Review of The Economics of Zoning Laws by William Fischel, Chapters 10-12

1. Review of The Economics of Zoning Laws by William Fischel, Chapters 10-12 Note by Austin Troy For NR 277 University of Vermont

2. Politics of Suburban Zoning: Special Interests • When there is imperfect information (voters don’t know what politicians stand for and politicians don’t know what constituents want), opportunity for special interests to prevail in local gov’t • In small jurisdictions, developers have little influence because info is less imperfect: voters know issues and politicians know what voters want

3. Who are most influential suburban interest groups? • Homeowners, because in small suburban community they are only effectively organized interest group, because all share the same basic interest • However, response differs with past legacies and with demographics, especially income, since higher income people are generally more exclusive

4. Fischel community typology • Suburban communities • Non-suburban communities: • Rural • Isolated Small City • Central City

5. Rural • Not commuter community or second homes • Largely agricultural • Less zoning, more permissive that ‘burbs • Why? Because residents stand more to gain from development than they have to lose from it; also zoning wouldn’t make much difference because demand is low, so generally not even necessary

6. Isolated Small City • Also more permissive than suburbs and often pursue development • Why? Because people in these areas tend to live and work in the same jurisdiction • Hence exclusion of new business and development seen as a cost, development seen as overall benefit because of new economic opportunity; no clear anti-growth constituency • Not the case in ‘burbs where people work in different jurisdiction from where live; expansion of employment and retail are irrelevant as benefits, since already accessible elsewhere. Is this valid?

7. Central City • Developer generally wins out over residents • Why? Because so many residents live and work in same jurisdiction, hence some gain, some lose by development, no clear resident constituency comes out on top. • Also, income lower, so economic opportunity generally seen as more important than reduction in nuissance • Also, big information gaps in cities because so many people, politicians and issues • Hence special interests have more influence relative to citizens. Eg. NYC example • Also: vote trading issue: so many issues

8. Monopoly Zoning • A large municipality that is restrictive will have a larger effect on development than a smaller one because affects supply curve • However, few metro areas have a large enough suburban municipality to allow this

9. Effect of large lot zoning • If zone large lots, p ↑, but p/ acre↓ A A’ B B’ City Ag zone Suburbs

10. Result • People displaced from suburbs go to central cities and rural areas. • Rural areas become suburban • Leap Frog pattern of development • However, if capital is good substitute for land, favors growth in the cities • Other alternative: open cities model in longer term, especially for smaller cities, draws those residents elsewhere

11. What is the reality? • Urban areas usually don’t get infill effect as much as would expect. Why? • Because costly to tear down housing • Central city housing doesn’t meet middle class tastes; expensive to rehab it • Hence residents often willing to accept additional commute over city conditions • Fischel says the result of zoning then is to lower housing costs, since suburban per unit values fall more than ag zone values rise.

12. What is the significance? • Land values are lower because of demand side, not supply side: people derive less utility from the land. • Major cost: commutes are too long; hence lose many of the benefits of agglomeration economies

13. Speculation and sprawl • Fischel: speculation exacerbates the leapfrog pattern • Withhold land from market in seeking profit, cause developers to look farther out • The longer he waits, the more density the speculator may get, but the more leapfrogging • If misjudge and sell too early can facilitate more sprawl

14. Regulation and housing costs • Increase in price could be seen as a good thing (more efficient allocation of resources), because WTP↑, maybe means reg made community more desirable • Question: did P↑ because of inward S shift or outward D shift? • If one town’s zoning only affects prices locally, probably reflects D; if affects zoning outside the town, probably S. • Must also look at P of undeveloped land (potential housing) to assess efficiency. Only efficient if P ↑ in developed and undeveloped • Higher P for undeveloped land reflects potential residents’ (the market) demand for living there • Do gains from restriction outweigh losses to landowners and the housing market?

15. Regulation and housing costs • Fischel cites evidence suggesting that modern zoning may be too restrictive at the expense of potential homeowners (remember that developers are the only “representative” of potential future owners). • If town is small relative to metro area, should not affect outside housing prices, but probably won’t affect their own either, because housing market is regional • Key point is that when one town zones restrictively others nearby are likely to copy them, which then, marginally, causes prices to increase.

16. Existing and potential housing • This applies to existing housing. What about P of potential housing? • Must look at P of vacant land • We can only conclude that more efficient allocation if increase in net benefits to BOTH existing and potential residents • Only way potential residents register demand is through bids of developers • George Peterson (1974) found that in this case, benefits are less than the costs, suggesting zoning is too restrictive.