed in this book. The number of jobs created by superstar firms is limited when there is no housing growth in the metropolitan areas in which they reside. Access to elite K-12 schools is conditioned on being able to buy property in the towns where they exist. And so on.III
But, simply noting that land use rules—zoning, subdivision rules, parking requirements, exactions, and development impact fees, building codes, historical preservation, environmental laws, and so forth—restrict growth excessively is only a first step. These rules exist for reasons, both good, if not sufficient to justify their extent (e.g., restricting externalities associated with new development, encouraging “sorting” among local governments) and bad (“homeowner cartels” restricting supply).
More pressingly, these rules are quite politically entrenched, supported not by formal interest groups, but, instead, by something far more powerful: “home voters.” As William Fischel has shown, a home constitutes a large and undiversified investment for most homeowners.7 Homeowners thus frequently use land use politics to insure the value of their investments. As Brink Lindsey notes, the “low-hanging fruit” of gains from reducing land use restrictions are guarded by fearsome “dragons” in the form of scared, undiversified homeowners.8
Local governments determine most land use rules. And in local politics—which lack mass political parties organized on local issues—these “homevoters” are the dominant players. They show up to zoning board meetings, vote in primaries and off-cycle local elections, and build community groups that engage in both activism and litigation to constrain construction. Sometimes growth advocates, buoyed by an electoral triumph or a big-spending developer, are able to get one-time increases in housing production. But the long-run politics of land use are stacked against new construction.
To think productively about land use politics, one can neither wish away the desires of homeowners to protect their investments nor assume that they will be regularly defeated in local politics by sheer force of argument. Their incentives are too strong, and local politics provides too few mechanisms for bringing mass opinion to defeat them. Instead, reformers need to think about how the process of making land use policies can be changed such that other interests—the interests of renters, of residents of the broader metropolitan area—are taken into account as well, balancing the influence of nearby homeowners on land use decisions.
I’ll provide some examples below of the types of reforms that should be considered. But before doing so, it is worth reviewing exactly why they are so important.
I. A Brief Tour of Agglomeration Economics
Before the turn of the last century, Alfred Marshall famously discussed why people and firms move to cities.9 After all, cities are a bit of a puzzle for a microeconomist. The cost of land and labor is higher, so for firms to choose to move there, there must be offsetting gains. As Robert Lucas later noted, those gains must be from population size and density. “What can people be paying Manhattan or downtown Chicago rents for, if not for being near other people?”10 Marshall discussed three forms of gains: reduced shipping costs, the benefits of deep markets, and what we now call information spillovers, or learning from one’s neighbors. For many years, these lessons fell a bit into the background, even in the field of urban economics.
But, with the rise of mathematical tools inside economics and technological advances, it became increasingly possible for economists to create locational models that incorporated location decisions.IV Starting in the 1980s, the “New Economic Geography”—championed by scholars like Masahisa Fujita, Paul Krugman, and Anthony Venables—focused on how shipping costs and linkages between proximate firms could explain regional and national growth patterns. And, in fact, most of the history of urban development in the United States has been driven by such linkages—export firms locating along transportation lines and input providers locating near them.11 But, with the fall of transport costs (at least domestically) and rise of the service economy, less and less of modern urbanization can be explained by these linkages. Other factors must drive modern urbanization.
Metropolitan regions and cities provide residents and firms with the benefits of deep markets. As shown in work by economists like Glaeser, Moretti, and Darren Acemoglu, among others, deep markets for labor are very important for workers.12 Compare an actress who moves to L.A. versus one who locates in, say, Washington, D.C.13 An actress in L.A. can specialize, perhaps becoming an expert at playing a zombie, while an actress in D.C. has to take whatever role comes in. The LA.-based actress can take classes on acting like a zombie, investing in her human capital, confident that there will be work in this narrow field. An actress in L.A. can more easily match with a firm who wants her specific talents, while matching in D.C. will be more difficult. And an actress in L.A. also has insurance against firm-specific risk. If her employer goes under for some odd reason, she can likely find another acting job without having to move, something that may not be true in a less-deep market for actors like D.C.
While labor markets are regional, other markets are far more local.14 Restaurants and stores often co-locate on the same block to allow for specialization and insurance for consumers against all restaurant options being booked. Even non-pecuniary “markets” show gains from depth. Young people often move to cities from rural areas to access their dating “markets,” which provide major gains from specialization, returns to investing in human capital, and insurance against a single breakup barring the possibility of participating in the dating market.
Further, residents of cities have important opportunities for learning. Technologists learn from other technologists in Silicon Valley, combining new ideas over lattes. It turns out that patents are far more likely to cite the work of other proximate researchers.15 And, as Glaeser and David Mare showed, wage growth is far faster in cities than elsewhere, a sign that workers in cities develop human capital at a faster rate.16 Again, these spillovers are local and specific. A lobbyist chatting with another lobbyist about legislative procedure is a spillover that increases each of their productivities. A lobbyist talking with anyone else about legislative productivity is a ruined dinner party.17 Information spillovers do not only increase our wealth, making us more productive, but also can increase growth or the development of new ideas.
The benefits of cities are matched, however, by their costs. Concentration drives up the cost of land. Economists call this “congestion.”18 Further, as I have noted elsewhere, some things that are bad, like crime, feature the same gains from agglomeration as ordinary economic activity does.
Over the last 30 thirty years, we have learned a great deal about how urban concentration can increase both the wealth of a society and its growth rate. Further, although agglomeration economies are, by their very nature, externalities, we have reasons to believe that private actors working on their own can coordinate to capture many of these gains. Letting people concentrate, and providing the infrastructure to allow them to do so (streets, water, transit) has been crucial to the growth of the American economy. As Glaeser argues, the city is one of the great inventions of mankind, and its growth is ever more essential to the growth of our economy.19
II. Excessively Restrictive Land Use Regimes: The Economic Costs of Local Politics
Just as research about the benefits of agglomerating at the regional and city levels was taking off, an ironic change happened in local and state policy. First, in California metropolitan areas and then in metropolitan areas on the east coast, land use restrictions began having an effect on region-wide prices and housing supply.20
This was contrary to scholars’ expectations.21 For decades, scholars had known that land use restrictions could limit entry into some rich suburbs. But they had assumed land use restrictions wouldn’t have a region-wide effect on housing supply or prices. There were several reasons for this. The ability to create unending sprawl and “edge cities,” like Tyson’s Corner outside of D.C., meant that there was always somewhere to build housing and office space. The sheer number of local governments, and sorting by population among them, meant that some towns were likely to be more pro-growth than others. And big cities, according to the dominant belief of political scientists, were understood to be dominated by “growth machine” coalitions of developers, businesses, and labor unions devoted to growth at all costs.
But these assumptions turned out to be wrong. As detailed by Glaeser, Gyourko, and Raven Saks, regional housing prices are substantially influenced by how strict land use policies are in the region.22 In the 1980s, big differences emerged between the price of housing and the cost of constructing housing in many regions. This “zoning tax” grew and grew, determining a large percentage of the cost of housing in tight markets. As a result, we have seen extremely high housing prices in regions from San Francisco to Boston. This has driven population away from these high-wage/high-productivity metropolitan areas and toward lower-wage but more-accommodating regions like Houston and Atlanta.
The rise of restrictive metropolitan areas has had a huge effect on the national economy. For most of American history through the 1980s, average state incomes converged, as population flowed from poor states to rich ones and investment flowed in the other direction. But something funny happened along the way. As Peter Ganong and Daniel Shoag have shown, this process stops in the 1970s and 1980s, at least for rich states with restrictive land use rules.23 While convergence has continued among states that do not use zoning restrictively, convergence slowed and then stopped for other states. Population does not flow from Mississippi to Connecticut anymore because you just can’t build enough housing in the rich parts of Connecticut.
For land use rules to have such a large effect, they have to be restrictive everywhere in a region. The big exceptions to this, traditionally, were the urban fringe, which saw increased sprawling construction, and the big cities, which were supposedly under the control of “growth machine” coalitions. But suburban communities have grown even more restrictive. Glaeser and Bryce Ward have shown that communities restrict even beyond the property value maximizing point, likely a result of limits put on the types of payments developers can make in return for the right to build.24 And, at some point, the development of exurban areas reaches a natural limit, and what were once edge communities end up looking like ordinary suburbs.
Big cities have also seen increased restrictions. Until the 1960s, when demand to live in Manhattan rose, new construction followed. But today, that is no longer the case.25 The higher demand to live in Manhattan following the fall in crime in the 1990s was not associated with increased housing construction. And housing construction in Manhattan and New York as a whole has lagged national population growth substantially, notwithstanding huge price increases.26 Other big cities like San Francisco and Boston have seen similar increased demand for housing, but little housing growth. The result is not hard to predict—very, very high prices.
But such restrictions do not only or even primarily work as they do in Manhattan, by limiting construction of big apartment towers. Most land in big cities is quite suburban in look and feel.27 The last thirty years have seen bans in neighborhoods on what has become known as the “missing middle” of the housing stock.28 Cities across the country used to allow all sorts of housing of middling density to be built—townhouses, dingbats, triple deckers, four-tops, and so on. These buildings, often built around streetcar stops, provided the heart of urban housing. But modern zoning restrictions have made building such housing nearly impossible in many major cities. Even detached homes built close together are frequently limited by minimum lot requirements. Below, I will discuss the political economy of why this has occurred, but, when one considers the restrictions of modern urban land use, the focus should be on incremental housing growth and not exclusively on limits on towers or major projects. Similarly, the density of suburbs has fallen dramatically, with post-war suburbs like Levittown having densities far beyond what we see built in suburbs today.
Finally, it is clear that these zoning restrictions are having a real effect on national economic growth. Moretti and Hsieh show that workers are more productive in some areas than in others.29 Allowing labor to flow freely would permit workers to move from low-productivity metropolitan areas to higher-productivity ones. The economy would increase as a result of labor becoming more productive. They find that this effect can be very, very large. If the only three richest regions—New York, San Francisco, and Silicon Valley—allowed sufficient housing to be constructed to permit an inflow of workers from other areas, the economy would be more than 10 percent larger. If all regions allowed entrants, the economy would be 13.5 percent larger.
Two things to note about this study: first, the numbers have to be offset by the gains we see from housing construction limits. Such policies surely produce benefits—new housing construction can harm views, generate noise, and create pressure on common-source resources. But economists like Glaeser and Haughwout have shown that these benefits are far, far outweighed by the cost of restrictions.30 A full accounting, however, also would include the environmental gains created by densification, particularly the reduction in greenhouse gas emissions.31
Second, Moretti and Hsieh’s estimate is very large, but it also excludes something important. Their finding is about the static costs of restricting housing construction. But surely it has dynamic costs, as well. If Silicon Valley’s population were larger, a greater percentage of “information spillovers” would be captured—people would learn from tech geniuses over lunch and create new businesses. Having universities in large cities has been shown to increase property values regionwide, as new businesses emerge from the interaction between people with ideas.32 Greater density in our urban areas would surely have some effects on the growth rate, as well as on the GDP level.
III. How to Spur Urban Growth: Structural Solutions to Political Problems
That zoning and other land use tools have become excessively strict in rich metropolitan areas is not much in dispute.V But there is also little reason to believe they are going anywhere. Zoning’s cleverest chronicler, Richard Babcock, once noted, that “[n]o one is enthusiastic about zoning except the people.”33 Homeowners are heavily invested in protecting the value of their homes and their sense of community.VI Land use restrictions allow existing homeowners to protect the value of their homes against increased supply, ensure semi-exclusive access to locally specific amenities (schools, parking spots, seats at popular restaurants), and reduce construction-related externalities (noise, lost views, etc.). Federal policies that contribute to the problem are similarly hard to see changing—e.g., the home mortgage interest deduction, the failure to treat as income the “imputed rent” paid to yourself when you own a home—also encourage local governments to zone for expensive housing.34 “Homeowner cartels” designed to dominate local land use politics have proven extremely stable and effective over time.35
Rather than simply arguing that such policies are unwise, reformers should think about how they might change the procedure for deciding land use rules. Today, most important land use decisions are made by individual towns. Even within cities, norms of “aldermanic privilege” means that such decisions about zoning amendments often are made by individual legislators or community groups at the neighborhood level. The result is that we end up with more restrictive land use rules than we might if different procedures were used. When people interested in allowing housing construction seize power, they should consider pushing procedural reform rather than trying to allow one-off new development projects.36
In this section, I will discuss two types of strategies: (1) changing the level of government at which land use decisions are made, and (2) changing the process or politics through which land use decisions are made inside cities.
a. Changing the level of government that makes the decision
While some important laws that limit housing construction are made by states—environmental review laws, for instance—the most consequential ones are made by localities. States have given localities substantial authority over zoning, building codes, historic preservation, subdivision requirements, parking minimums, and the like.
For decades, zoning critics have pointed to the possibility of moving zoning policy away from local governments and giving it to higher levels of government.37 Proposals to move land use policy-making authority to regional or state governments were originally a response to the problem of exclusive, rich suburbs. But removing local authority may also work to reduce excessive zoning across a region. After all, a metropolitan layer of government (or the state government) would take into account a broader set of views about the merits of any specific development project—not just the views of nearby neighbors, but also all of the renters and employers around a metropolitan area.
In practice, moving aspects of land use to a higher level often has resulted in more restrictions, rather than fewer. State environmental laws, particularly, have substantially restricted new development in places like New York and California, even (or particularly) infill development that most environmentalists see as important to reducing greenhouse gas and other types of emissions. Many regional or state land use laws serve as a “double veto” in Fischel’s terminology, a second bite at the apple for opponents of new projects.38 Rather than replacing local land use restrictions, higher levels of government frequently supplement them.
But there are a number of examples where broadening the scope of government involved in zoning and land use matters has resulted in less-restrictive land use laws. Regions in the South and West that allow for liberal construction of housing frequently feature large cities with substantial power to annex nearby territory, creating quasi-regional zoning.39 Regions like Seattle, in which regional bodies play a larger role in land use, have seen substantial new housing construction.40 And, in Ontario, the Ontario Municipal Board, a provincial body, acts as an appeals board for local land use decisions, reviewing them de novo. Although it has the power to reject any type of local land use decision, it most frequently acts on behalf of development projects supported by city planners but rejected by the City Council.41 Both its influence and the shadow it casts over development politics in Toronto are likely large reasons why Toronto has seen its housing stock increase substantially.
While this type of reform is attractive, it has downsides, as well. First, locals have greater information about any given project, and moving planning authority away from them reduces the capacity of the system to incorporate that information.
Second, and more pressingly, in the United States we put a great deal of stock in inter-local competition creating better local governmental outcomes.42 The existence of many local governments allows for “sorting” by citizens choosing their preferred package of taxes and services. It also creates pressure on local politicians to deliver the goods, lest they cause exit (or the absence of demand for entry) and declining property values. But, as Bruce Hamilton has shown, in absence of land use controls, inter-local competition between property tax-funded local governments is unstable.43 Once a local government creates a high-quality set of services, property owners have incentives to subdivide their property, allowing new entrants to get the services on an equal basis with other residents but only paying a fraction of the taxes. Thus, removing locals’ ability to restrict subdivision or construction would remove some of the incentives local governments have to provide high-quality services. Further, the efficiency of the property tax regime turns on the capacity of local governments to reject development.44
One way around this is to give local governments the power to zone, but encourage inter-local contracting. As Clay Gillette has shown, inter-local contracting is very hard, as courts find it difficult to enforce the terms of deals between local governments.45 Gillette suggests policies designed to encourage trading. One such policy he highlights is an aspect of the New Jersey’s legislature’s response to the famous Mt. Laurel decisions.46 The legislature required each town to allow or build a certain amount of affordable housing, but also allowed for towns to buy and sell these requirements to some degree. While the institutional mechanisms would have to be developed substantially, this type of policy might provide a way to encourage inter-local contracting.
Another possibility is that we should simply pay the price. Local control is a value, but its costs now outweigh its benefits and it should be curtailed. As I’ve argued, the very existence of local governments and the capacity to sort between them limits agglomerative efficiency, because, when individuals or businesses move to capture government services, they will be moving away from whatever their economically best location decision is.47 Further, there are plenty of reasons to believe that sorting for services is somewhat overrated; local governmental policies are frequently quite similar, except for their wealth levels, suggesting sorting frequently has more to do with perpetuating wealth differences than with supporting different policy preferences. And as Zach Liscow has shown, court decisions forcing greater sharing of property tax revenues for schools have been an important driver of the modern “return to the city.”48 Living in cities meant sharing a tax base with poor people, which caused people to move away from their most efficient location. School tax equalization decisions allowed them to return. Moving zoning authority to a higher level of government may have costs, but paying those costs would probably be worth it.
b. Fixing Local Land Use Procedure and Politics
Even if we changed the level at which zoning policy is made, it would not necessarily result in fast housing growth. After all, New York City is itself bigger than most U.S. metropolitan regions, and it has seen slow housing growth.49 Further, removing authority from local governments is clearly outside of the hands of local politicians or residents of any one city.
But those seeking sustained housing growth at the level of an individual city need not throw up their hands. Instead, they can look to procedural reforms that will encourage their city to allow more production by considering a broader swath of preferences in land use decisions.50 The key is moving away from a zoning process that considers each project or zoning amendment, one by one, and toward a more comprehensive approach.
Local government experts once assumed that big cities inevitably would be run by “growth machine” coalitions of pro-growth forces: developers, unions, downtown businesses. But land use changes generally are made through geographically specific seriatim zoning amendments. This makes citywide coalitions hard to maintain.
Big-city local legislatures rarely are organized by party coalition—they are either non-partisan or completely dominated by one party. In the absence of coalitions that can or need to present a citywide platform, local legislatures frequently devolve into what scholars call “distributive politics” norms.51 The most famous version of this is pork spending. Legislators may prefer less taxing and spending, but most prefer spending in their districts. They will only agree to limit spending on projects in their districts if everyone else does, as well. Unless they care about preserving jurisdiction-wide party brands from the embarrassment of having to raise taxes, and unless there are party whip apparatuses to enforce deals, legislators will not have the capacity to make deals to limit spending everywhere. Instead, a bad equilibrium can emerge. Every legislator votes for every other legislator’s pork project, lest everyone gang up and harm her pork project.
In the realm of land use, this is called “aldermanic privilege.” City councils regularly defer on zoning amendments to the member from the district in which the project arises. Voters and legislators likely would allow more projects to go forward, but are worried that their districts will become dumping grounds for all new development. Just as legislators all vote for each other’s pork projects, they all vote against new development when the local legislator is against it, even if the project would provide citywide benefits. The result is that big cities end up looking like a bunch of divided suburbs, with each district blocking new development. Greenwich Village can end up looking like Scarsdale, equally capable of blocking development that provides regionwide benefits.
Further, seriatim decisions on zoning amendments make incremental housing growth very difficult. When legislatures consider “down-zonings” or reductions in the size of the zoning envelope to current uses (so there is less or no “as of right” development), they do so in advance of any developer having made an investment. As a result, there is no big, repeat player around to lobby against them. The field is left to nearby homeowners, who oppose new construction and get the down-zoning passed. Huge swathes of cities are now zoned at or below current uses. To build anything bigger (or even to rebuild the exact same-sized structure when zoning is beneath current use), a developer would have to convince the city council to pass a new zoning amendment.
Down-zonings are brutal on the “missing middle” type of housing construction, because it is rarely worth it for developers of this type of housing to go through the costly and politically fraught process of winning a zoning amendment. It takes hundreds of thousands of dollars and many months, at a minimum, to get projects through the zoning amendment process in big cities. It is just not worth it for small developers. Incremental housing growth is thus stunted.
This process results in the steady decrease in cities’ capacity to grow their housing stock. But elections have stochastic results and, sometimes, mayors and city councils that support housing growth are elected. What should pro-growth politicians do when and if they seize power? One option is to simply to approve new housing. This, however, does little to address the real problem. Some new housing will get built, but the basic politics of zoning will continue on unchanged long after the pro-growth coalition is out of office.
Drawing on reforms that moved international trade politics from a similar public-choice nightmare to our current, largely free, trade system, I have suggested several procedural reforms that a pro-growth coalition could adopt to create a new equilibrium—one that would produce steady housing growth—going forward.
The first is a requirement that the city council pass a “zoning budget” every few years. Under this procedural requirement, the city council would empower the mayor to propose a target for housing growth for a period of time. The council could reject that proposal, but we might expect the mayor to choose the most pro-growth number the council would accept (mayors generally are more pro-growth than city councils are).
The target could be any number (including zero or a negative number), but, under the proposed rule, the council could not consider any down-zonings until it approved enough zoning changes to hit the target. Once it did, if it wanted to approve a down-zoning, it also would have to approve a matched zoning amendment that allowed new construction. The result would be that consideration of individual projects would follow a broader discussion of housing needs.
Why would this help? If a single decision about housing growth were made, it would encourage cross-neighborhood deals. Rather than making each decision seriatim, a budget process would encourage a single deal and, thus, alleviate prisoner-dilemma-like problems that cause distributive politics. A budget process also would remove the bias against incremental housing growth. Big developers would have an incentive to lobby for big budgets before they were sure about whether their projects were included. Their influence would not only help their own projects, but would be used against down-zonings, as well. Further, the budget process would encourage consideration of broader goals outside of the specifics of any given project, focusing attention on broader concerns.
But, if a city council can create a budget process, it can unwind it, as well. If a councilmember realizes that the budget process results in a project her constituents don’t like, she might try to get an exception to the budget rules. The key in the setup of the procedure would be a rule that said that any exceptions require redoing the entire zoning budget process. This would mean that the whole council (and the mayor) would have an incentive to stop any effort by a councilmember to get around the budget process.
Introducing budgeting would be a major change to the zoning process. But you could imagine smaller changes that have a similar flavor. The process for passing entirely new city plans is, in fact, a pretty similar process, as long as those plans have some power to restrain future down-zonings.52 Even an ordinary zoning amendment that includes many neighborhoods would achieve something similar. For instance, a mayor could propose a series of rezonings in every neighborhood along a new bus line, train route, or new park. The mayor then could announce that the upgraded service would happen only if the council approves enough new housing to justify it, effectively creating a “zoning budget” target for the project.
Cities could enact other procedural changes to speed housing growth. We know NIMBYs aren’t going anywhere, but they can be bought off with big enough side payments. Traditional efforts to do this rely on money coming from a developer. Sometimes this is done formally through public policy, particularly requirements that developers pay impact fees to provide neighborhood services. Sometimes it is done informally, through community benefits agreements (CBA), which are, in effect, contracts developers sign with neighborhood groups.53 Under a CBA, the developer pledges to provide a package of benefits (often jobs, changes to the project, or money for services) and, in return, neighborhood groups agree to support the developer during the zoning process.
But requiring developers to pay is effectively a tax on new housing, driving up its price. Instead (or in addition), we could use part of the benefits the city gets from new development to pay off neighborhood groups. The city could give property owners near a new development a percentage of the “tax increment” created by a new project. (The tax increment is the new tax revenue created because of the zoning change—the increased value of the property times the property tax rate). This would make neighbors effectively partners in a new development project, rather than opponents. The payoffs would not tax housing construction and, thus, would not increase housing costs generally.
A completely different way to go would be to try to change local politics more broadly. Recall that one of the major reasons that zoning politics is so restrictive is the absence of city-specific political parties with incentives to promote citywide party brands. One could imagine attempting to create such “parties,” even in formally non-partisan cities.
Elsewhere, I have proposed some election law reforms that would encourage locally oriented party competition.54 But one need not wait for big-bang political changes. Private groups have supported groups of candidates using tools called “slating commissions.” In effect, these become citywide parties. The most effective version of this might be a major public figure in local politics—someone like, say, Michael Bloomberg—creating a policy platform and telling local candidates that they’d receive his endorsement (and campaign cash) if the candidate adopted and promoted her adherence to the platform.55 The creation of citywide parties would encourage proposals that were more sensitive to the broader citywide interest and less to specific neighborhoods.
Regardless of which direction they take, efforts to change public policy to allow for faster urban growth should focus on changing the process through which local decisions are made.
Economic growth in the United States has slowed. There are few pieces of “low-hanging fruit,” or changes that can relatively easily bring growth back. Land use reform is one of them. But, to achieve it, we need to fix the process of local land use decision making. This will require sustained effort by pro-growth forces in unlikely places. Reformers will have to get their hands dirty in a type of politics that is both more intense and less rarified than they are used to: zoning board meetings, community group potlucks, city council primaries. Local politics has held back national economic growth, and we need to engage with local politics to cure its defects.
About the Author
Professor Schleicher is an Associate Professor of Law at Yale Law School and is an expert in election law, land use, local government law, and urban development. His work has been published widely in academic journals, including the Yale Law Journal and the University of Chicago Law Review, as well as in popular outlets like The Atlantic and Slate. Schleicher was previously at George Mason University School of Law. He is a 2004 magna cum laude graduate of Harvard Law School. He also holds an MSc in Economics from the London School of Economics and an AB in Economics and Government from Dartmouth College.
- It is perhaps fairer to say that work in this area blossomed in the 1980s with the rise of the New Economic Geography. It, of course, drew on earlier work, most famously Alfred Marshall’s discussion of the benefits of cities. And there was always some important work on urban economics being produced. For a history of this development, see Schleicher (2010); Krugman (1995).
These costs far outweigh our best estimates of the benefits these policies create in terms of reduced externalities from property use. See Haughwout et al. (2014); Glaeser, Gyourko, and Saks (2005b).
For the rest of the paper, I will focus on the implications for growth and not for these other issues, but it should be noted that the potential benefits from land use reform are broader than simply improving economic growth.
Models of locational decisions need to incorporate increasing returns to scale and feature multiple equilibria, making them very messy and particularly difficult to work with before revolutions in computer technology. For a discussion, see Krugman (1995); Fujita et al. (1999).
Even the economist who has done the most to justify modern zoning policy, William Fischel, agrees. “The problem is that local zoning allocates too little land for all uses, including housing. This withdrawal of land from available supply, and the difficulty of getting it back into play, causes housing prices everywhere to be too high and probably causes excessive metropolitan decentralization.” Fischel (2010).
- One type of policy not considered here is using tax and other types of policies to discourage homeownership (or at least subsidize it less). Two very prominent books—Fischel (2015) and Fennell (2009)—propose versions of this, suggesting a suite of policy ideas ranging from removing the mortgage income deduction, taxing as income the “imputed rent” homeowners charge themselves, reducing the subsidies for homeownership that run through the Federal Housing Administration and other government entities, and even changing background property law principles. These ideas are important and may work to reduce demand for excessive zoning. However, a cautionary note is worthwhile. Jurisdictions like New York City already have low homeownership rates, but still have increasingly strict zoning rules, as heavily invested homeowners (and rent-control protected renters) are the biggest players and less-invested residents pay less attention to land use politics. Reduced homeownership (or homeownership stakes) may simply empower those who remain heavily invested.
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Fischel, William A. 2010. The Evolution of Homeownership. 77 U. Chi. L. Rev. 1503, 1529.
Fischel, William A. 2001. The Homevoter Hypothesis: How Home Values Influence Local Government Taxation, School Finance, and Land Use Politics.
Fischel, William A. 2015. Zoning Rules! The Economics of Land Use Regulation.
Fujita, Masahisa, Paul Krugman, and Anthony J. Venables. 1999. The Spatial Economy: Cities, Regions, and International Trade.
Frug, Gerald E. 1999. City Making: Building Communities without Building Walls, 143–149.
Ganong, Peter, and Daniel Shoag. 2014. Why Has Regional Convergence in the U.S. Stopped? 1 (Harvard Kennedy Sch., Working Paper No. RWP12-028, 2012). http://ssrn.com /abstract=2081216.
Glaeser, Edward L. 2008. Cities, Agglomeration, and Spatial Equilibrium.
Glaeser, Edward L. 2008. Houston, New York Has a Problem. City Journal.
Glaeser, Edward L. 2008. Rethinking Federal Housing Policy: How to Make Housing Plentiful and Affordable.
Glaeser, Edward L. 2011. Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier and Happier.
Glaeser, Edward L., and Joseph Gyourko. 2002. Zoning’s Steep Price. Regulation.
Glaeser, Edward L., and Joseph Gyourko. 2003. The Impact of Building Restrictions on Housing Affordability. 9 Fed. Res. Bank N.Y. Econ. Pol’y. Rev. 21, 35.
Glaeser, Edward L., Joseph Gyourko, and Raven E. Saks. 2005. Why Have Housing Prices Gone Up? 95 Am. Econ. Rev. 329, 329.
Glaeser, Edward L., Joseph Gyourko, and Raven Saks. 2005. Why Is Manhattan So Expensive? Regulation and the Rise in Housing Prices. 48 J.L. & Econ. 331.
Glaeser, Edward L., Hedi Kallal, Jose Scheinkman, and Andrei Shleifer. 1992. Growth in Cities. 100 J. Pol. E. 1126, 1127.
Glaeser, Edward L., and Janet E. Kohlhase. 2004. Cities, Regions and the Decline of Transport Costs. 83 Papers. Regional Sci. 197, 198–199.
Glaeser, Edward L., and David C. Maré. 2001. Cities and Skills. 19 J. Lab. Econ., 316, 316–319.
Glaeser, Edward L., and Giacomo A.M. Ponzetto. 2010. Did the Death of Distance Hurt Detroit and Help New York? Agglomeration Economics 303, 305 (Edward L. Glaeser, ed.).
Glaeser, Edward L., and Bryce A. Ward. 2008. The Causes and Consequences of Land Use Regulation: Evidence from Greater Boston. 65 J. Urb. Econ. 265, 265.
Gyourko, Joseph, Albert Saiz, and Anita Summers. 2008. A New Measure of the Local Regulatory Environment for Housing Markets: The Wharton Residential Land Use Regulatory Index. 45 Urb. Stud. 693, 713.
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Hills, Jr., Roderick J., and David N. Schleicher. 2015. Planning the Affordable City. 101 Iowa L. Rev. 91 (2015)
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- For just some classic works, see Romer (1986); Lucas (1988); Krugman (1995); Fujita et al. (1999); Glaeser (2008a); Moretti (2014). For a review of this literature, see Schleicher (2010).
- For a literature review, see Schleicher (2013). For some examples, see Ganong and Shoag (2012); see Glaeser (2008a); Glaeser and Gyourko, (2002); Glaeser and Gyourko (2003); Glaeser, Gyourko, and Saks (2005a); Glaeser, Gyourko, and Saks (2005b); Haughwout et al. (2015); Hills and Schleicher (2012); Hills and Schleicher (2015); Moretti (2014); Schleicher (2013).
- For a discussion of the literature making these assumptions, see Schleicher (2013).
- Avent (2011).
- Moretti and Hsieh (2015).
- Rognile (2015).
- Fischel (2001).
- Lindsey (2015).
- Marshall (1953). It was originally released in 1890.
- Lucas (1988).
- Glaeser and Kolhase (2004); Glaeser and Ponzetto (2010).
- Acemoglu (1996); Moretti (2014); Glaeser (2008a); Glaeser and Mare (2001).
- This example is taken from Rodriguez and Schleicher (2012), and it was used in several other places previously.
- For a review of the gains from non-labor market depth, see Schleicher (2010).
- See Jaffe et al. (1993).
- Glaeser and Mare (2001).
- This is taken from Rodriguez and Schleicher (2012).
- See Schleicher (2010) for a review of congestion and negative agglomeration costs.
- Glaeser (2011).
- Fischel (2010); Glaeser, Gyourko, and Saks (2005a); Glaeser, Gyourko, and Saks (2005b); Schleicher (2013).
- For a review of this literature, see Schleicher (2013). For an example, see Ellickson (1973).
- Glaeser, Gyourko, and Saks (2005a); Glaeser, Gyourko, and Saks (2005b).
- Ganong and Shoag (2012).
- Glaeser and Ward (2005).
- Glaeser, Gyourko, and Saks (2005b).
- Smith (2014).
- For a discussion of how generally suburban-feeling many neighborhoods inside American big cities are, see Kolko (2015)
- MissingMiddle.Com (2015).
- Moretti and Hsieh (2015).
- Moretti and Hsieh (2015); Glaeser, Gyourko, and Saks (2005b); Haughwout et al. (2014).
- See Glaeser (2011) for a discussion.
- Haughwout and Inman (2004).
- Babcock (1966).
- See Glaeser (2008b) for a very long discussion of why federal policy in this area is anti-urban.
- The evocative term “homeowner cartel” comes from Ellickson (1972). An important and hard-to-answer question is why homeowner cartels are stable, or, rather, why neighborhood groups opposing new housing don’t see defections (people who want to build while other people can’t) or collective action problems (just not showing up.) Some political institutions, like the community boards used as a formal part of New York City’s zoning process, can provide neighbors with some capacity to monitor each other’s participation and deviations. But this is a question worthy of substantial future study.
- For a long discussion of the political economy of this tradeoff, see Schleicher (2013); Hills and Schleicher (2011).
- See Frug (1999).
- Fischel (2015).
- For a review, see Schleicher (2013).
- See Hills and Schleicher (2015); Smith (2015).
- Moore (2013); Smith (2015).
- For a review of research on sorting, see Schleicher (2010). All discussion of sorting began with the classic work in the field, Tiebout (1956).
- Hamilton (1975).
- Fischel (2015).
- Gillette (2001); Gillette (2006).
- See Mt. Laurel I; Mt. Laurel II.
- Schleicher (2010).
- See Liscow (2015).
- Smith (2015).
- This whole section draws on Hills and Schleicher (2010); Schleicher (2013); and Hills and Schleicher (2015).
- Weingast (1979); Cox and McCubbins (2007); Kiewet and McCubbins (1991).
- See Hills and Schleicher (2015).
- See Been (2010).
- See Schleicher (2008).
- See Schleicher (2012).