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A joint review of William Fischel’s “Zoning Rules!” and “The Homevoter Hypothesis”
What if you could purchase membership in a full-service residential club guaranteeing you not only a nice neighborhood for your house, but also insurance against loss of property value in your home? Perhaps such a club sounds like a private planned development run by a homeowner association. And perhaps it could be. But according to William Fischel in Zoning Rules!, it also describes the zoned residential suburb.
Zoning came late to US land use, not arriving until the 1910s. Moreover, when zoning first appeared, its constitutionality wasn’t obvious. After all, when a municipality imposes a zoning ordinance, it confiscates certain rights of use from the landholders subject to the ordinance. This is an uncompensated partial taking of property. Municipalities are creatures of the state they’re incorporated in, meaning the state permits them to inherit its taxing, police, and eminent domain powers. There’s no question, then, that municipalities can constitutionally take property from their residents under certain conditions. Even so, taking by eminent domain should involve just compensation. Furthermore, most of us consider it unjust for the state to usurp one party’s property rights for another party’s private benefit, even with compensation (see Kelo). Zoning’s practical effect is often to do just that – to take property rights from landowners interested in certain forms development in order to benefit landowners opposed to those forms of development. Why is this even allowed?
As I said, at first it wasn’t certain it would be allowed. When zoning ordinances first began spreading, several state courts struck them down as unconstitutional. But the new zoning craze also proved immensely popular – too popular for lower courts to stop. States circumvented courts’ prior rulings of unconstitutionality by amending their state constitutions, and in 1926, the Supreme Court finally ruled zoning constitutional in Euclid v. Ambler.
To make zoning constitutional, the Court had to construe zoning not as exercise of eminent domain, but instead of the police power, which entitles states (and thus their municipalities) to enact regulations to promote “health, safety, morals, and general welfare.” For example, the police power enables municipalities to supplement the common law of nuisance with their own nuisance-control statutes. While zoning oversteps the bounds of nuisance control by prohibiting activities no reasonable court would rule a nuisance, the Supreme Court reasoned that the uses zoning prohibited could be conceived of as “near nuisances,” and near nuisances were close enough for government work. In Justice Sutherland’s words,
With particular reference to apartment houses, it is pointed out that the development of detached house sections is greatly retarded by the coming of apartment houses … until, finally, the residential character of the neighborhood and its desirability as a place of detached residences [may be] utterly destroyed. Under these circumstances, apartment houses, which in a different environment would be not only entirely unobjectionable but highly desirable, come very near to being nuisances.
Once zoning laws appeared, they quickly swept the nation. They were and still are immensely popular. But why, if zoning laws have proven so popular, did they take so long to arise?
Fischel’s answer is that zoning had to await the rise of modern transportation. The story that municipalities needed expanded police powers to control nuisance (or near-nuisance) in teeming American cities might be the legal fiction that justified zoning constitutionally, but if that were the real story, Fischel notes, “Accounts of urban conditions in the eighteenth and nineteenth centuries leave little doubt that the nuisances and near-nuisances that were said to give rise to zoning were much worse” and “American cities would have had [zoning] decades if not centuries before its actual inception.”
Before the rise of streetcars and automobiles, people of all classes typically walked to work, with wealthier workers paying a premium to have less distance between their dwelling and workplace than poorer workers. Increasing the separation between work and home life simply wasn’t in demand. Not until the rise of streetcars were workers wealthy enough to afford the daily fares able to conveniently commute to homes in secluded enclaves away from industry. Once they tried this new arrangement, they found it good. As streetcar fares became more affordable, these suburban enclaves faced encroachment from lower-income development, but that encroachment could be deterred somewhat by judicious placement of streetcar lines.
Meanwhile, those who could afford the first automobiles were able to purchase houses in even more secluded areas. But as automotive technology developed, so did trucks and passenger buses. Trucks and buses enabled heavy industry and low-income neighbors to penetrate right into the heart of these newly-beloved single-residence suburban enclaves, threatening not only existing residents’ peace and enjoyment, but also their property values.
A home is a huge undiversified investment. It is therefore crucial to homeowners’ financial security – and to the profits of those selling homeownership – that homes be made a safe investment. If homes aren’t perceived as a safe investment, people won’t buy homes (which, incidentally, may be another reason why so few millennials own homes – what person coming of age during the housing crash would think of a home as a safe investment?). There’s homeowner’s insurance, of course, but it doesn’t typically insure against the encroachment of undesirable neighbors. Only a few insurance schemes indemnifying against changing neighborhood character have been tried in America, suggesting they’re troublesome to arrange. Private arrangements such as HOAs have long been attempted to exclude undesirable encroachment, but typically not on a town-wide scale (only a few private associations have ever been that big), and smaller regions of protection are more vulnerable to whatever ills might impinge on their borders. Zoning to the rescue!
With zoning, it’s possible for an entire suburb to incorporate, enact zoning laws, and exclude undesirable neighbors. Zoning to exclude by race has been unconstitutional since 1917, but zoning to exclude neighbors with many other “undesirable” characteristics has to this day proven quite effective, whether the undesirable characteristic is being a business disagreeable to the neighborhood, or simply being a family unable to afford a standalone home on a ridiculously large lot. Zoning that too obviously excludes “undesirables” is derided as “exclusionary zoning”, but really, all zoning is exclusionary – that’s the point. The immense popularity of zoning is explained by the immense popularity of homeownership, and zoning’s power to turn suburban municipalities into what are effectively private homeowners’ clubs.
Purchasing a residence in the municipality purchases club membership, property taxes serve as club dues, and municipal services become club amenities. More specifically, Fischel emphasizes, municipal services become club amenities because of zoning: Zoning empowers municipalities to exclude newcomers who would consume club amenities (municipal services) without paying their share of club dues (property taxes). For example, converting a large house into apartments risks adding many new residents to a town without adding appreciably to the town’s tax base, so zoning often prohibits such a conversion. Zoning also empowers towns to exclude commercial activity which might risk diminishing neighboring home values enough to cause net erosion to the town tax base – as well as causing a whole lot of angry homeowners.
The real-estate market is efficient enough that nearly every neighborhood amenity and disamenity gets capitalized into (reflected in) homeowners’ property values. (Are your neighbors’ houses nicer than yours? That increases your own home’s value. Are your property taxes too high? Then your home’s value decreases accordingly: the market includes the taxation in the real cost of buying your house, and discounts your home’s price proportionally. Do you live in a prestigious school district? As long as public schooling remains the norm, there’s unlikely to be a shortage of parents willing to pay ’til it hurts to secure a spot in your district for their kids, greatly adding to your home’s value. Etc.) Homeowners have a lot to lose, and the prospect of being held hostage by a house devalued through neighborhood events outside one’s control is never a pleasant one. Therefore homeowners make it their business to bring these events, as much as is possible, under their control. Not only are homeowners vigilant neighbors, but they’re actively involved in local politics. How could they afford not to be? As Fischel puts it, municipal zoning turns homeowners into homevoters.
Though zoning ordinances are meant to appear intimidatingly rigid, Fischel observes that suburban zoning is fairly responsive to homevoters’ demands. If enough homeowners welcome a development, a municipality can often find a way to allow it no matter what the zoning ordinances say. If homeowners do not welcome a development, even one permitted by existing zoning, it’s often possible to rezone as needed to prevent development, using tools such as interim zoning and permit moratoria to buy time while a more restrictive ordinance is passed. If homeowners don’t welcome a development, but would welcome it if the developer sweetened the pot, exactions and side payments to neighbors can help close the deal. Such inducements could go by the unlovely name of bribery, but as Fischel sees it, zoning is less law than it is a collectivized property right: homevoters agree to cede certain individual land-use rights to the municipality on the understanding that the municipality’s employment of those rights should then be guided by homevoters’ corporate demands. Corporately-held rights can be bought and sold like any other right as long as shareholders reach internal agreement, so purchasing zoning exemptions by compensating residents should be no big deal. Besides, homeowners are vigilant enough that they’re unlikely to be suckered as long as they have a say in the matter, which, in suburban politics, Fischel maintains, they usually do.
Indeed, Fischel notes, homevoters tend to be a bit too vigilant. Homeowners are understandably risk averse about their homes. (What person with his life’s fortune tied up in an undiversified, illiquid asset wouldn’t be?) Fischel insists repeatedly that the median homevoter’s expectations come close enough to being rational; nonetheless, he also repeatedly observes that homeowners tend to focus on perceived threats to home value while discounting prospective benefits more than really seems prudent. Extreme wariness often feels prudent, granted, but would true prudence be quite this paranoid? In The Homevoter Hypothesis, Fischel, who has served long years on various zoning committees, relates “an all-too-familiar” example:
Some neighbors raised heated objections to a developer’s plan to build single-family homes nicer than theirs on lot sizes larger than required at a distance that shielded the new homes entirely from the neighbors’ view. These new homes sounded like exactly the kind of development no homevoter could possibly object to, and yet they did. Vehemently. The reason? The developer required a routine “special exception” from the zoning board to build driveways for these homes, since the driveways would cross some intermittent streams. The developer’s plans exceeded drainage requirements. There was almost no chance the driveways could screw up anybody’s drainage. But that almost-no chance was enough to raise the neighbors’ hackles. At first, Fischel wondered whether the neighbors were simply crazy. On second thought, he knew these neighbors, and they weren’t crazy people otherwise. Suddenly Fischel realized that what he was witnessing wasn’t insanity, but a ritual display of homeowner risk aversion: since the neighbors couldn’t buy insurance against the small chance that the new development might cause them some sort of heartache, the best “insurance” they could manage was to raise holy hell to the zoning board, no matter how far-fetched their grounds for complaint.
More generally, homeowners tend to overestimate the area blighted by a local disamenity, tend to underestimate the benefits of unfamiliar land uses, and tend to favor overly restrictive zoning.
Some preference for restrictive zoning might just be strategic. For example, by demanding that all undeveloped land in a municipality be zoned so restrictively that no one can develop it without receiving special permission, homevoters could force every developer to appease them before new development would even be considered. This would increase homevoters’ power, of course, though at the expense of burdening everyone, homevoters included. Furthermore, such restrictions are unfair to the owners of the undeveloped land, who wonder bitterly why their homevoting neighbors have seen fit to beggar them (and this kind of zoning should undoubtedly count as a taking without just compensation).
Restrictive zoning drives up housing prices for everyone, though — rich and poor alike. Of course, those who already own homes get the pleasure of basking in the gratifying flip size of rising housing prices: increasing property values. Nonetheless, most homeowners are home buyers at some point, and even the rich don’t benefit from buying stuff that’s more expensive than it has to be.
Zoning began to get especially restrictive sometime in the ’60s and ’70s. Fischel posits several contributions to this trend, with environmental activism playing a smaller role than one might expect. In fact, Fischel argues, environmentalist restrictions on land use would have gotten little traction without the cooperation of homevoters. These voters perceived that devices such as open space laws and conservation easements were quite handy for keeping unwanted development far away from their homes. Perversely, Fischel notes, public-interest lawyers’ attempts to undermine municipalities’ zoning power on the grounds that municipal zoning was unfairly restrictive resulted in municipal zoning becoming even more restrictive. If zoning that only excluded certain uses risked being challenged in court as discriminatory, better to rezone to indiscriminately to exclude practically every use than to risk losing municipal control of zoning altogether.
Thomas Sowell and others have argued that the housing bubble grew most grotesquely swollen in those regions of the country with the most restrictive land-use policies. Fischel notes that restrictive zoning may even contribute to nationwide employment problems, if artificially scarce housing prevents people from finding living quarters where the jobs are, and if artificially inflated home values encourage unemployed homeowners to malinger in their homes rather than selling up and seeking better opportunities elsewhere. Fischel also wonders whether US tax policy induces homeowners to overinvest in their homes, aggravating homeowners’ risk-averse, on-the-hook apprehensions — apprehensions which further promote the restrictive zoning said to swell bubbly housing. (For my part, I wonder whether our system of public education, where quality is so intimately tied to housing values, does much the same thing.) Still, despite some reservations, Fischel sees zoning as the “secret sauce” that pulls municipalities together, transforming suburban governments from colorless, indifferent appendages of the wider state into lively, competitive, nearly-privatized homeowners’ clubs.
A libertarian might wonder, if suburban municipalities work as well as they do because of their resemblance to private clubs, why not go whole hog and privatize fully? Progressives, on the other hand, might counter that the clubbiness Fischel describes is exactly what’s wrong with suburbia. Homevoters, though, sound pretty happy with the arrangement, by Fischel’s account.
Many Americans say they prefer municipal living to the “privatopia” of fully privatized neighborhood governance, despite the fact that HOAs are now America’s largest source of new single-family homes. Oddly enough, the rise of HOAs might be driven more by the demands of municipal government than the direct demands of prospective homeowners themselves: municipalities increasingly mandate that any new development take an HOA form. Even without municipal mandates, large developers building HOAs have an easier time brokering zoning deals than smaller developers do, and the municipalities themselves aren’t about to object: HOA development offers municipalities the prospect of collecting increased club dues (property taxes) without having to shell out as much for added club amenities (since HOAs provide much of their own infrastructure). If Fischel is correct, and municipalities do fairly faithfully serve homevoters’ demands, this leaves me wondering whether ordinary municipal homeowners are aware of what they get out of these fully privatized neighbors (namely, double taxation). But the rise of privatopia is a story for another time.
This review was inspired by Ricochet member Bryan G Stephens.