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Zoning Rules! The Rise of Zoning, Suburbia, and the Homevoter
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.
Published in General
I think conservatives and libertarians greatly miss just how risk averse most people are.
SS reform fails consistently and always because every plan introduces risk into the program. It will never happen, ever. Nobody is playing games when it comes to ambiguity over eating when they are old, especially with a pretty consistant business cycle that results in massive job losses and loss of savings every 8-10 years.
The job SS does is not old age income, its forward looking risk avoidance.
I can tell you that I hate the way the area is (over)developing. hell really is other people. I feel like an agreement with me is broken, and I am pissy about it. I have no right to feel this way but I do.
There are a lot of things including cities towns, neighborhoods and suburbs that don’t work well, some that do and others that figure out how to join the second. Almost always the government is involved in the first or plays a role that keeps the folks from figuring out how to improve matters. Zoning requires knowledge of future demand and supply, changes in taste , culture, technology, and relative prices that cannot exist. How many really great cities exist that became that way through zoning?
Well, risk averse about certain things. Risk averse when we think we have a lot to lose. So, for example, it makes sense for homeowners to be really risk averse about their property values and all but perhaps the youngest voters to be risk averse about social-security benefits:
On the other hand, people who feel like they haven’t got a lot to lose – or at least haven’t got a lot to lose in a particular sphere – become risk preferring. A lot of Trump supporters, for example, believe they haven’t got much to lose politically anymore. Many who support Trump, or at least admire his rise, have expressed the sentiment, “I’m tired of the same old thing, and ready to gamble.” Those aren’t the words of people who’d rather hang onto what they have than take a risk. Those are risk-preferring words.
And they are busy doing something about it. The Obama administration is implementing rules to force suburbia more into the shape of the place I lived in New Jersey. High density housing, mixed with office space, restaurants, shopping, etc., with easy access to public transit. I would estimate that 98.3% of Americans would hate living there.
Yes, I’ve heard rumors about that lately (on NRO maybe?). And I think because of that, there’s a “save our municipal zoning!” movement afoot among some conservatives.
Google ‘Agenda 21’, which is a U.N. initiative. That’s what the Obama actions are based on.
“Zoning” was another class in law school that kept me pissed off all the time. I’m not against zoning per se, but retroactive zoning (though now that I think about it, all of it is retroactive).
Whoa! Retroactive? I had been told a lot of older uses were just grandfathered in. Any horror stories to relate?
Great review!
Law school was 40 years ago.
As someone in the residential building business, this topic interests me. I personally don’t like the subdivision as a good place for community. In older neighborhoods there may be a few stores, a bar, a bakery mixed in with homes (a place where everybody knows your name). Today’s city planning is based on segregation: you live in subdivisions, shop in retail areas and work in business or industry zones. It is not organic. The roads are wide, paved and if possible straight to maximize speed, and supplied with curb and gutter. Sterile and cold, especially as time goes on. Many municipalities are trying the mixed use method of allowing a proportion for retail/office/dining and residential where walking is encouraged. Some are successful and some are still have a planned feel. I have never lived in a strictly controled zoned area, have worked with a lot of clients and what I am seeing especially among the younger homeowners are the desire for an acre or two in the country without an association fee. The idea of a garden or place for the kids to build tree forts and leave bikes in the yard is calling them. In my area, anyway.
I just want to be able to step out my back door and let fly with my pistols.
First, many thanks for the review and the head’s up.
I strongly suspect after 3 books that Fischel is at risk of becoming the homo unius libri, but given your discussion of education at the end, clearly you should also read Making the Grade.
One of the things I like about Fischel’s discussion is that he notes how the attachment to the community isn’t irrational unless being driven to it. Residents don’t oppose development (well some of them do, but not all or most), they oppose being forced to accept it. It’s the attacks on “discriminatory” zoning that caused cities to clam up on their openness to new ideas. If a developer comes in and talks about their vision and what they’ll do to benefit the community, the community is happy to hear of it, and the communities that are the most interested are often the ones -as you say -with little to lose. They want to take locally undesirable land uses because the payments from that LULU can rebuild their city, give them that base of capital they need to grow and prosper.
And idiot activists trying to “protect” the “disadvantaged” step in and say, “no, we’re going to force it on these other people who don’t want it and have exclusionary zoning.” It’s nuts.
One word. Texas.
Excellent review. I’ve read books by James Howard Kunstler and various New Urbanists who disparage zoning laws because they force extreme segregation of activities, and having a wife from Germany who grew up in towns where residential and business activities take place successfully in close proximity, I tend to agree with them. However, none have gone into the details and history of such laws as deeply as these books apparently do. I plan to check them out.
Exactly. I’ve lived in some great cities where you walk to get fresh really good bread, wine, farm raised produce, have a drink or a great little bistro. The people know you. These places just emerged from what people want. They’re messy, comfortable and pleasant. There was a wonderful interview on econ talk that addresses some of your points, I forget the name but something about great cities. One of the points they make is yours about maximizing speed on the roads. The author made a distinction between streets and roads. Streets are where people live and many work and walk to good things and know each other. Roads get you to Wall Mart faster. Streets are a better investment.
And one last word: California. And likewise applicable: “last rites.”
See:GUIDE TO CALIFORNIA PLANNING by William Fulton
What may have started as a ‘heavenly idea’ in Ohio (Euclid )was manipulated and morphed into a devil’s pleasure palace in California. Think Jerry Brown vs John Kasich. Seems to me Fischel should get out more. Visit CA to see why it works for the mommas that have but in TX it’s “God bless the child that’s got his own.”
Them that’s got shall get
Them that’s not shall lose
So the zoning bible says
And it still is news
Momma may have
Poppa may have
But God bless the child
That’s got his own
That’s got his own
Yeah, the strong gets more
While the weak ones fade
Thank you for the review. I need to read the book!
Mostly, you talk about his focus on the economic issues about housing values. Does he also go into quality of life issues? As a homeowner, not only do I want my illiquid investment to at least stay stable, but I also want the general quality of life to remain the same. Someone turning the home next to me into a night club would keep me awake at night.
Fischel does go into quality of life issues at times, but since one of his Big Ideas is that anything that makes a place a more-pleasant or less-pleasant place to live gets capitalized into housing values, he often uses homeowners’ focus on property values as a proxy for their focus on quality of life.
Zoning Rules! is a land-use economics text, complete with chapters containing graphs of the type you’re likely to see an Econ professor sketch on the blackboard, cover with arrows, and wave his hands over. The Homevoter Hypothesis, also reviewed here, is a little less econ-y, with no econ diagrams, a bit more politics (I think), and some very interesting case studies. Sabrdance recommends The Homevoter Hypothesis.
Yes. Fischel posits a very tight connection between these two things – that housing prices are very sensitive to quality of life issues. You might find The Homevoter Hypothesis the more enjoyable read of the two (though both are good if you want to get really into the subject).
Fischel discusses Californians’ revolt against property taxes (Prop 13) in both books – and he considers the revolt eminently rational.
Once Serrano v Priest required that spending on local public schools in California could not vary substantially by local tax base between districts, “The legislature’s implementation of this plan in 1977 meant that most local property tax payments were no longer related to local schooling, which made the property tax into a statewide tax.”
Since local public schools are such an important municipal amenity, Serrano v Priest broke the model of California suburbs as residential clubs, where club dues (property taxes) paid for club amenities (what was desirable about that particular suburb). No wonder taxpayers revolted against the property tax: they quite reasonably thought they were no longer getting what they paid for!
So California is one state in the union where the club model of funding suburbs is prohibited by law. Since Fischel posits that zoning’s usefulness lies primarily in enforcing this club model, I doubt he’d be surprised that zoning in California is particularly crazy.
Thanks for this in-depth review.
I live in Brentwood, TN – a small city tightly & conservatively controlled by zoning laws. Brentwood is one of the wealthiest cities per capita in Tennessee. No surprise, it has a top-rated independent school system. Brentwood is a regular target for derision by hipsters in Nashville as being snobbish and boring. They may be right – but…
This little city is a model of what is described in your book review: a self-selected club of those desire a certain life that zoning laws help to maintain. As a result:
I like the crazy patchwork of state and local regulations, even though I don’t like all the outcomes. If this system has gone too far, though, I would tend to blame the tax preferences for home ownership.
Thanks for a fascinating review.
Serrano and Proposition 13: The Importance of Asking the Right Question by William A. Fischel
See: http://taxprof.typepad.com/taxprof_blog/files/49ST0535.pdf
Serrano(all 3) was CalSupCt run amok based on Cal Const as much as SCOTUS ran amok with US Const. in Kelo. And in…… and in…… etc
RIP: Scalia, J
Sabrdance, since I know you’re particularly fond of The Homevoter Hypothesis, and this joint review doesn’t clearly differentiate it from Zoning Rules!, is there anything you’d like to add about Fischel’s homevoter hypothesis?
I’d heard that Houston had no zoning ordinances, looked it up, and it’s true, and it seems to be doing fine. The market apparently zones effectively.
Reticulator, many economists agree that doing away with tax preferences for homeownership would be the best for the overall wellbeing of Americans. Including, ultimately, homeowners themselves, who would no longer face as much insecurity for having bought too much house. But as Guru pointed out in the first comment, the politics of transitioning away from those preferences are daunting. I wonder whether it’s even politically possible.
Derek Simmons, thanks for the link to that paper!
Randy, you’re correct that Houston doesn’t have zoning. It has other land-use laws and private arrangements instead. So it’s not a free-for-all, just organized differently (and perhaps in some ways better). Zoning has come up for vote in Houston a few times recently, and been voted down, especially by the less-wealthy residents, who like low housing costs and mixed use. One of Fischel’s students wrote an award-winning paper on Houston’s land use, and how its residents feel about it. I can dig up the link when I get home.
Yes, it is not a free for all, and there are battles just as fierce as any zoning meetings.
Also, it can be ugly.
I’ll still take ugly liberty over pretty regulation.
You really need to read Shillers work on the housing market and bubbles .
We have know for a while that housing prices over the long run have gone up with the real wage increases. That is in America, the population has basically spent that same % of their income on housing for that last 150+ years. However, the problem was we knew houses were getting bigger and nicer (pools, garages, heating, air-condition, indoor plumbing ect.) so you were not comparing apples to apples. Therefore he found that when you actually lookded at the sale price of existing homes (that had sold for a second time) on average the same house went up with inflation. That is the real wage increase was basically buying bigger and nicer housing and was all related to new housing builds.
However something interesting happened in the early 80’s to the late 80’s. A few major real estate markets started to buck this trend and increase faster than inflation, New York, L.A. Houston, San Fransisco, ect. Houston was the only major city which stopped bucking this trend in the late 80’s the rest year after year kept going up faster than inflation. Then come the 90’s and more cities get added to this list (this is before the nation wide real estate bubble).
The interesting part is even after the huge market correction, these cities from the 80’s have housing appreciation well above inflation but the rest of the U.S. basically got corrected back to long-term inflation increases.
Shiller’s hypothesis of this bucking the trend is you guessed it zoning restrictions. For example I need to go look at the exact number but in L.A. county actually has fewer ( I think close to 20% less) new housing unit permits in the early 2000’s during the height of the real estate boom than they did in the 70’s with a third less in population.
The interesting part is most of the nation has had zoning laws but it has not appeared to of effected long-term housing prices. It just appears that zoning laws reach a critical point of being to restrictive therefor limited the supply. When zoning begin limiting the supply of new housing in a region, yet it was still having population growth, that is when you get higher than normal increases in housing.
So as with all regulation some regulation the market can react to and it is only a small tax however regulation get to the point of restriction were they can actually began to effect asset markets.