In recent years, and especially over the last few months, economists and other public policy experts across the political spectrum have come to realize that zoning rules are a major obstacle to affordable housing and economic opportunity for the poor and lower middle class. By artificially restricting new construction, zoning and other similar land-use restrictions greatly increase the price of housing, and prevents the market from adjusting to increasing demand. This emerging consensus is a good sign, though it may be difficult to translate it into effective policy initiatives.
Libertarians and other free market advocates have criticized zoning on such grounds for decades, at least as far back as the late Bernard Siegan’s classic 1972 book Land Use Without Zoning. Present-day pro-market scholars such as Steve Horwitz and Harvard economist Edward Glaeser have continued in a similar vein. More recently, however, the critique of zoning has been taken up by prominent left of center commentators. One particularly notable example is this widely quoted recent speech by Jason Furman, Chairman of President Obama’s Council of Economic Advisers, where he summarizes the evidence on zoning, as follows:
[E]xcessive or unnecessary land use or zoning regulations have consequences that go beyond the housing market to impede mobility and thus contribute to rising inequality and declining productivity growth…
[S]ome land use regulations can be beneficial… But in other cases, zoning regulations and other local barriers to housing development allow a small number of individuals to capture the economic benefits of living in a
community, thus limiting diversity and mobility. The artificial upward pressure that zoning places on house prices
— primarily by functioning as a supply constraint — also may undermine the market forces that would otherwise determine how much housing to build, where to build, and what type to build, leading to a mismatch between the types of housing that households want, what they can afford, and what is available to buy or rent….
Zoning and other land use regulations, by restricting the supply of housing and so increasing its cost,
may make it difficult for individuals to move to areas with better-paying jobs and higher-quality schools.
Furman’s speech includes a good overview of the academic literature on the subject, which finds that in many cities, zoning restrictions artificially inflate the cost of housing by as much as 50 percent. Other prominent left of center commentators who have recently advanced similar critiques of zoning include Paul Krugman, Noah Smith, and Matthew Yglesias. As Krugman puts it, “this is an issue on which you don’t have to be a conservative to believe that we have too much regulation.”
The growing left-wing critique of zoning is particularly significant because the most liberal cities also tend to be ones with the most restrictive zoning laws, and the highest housing costs. In earlier posts on this subject, I have argued that this tendency is probably the result of voters’ ignorance of the effects of zoning, rather than callous indifference to the needs of the poor. Nonetheless, it would be good if more politically influential liberals become aware of the problem, and began advocate measures to curb zoning.
The newly emerging consensus on zoning is far from universal. Efforts to address the problem face opposition from influential developers and other interest groups who benefit from the status quo. A system in which only a favored few can obtain the right to construct new housing benefits owners of existing housing stock (the price of which would likely fall if more were built), and also politically connected developers, such as Donald Trump. As Trump himself put it, “[l]ike all developers, my father and I contributed money to [then-New York Mayor] Beame, and to other politicians. The simple fact is that contributing money to politicians is very standard and accepted for a New York City developer.” In cities with restrictive zoning regimes, those with less political clout than the Trumps of the world usually find it difficult or impossible to get permits for new construction.
In addition to these interest groups, zoning reform is also opposed by many local government officials and urban planners, who are ideologically committed to zoning, and do not want to see their powers curbed. This is one of a number of cases where public ignorance and perverse incentives lead state and local governments to undermine property rights in land in ways that often disproportionately harm the poor.
Among those who support reform, there is disagreement between advocates of a more technocratic approach to limiting zoning, and those like Edward Glaeser and myself who would prefer to follow the excellent example of Houston, and abolish zoning altogether. In my view, the latter solution is preferable in a world of widespread voter ignorance, where the public is unlikely to be able to monitor the extremely complex details of zoning closely to ensure that it will not serve narrow interest groups at the expense of the general public.
Despite its limitations, the growing cross-ideological agreement on zoning is a valuable development. Similar cross-ideological agreement among experts helped set the stage for airline deregulation in the late 1970s, creating enormous benefits for consumers. The potential benefits of zoning deregulation – greatly increased housing and job opportunities for millions of people – might be even greater.
UPDATE: As New Zealand-based economist Eric Crampton pointed out to me on Twitter, a similar cross-ideological consensus may be emerging in that country, as evidenced by this recent article coauthored by free market advocate Oliver Hartwych, and Labor Party Housing Spokesperson Phil Twyford.
UPDATE #2: This post responds to me by arguing that Houston, despite its lack of zoning, has a variety of other dysfunctional land-use restrictions. That is true. But Houston still has much less in the way of regulatory obstacles to development than other large cities, which do have restrictive zoning. That is one of the reasons why many people are “voting with their feet” for Houston and other cities with similar policies. The point is not that Houston is perfect (it is far from it), but that following its example would be a huge improvement for many other cities.
NOTE: In the original version of this post, I accidentally misidentified CEA Chair Jason Furman as “Jesse” Furman. I apologize for the error, which I have since corrected.