1.1 Introduction
In the 1970s, unprecedented peacetime inflation, touched off by the oil cartel OPEC, combined with long-standing federal tax privileges to transform owner-occupied homes into growth stocks in the eyes of their owners. The inability to insure their homes’ newfound value converted homeowners into “homevoters,” whose local political behavior focused on preventing development that might hinder the rise in their home values. Homevoters seized on the nascent national environmental movement, epitomized by Earth Day, and modified its agenda to serve local demands. The coalition of homeowners and environmentalists thereby eroded the power of the pro-development coalition called the “growth machine,” which had formerly moderated zoning. As this chapter shows, these changes in the meaning of homeownership and in the political behavior of homeowners explain why local zoning has become so restrictive.
Zoning is not a new institution. Housing in the United States has been the subject of comprehensive local government regulation since 1916, when New York adopted the nation’s first zoning laws. Zoning spread rapidly to other cities, and now almost all cities and towns in urban areas have zoning and a host of related land use regulations (Fischel Reference Fischel2015). It is now well established that in certain areas of the nation – the Northeast and West Coast especially – local land use regulation is associated with unusually high housing prices. The excessive housing prices retard mobility of labor, reduce national productivity, and worsen income inequality (Ganong and Shoag Reference Ganong and Shoag2013). Some have also argued that the inelastic supply of housing contributed to the 2000s housing bubble and the financial crisis that resulted when it burst (Jansen and Mills Reference Jansen and Mills2013).
This chapter seeks to establish that the restrictive zoning policies that contributed to the housing crisis arose at a particular time – the 1970s – in conjunction with worldwide inflation and American political movements that undermined the transactional relationship between local governments and developers. Evidence presented here establishes that the 1970s represented a sharp break with the past. It is important to understand both the history and probable causes of growth controls in order to shape reasonable responses to excessive land use regulation.
My empirical contribution in this chapter is something called Ngrams. Not shown are some other trends that are important but hardly novel. The first is that the time trend of real housing prices (that is, adjusted for inflation) in the post–World War II era was flat or gradually falling up to about 1970 (Shiller Reference Shiller2015, 20). In the early 1970s, real housing prices rose rapidly for several years, fell during the recessions of 1981 and 1991, and then rose at an accelerated rate until the financial crash of 2007. Up to about 1970, owning a house was not a good investment relative to stocks and bonds. After 1970, it became a major portion of middle-class financial portfolios and thus subject to macroeconomic and local risks (Skinner Reference Skinner, Noguchi and Poterba1994, 191).
My major thesis is that homeowners once looked on their houses as places to live, but now look at them as growth stocks. This is not a new claim. In Irrational Exuberance, Robert Shiller wrote, “Life was simpler once; one saved and then bought a home when the time was right. One expected to buy a home as part of normal living and didn’t think to worry what would happen to the price of homes. The increasingly large role of speculative markets for homes, as well as of other markets, has fundamentally changed our lives” (Reference Shiller2015, 35). My contribution is to point out that one of the fundamental changes has been to make homeowners acutely defensive about new developments that might possibly affect their homes’ value. My theory inverts, or at least complicates, the claim that growth controls cause higher housing prices. It is possible that growth controls themselves are caused by inflating housing prices, which goad homeowners to organize more effectively against developers. It might be better for all concerned if homeowners could again see their homes as steady investments and good places to live rather than a way to get rich.
1.2 Ngrams and the Origins of Growth Controls
Google has a free on-line feature called the Ngram Viewer. It graphs the annual frequency of uses of a word or phrase in Google’s digitized collection of millions of books, scanned mostly from university libraries. (It does not include newspapers or periodicals.) The word or phrase can be used in any context, and simply being mentioned more or less frequently can be a measure of its salience in public discourse.
Ngrams may offer clues about why zoning was adopted in the United States. I had written an article that argued that zoning’s rapid rise and spread in the 1910 to 1930 era was caused by the spread of low-cost automobiles and, more particularly, their adaptations as freight trucks and inexpensive passenger buses, the latter popularly called jitneys (Fischel Reference Fischel2004). Motorized trucks and jitneys enabled industry and apartment houses to relocate from ports, railheads, and central cities to the suburbs. In an early planning publication, a zoning advocate complained, “The motor-truck has enabled the indifferent or the blackmailing industrial concern to threaten to locate its factory in the heart of the loveliest of lawn-decorated suburbs. Formerly a factory had to be near a railroad, but that is no longer necessary. It is, indeed, more desirable for a factory to locate near a labor supply – that is, near a district where labor lives – than to be near a railroad” (L. Purdy et al. Reference Purdy, Bartholomew, Bassett, Crawford and Swan1920, 6). Homebuyers’ reluctance to commit to a large purchase that might be devalued by subsequent development was the main reason responsible developer organizations sought to promote zoning (Weiss Reference Weiss1987).
In Figure 1.1, an Ngram for the terms “jitney,” “motor truck,” and “zoning” illustrates a rapid take-off of their use in books during the 1910s. (Both “jitney” and “motor truck” decline after 1925 as the jitney was replaced by the conventional bus and the motor truck became so common as to just be called a truck.) The jitney’s booming popularity caused concerns among real estate developers, who had formerly depended on managing the location of streetcar lines to keep apartment developers out of single-family home areas (Cappel Reference Cappel1991). An article in the New York Times Magazine (1915) noted that opposition to the free-wheeling service was not just from streetcar interests: “Realty associations are backing up the protests of the traction [streetcar] people on the ground that the prosperity and extension of the streetcar service go hand in hand with the development of real estate, which is not fostered by these jitney men.”
![](https://static.cambridge.org/binary/version/id/urn:cambridge.org:id:binary:20190128095835684-0373:9781316691335:16492fig1_1.png?pub-status=live)
Figure 1.1 Ngram for “jitney, motor truck, zoning”
But it appears that land use regulation became notably more restrictive during the 1970s. This is suggested by the Ngrams for terms related to those restrictions: “growth management,” “NIMBY,” and “exclusionary zoning” (Figure 1.2). (“Growth management” is used in the Ngram rather than “growth control” because the latter phrase includes many scientific applications.)
![](https://static.cambridge.org/binary/version/id/urn:cambridge.org:id:binary:20190128095835684-0373:9781316691335:16492fig1_2.png?pub-status=live)
Figure 1.2 Ngram for “growth management, NIMBY, exclusionary zoning”
These terms were statistically nonexistent before 1970. The late-century decline in mentions of the pejorative “exclusionary zoning” seems to be roughly offset by the more acceptable means of exclusion embodied by the terms illustrated in Figure 1.3: “farmland preservation,” “gated communities,” and “historic districts,” the last being the subject of Chapter 4 in the present volume by Ellen and McCabe. Similar Ngram patterns, not shown here, can be seen for terms such as “wetland protection,” “downzoning,” “regulatory takings,” and “urban growth boundary.” Land use regulation after 1970 involved a major change from the immediate past, a change that invoked a new vocabulary that is now so pervasive that we may have forgotten that mid-century planners and scholars were unfamiliar with it.
![](https://static.cambridge.org/binary/version/id/urn:cambridge.org:id:binary:20190128095835684-0373:9781316691335:16492fig1_3.png?pub-status=live)
Figure 1.3 Ngram for “farmland preservation, gated communities, historic districts”
The Ngram that encapsulates the thesis I advance in this chapter is Figure 1.4, which juxtaposes “stock market prices” with “housing prices.” Before the 1970s, mentions in the general literature of housing prices were few relative to stock market prices. People talked and wrote about the stock market, but not much about housing prices. In the early 1970s (the data are smoothed by three-year shoulder intervals), discussion of housing prices zoomed both in an absolute sense and relative to stock market prices. (The Ngram for the more general term “stock prices” is so large as to dwarf the frequency of “housing prices.” Generally speaking, Ngram analysis is most revealing with phrases of comparable frequency, and “stock prices” can refer to cattle and inventories as well as equities.)
![](https://static.cambridge.org/binary/version/id/urn:cambridge.org:id:binary:20190128095835684-0373:9781316691335:16492fig1_4.png?pub-status=live)
Figure 1.4 Ngram for “housing prices, stock market prices”
A similar story is told by the quantitative data on the growth of housing prices and capital gains from homeownership. According to my colleague Jon Skinner, “Between 1955 and 1970, the share of owner occupied housing in total household net wealth hovered around 21 percent. In the nine years between 1970 and 1979, housing wealth climbed to 30 percent of net wealth” (Reference Skinner, Noguchi and Poterba1994, 191). This shift in the composition of wealth portfolios corresponds closely with a fundamental shift in land use regulation. (The rise from 21 percent to 30 percent may not sound enormous, but it should be understood that, as with housing prices, capital gains from home values were much larger in the urban areas of the Northeast and West Coast, as discussed presently.)
My theory holds that inflation in the 1970s, driven initially by the rise in world oil prices by OPEC, made owner-occupied housing a highly desirable asset. The benefit of the tax-favored status of homeownership rises relative to other assets during inflation (Poterba Reference Poterba1984). But this asset has a large downside that was the fundamental premise of my 2001 book, The Homevoter Hypothesis: as an asset, an owner-occupied home is almost impossible to diversify and is subject to risk from changes in the neighborhood and the community in which it is located. Unlike fire and theft, adverse community and neighborhood effects cannot be insured against by homeowners. Homeowners had since the 1910s cared about keeping footloose industry and apartment houses separate from their neighborhoods, but they lacked the organizational ability to forestall community and regional growth that would threaten the upward growth of their home values in the 1970s. The unprecedented rise in housing prices gave homeowners additional reasons to care about public land use decisions (Taylor Reference Taylor2013).
1.3 The “Growth Machine” Prevailed before 1970
Yet homeowners who wanted to control the development process were at a political disadvantage. Conventional public choice theory predicts that organized interest groups will tend to capture the regulatory authority, and housing should be no different. Housing developers had the advantage of being well organized and strongly motivated to control the development process. Sociologist Harvey Molotch (Reference Molotch1976) invented a term for this political control, “the growth machine.” Developers in the early twentieth century were originally in favor of zoning because it served as a kind of insurance policy for prospective homebuyers (Fogelson Reference Fogelson2005; Weiss Reference Weiss1987). With zoning in place, homebuyers could be assured that subsequent neighborhood changes would be less likely to adversely affect their large investment.
Developers did not promote zoning with a starry-eyed faith in regulation. They knew that letting this particular genie out of the bottle could be hazardous. J. C. Nichols, a pioneer in developing (privately) planned suburban communities in Kansas City, also advocated zoning, but, as his biographer points out, “Real estate operatives slowly came to realize that by accepting zoning and getting themselves appointed to zoning boards and commissions, they could influence governmental and public decisions in their favor to an even greater degree than before” (Worley Reference Worley1990, 90 [my emphasis]). Marina Moskowitz describes how 1920s land use commissions were dominated by a pro-development “professional-managerial class” (Reference Moskowitz1998, 311). Developers were willing to cater to homeowners’ desire to avoid localized external costs, but they did not want established homeowners to control zoning.
In the pre-1970 era, established homeowners sometimes did oppose development, but they were usually unsuccessful. In his lengthy history of the planning profession, Mel Scott describes two instances of suburban homeowners opposing apartment developments (Reference Scott1969, 458) and public housing (p. 418), but the mentions are surprisingly few, and the opposition did not halt all development. Growth controls and similar constraints are not mentioned at all, even though Scott was influential in the movement to preserve San Francisco Bay. His history laments that planners had little to do with zoning, and his wide-ranging examples could have been taken by Molotch as evidence in support of the dominance of the developer-dominated growth machine. (Molotch in his original paper was more concerned with exploring the implications of his idea than testing it against alternative hypotheses. A later elaboration of the theory with John Logan did discuss some contrary evidence about the effect of growth controls, but Logan and Molotch [Reference Logan and Molotch1987] dismiss it as a minor issue, a conclusion they reaffirmed in the preface of the 2007 reissue of their book.)
There is little doubt that zoning regulations were relatively permissive before the 1970s. This is not to say that developer interests always got what they wanted. But they were able to manage opposition through negotiation with local authorities. A well-known example was the development of the original Levittown (as it became known) housing tract in Hempstead, Long Island (Kelly Reference Kelly1993). The Levitt company acquired experience building wartime housing for workers and adapted its mass production techniques for suburban houses. The company needed Hempstead to change its zoning laws to accommodate its construction methods, particularly the town’s requirement that units have basements rather than the concrete slab foundations that Levitt wanted to use. There was some opposition to the project from neighbors, but the town council and planning authorities gave the builders almost all of the changes they requested. Levitt packed one town hearing with recent World War II veterans who were looking for housing. The fledgling suburban newspaper Newsday was eager to expand its subscriber base and wrote numerous articles and editorials in support of Levitt. The newspaper’s occasional screeds against unnamed “elitists” in nearby communities who opposed expansion of Levittown indicate both that there was opposition and that it was ineffective.
1.4 Homevoters Joined and Sustained the Environmental Movement
After 1970s inflation caused homeowners to demand more protection of their assets, they needed to break the hold of the pro-development forces on zoning regulation. The increasing value of their homes created a common interest among homeowners, but they needed access to institutions to control growth. Part of the access came from the local political process. In smaller governments, such as those of the suburbs, homeowners simply elected officials who were more attuned to their interests. In a series of nuanced histories of regulation by suburbs in the Boston area, Alex von Hoffman found that in the 1970s, developer-friendly zoning was displaced by procedures that reduced total homebuilding. One long-time developer whose family had been local farmers lamented the unexpected popular opposition to further development, “Paradoxically, I sell to people who become my enemies” (von Hoffman Reference Von Hoffman2010, 17).
Where the “growth machine” was better entrenched, homeowners needed to adopt devices that could do an end run around zoning or add layers of review so that the local government’s decision to rezone or otherwise accommodate new development would not be the final word. In political affairs, homeowners became an interest group that I have labeled “homevoters.” They use their local votes and other political activities to protect and promote the value of their owner-occupied homes.
The environmental movement in 1970 provided the main vehicle for homeowners to add the layers of regulatory review to gum up the growth machine. The environmental laws themselves were not obviously designed for this purpose. They were largely motivated by concerns that were either nonurban – wilderness preservation and public lands management – or were applicable to urban development only in an indirect way, such as water quality and air pollution (Sax and Conner Reference Sax and Conner1972).
Environmental organizations had always been at a disadvantage when they were opposed by development organizations. Even with new laws that offered them more leverage, they suffered from the fact that what they were seeking was the provision of a widely shared public good that represented a small fraction of the public’s consumption budget. But they did have institutions organized around outdoor activities, and this offered a mutually advantageous merger of interests with homevoters. Homeowners had a rising demand to control development in their neighborhoods, but not an effective antigrowth organization. Environmental groups provided the organization, and they were willing, even eager, to extend their goals to include protection of suburban open space as well as that of non-farming rural areas. Bernard Frieden (Reference Frieden1979) was one of the first to systematically describe the new use of environmental standards to retard housing development in the San Francisco Bay Area.
This deal – largely unconsciously entered into – created an offset to the growth machine. Membership and contributions grew as environmental organizations allied themselves with homeowner interests. (Adam Rome [Reference Rome1994] describes the early history of this alliance, and Richard Walker [Reference Walker2007] offers a largely admiring view of its early evolution in Northern California.) The new antigrowth machine passed state laws mandating second review of local zoning decisions (Bosselman and Callies Reference Bosselman and Callies1971), expanded the legal standing of objectors to growth both within the community and to outsiders (Sterk Reference Sterk2011), and, somewhat paradoxically, embraced preservation of farmland on the edges of urban areas. (Paradoxical because in truly rural areas, environmental interests in water quality especially have often been at odds with the interests of commercial farmers and ranchers.)
One might ask whether the newfound power of homevoters was simply an extension of previous trends, amplified by a new environmental consciousness of the 1970s. It is difficult to prove a negative, but histories of environmental thought indicate that the tension between industrialization and the pastoral ideal began in the early nineteenth century (L. Marx Reference Marx1964). It was if anything disdainful of things urban. As a political movement, what became environmentalism was often the domain of patrician elites, who often as not expressed a general contempt for the lower classes through a sometimes painful-to-read eugenics argument (J. Purdy Reference Purdy2015). Environmentalism for the first two-thirds of the twentieth century was concerned mainly with nonurban areas.
Christopher Sellers argues that populist environmentalism took root in the suburbs in the 1960s, and that provided an opportunity for new directions: “As national conservation groups watched the many local and regional groups singling out pollution and other suburban issues, they realized that this new environmental agenda had recruitment potential” (Reference Sellers2012, 272). The Sierra Club’s membership grew from about 113,000 in 1970 to almost a million by 2000. In 1969, its former director, David Brower, founded a more activist organization, Friends of the Earth, whose motto brilliantly summarized the merger of environmental and homeowner interests: “Think globally, act locally” (Walker Reference Walker2007, ix). Other organizations formed specifically to “act locally” included San Francisco’s People for Open Space (now the Greenbelt Alliance), and they have been quite successful. By 2006, the nine Bay Area counties had more than a million acres (of about 4.4 million total) perpetually protected from development, an area that exceeded the existing urban and suburban land area (Walker Reference Walker2007, 108).
One reason for the success of the marriage of environmentalism and suburban concerns was that environmentalism offered a unifying ideology that allowed homevoters to avoid talking about home values directly. Growth controls are the product of collective action at the local level, and establishing collective action requires a unifying public discourse (Ellickson Reference Ellickson1991). Declaring that the goal of preserving local open space is to maximize voters’ property values is actually somewhat divisive. It also seems selfish in a public setting. It invites invidious comparisons among residents. (“Oh, your home is so much more important than mine?”) Environmental justification for policies that just happen to increase existing home values is a shield against outside criticism of exclusion and a source of unification among homeowners with otherwise unequal interest in the policies. It serves the same function as the “hearth and home” ideology that brought homeowners together to support zoning in the early twentieth century (Fischler Reference Fischler1998; Lees Reference Lees1994).
1.5 Sources of National Variation: Shifts in Industry and Differences in Local Government
My explanation for the rise of growth controls, then, is that they were the interaction of a shift in demand for home value protection in the 1970s and an increase in the supply of regulatory devices that operated outside the traditional growth-machine framework. These political and social forces displaced pro-development forces in local governments. But this deals with only one part of the puzzle. The now-conventional wisdom among urban economists is that stringent land use regulations account for the excessively high housing prices in Northeast and West Coast urban areas compared to those in the rest of the United States.
Peter Ganong and Daniel Shoag (Reference Ganong and Shoag2013) have shown that states that now have the highest housing prices and the most land use litigation (an indicator of land use regulation) had not, before 1970, led in either of those categories. Their model demonstrates that the regional regulations have had important effects on internal migration, significantly reducing the ability of Americans in poor states to better their lot by moving to richer areas. Numerous other studies confirm the unusual differential between housing prices on the coasts and elsewhere in the nation. As Karl Case observed, “Prior to 1970, house prices moved slowly at about the rate of inflation or slightly below, and regional differences, while they existed, were relatively modest by current standards” (Reference Case, Noguchi and Poterba1994, 29).
But what caused land use regulations to ramp up so much more in those states after 1970? My answer is that exogenous forces shifted the national demand for labor in ways that made the metropolitan areas of the West Coast and, soon after, the Northeast more attractive to high-income, college-educated people. I approach this explanation by introducing the dog that did not bark. The energy crisis of the 1970s induced a substantial relocation of manufacturing employment from the Rust Belt – the cities of the Great Lakes and the Ohio Valley – to the Sun Belt. States of the South and Southwest experienced substantial population growth from internal migration. But this migration did not result in an unusual increase in housing prices. Developers responded to the higher immigration by building more housing, which kept new and existing home prices from rising unduly (Glaeser and Tobio Reference Glaeser and Tobio2008). Demand for housing shifted out, and supply responded fairly quickly.
Another internal industrial shift occurred at almost the same time. The largest cities of the West Coast and (a decade later) the Northeast were at the forefront of the shift from manufacturing to high-tech-driven services (Glaeser and Gottlieb Reference Glaeser and Gottlieb2009). The introduction of computer technology reduced the demand for lower-skilled manufacturing jobs. Manufacturing was replaced in cities by high-skilled service jobs such as finance and computer software development. Global forces such as the reduction in trade barriers and the rise of Asian manufacturing capacity further accelerated the American shift from manufacturing to knowledge-based services, which played to the historical advantages of the large, trade-oriented cities on the West Coast and in the Northeast. Such shifts in regional advantage have long been a part of American economic growth, as historical geographer Daniel Meinig (Reference Meinig1995) has shown.
The growth of West Coast computer industries, for example, increased their demand for highly educated workers in the 1970s and 1980s. The workers bought housing at a time when national inflation fueled the demand for owner-occupied housing. As its value rose, homeowners on the West Coast demanded even more protection. As described previously, organizations such as the Sierra Club and People for Open Space were available to offset growth-machine politics. The judiciary in California and later Oregon and Washington became more hospitable to growth controls (DiMento et al. Reference DiMento, Dozier, Emmons, Hagman, Kim, Greenfield-Sanders, Waldau and Woollacott1980; Galvan Reference Galvan2005).
In the Northeast, the fragmented structure of local government and traditions of local democracy made it possible for local homevoters to take the reins of zoning and planning. The knowledge classes of workers started in the suburbs to adopt growth control, and their state representatives and the judges they appointed soon undermined the growth machine (von Hoffman Reference Von Hoffman2010). Towns formerly hospitable to apartment house development reversed course, largely in response to local voters’ demands (Schuetz Reference Schuetz2008). Even larger central cities such as Washington, DC and New York have turned from their formerly enthusiastic embrace of development as they have become repopulated with affluent homeowners (Schleicher Reference Schleicher2013). The supply reduction in the metropolitan West Coast and Northeast was further facilitated by the fact that the new workers were high income and highly educated, just the stratum most eager to protect the value of their owner-occupied homes. In contrast, the migrants from the Rust Belt to the Sun Belt were typically lower income. Both political participation and demand for environmental quality tend to rise with personal income.
The Sun Belt had another historical quality that made it less hospitable to growth controls. Local government in the old South was historically weak compared to the North. The reason, I have argued, is because of slavery and its legacy, racial discrimination (Fischel Reference Fischel2009, chap. 5). Blacks and whites were not evenly distributed across the South, and so there would inevitably be localities where a large majority would be African American. Despite voter disfranchisement efforts, some blacks could vote, and they could thus influence the outcomes of local elections. This would not just create pressure for integrated schools. It would, even in the absence of integration, divert resources from white institutions. Thus Southern state legislatures were loath to grant localities much leeway to provide schools and other local public goods (Bond Reference Bond1934; Key Reference Key1949).
The county, with its largely state-appointed officials, was the primary unit of local government in the old South. The county was maintained as the primary unit for school districts and thus the focus of other local government after the civil rights laws undermined racial segregation. Subsequent local demand to create smaller units in the South was largely frustrated by the Voting Rights Act of 1965, which required the approval – rarely given – of the U.S. Justice Department for local government reorganizations (Motomura Reference Motomura1983). Thus both racial segregation and desegregation made the county the default unit of government in the South. Exurban counties tend to be more pro-development in their politics (Anderson Reference Anderson2012), and this appears to apply especially to the South.
The other institution that the South generally lacks is the voter initiative (www.iandrinstitute.org). The larger units of government in the West, where counties rather than cities often governed the exurban land, might be dominated by developer interests. But county and city land use policies are hemmed in by the use of the voter initiative. Homeowners and environmental organizations can thus bypass the influence of the growth machine with ballot initiatives to create open space and even stop individual projects. The county governments of the old South remain in the grip of the growth machine because their voters lack the initiative. Even where land use issues are resolved by sub-county governments, as in Texas, the use of the initiative in land use issues in highly constrained by the state’s courts (Callies, Neuffer, and Caliboso Reference Callies, Neuffer and Caliboso1991, 75).
1.6 The Importance of Irreversibility and a Note on Renters
The catalytic event in my account of the rise of the homevoters and growth controls is unprecedented peacetime inflation in the 1970s. Inflation has since dropped, and it might reasonably be asked why this has not led to a reversion to the growth-machine model of zoning that prevailed before the 1970s. The growth-control model has weathered disinflation and three serious recessions in which housing values declined, especially in 2008, but also in 1981 and 1991. What processes keep the growth-control regime afloat when home values are actually declining and inflation is moot?
One was the deliberate attempt to make growth controls irreversible. From an economic point of view, irreversibility makes a lot of sense for homevoters. They need to convince buyers that the rules that make their homes valuable – the rules that create future scarcity – will not be easily changed. (The classic article on the need to create irreversible commitments to establish monopolies over durable assets is Ronald Coase [Reference Coase1972].) Ordinary zoning laws from the start were intended not to be easily changed. Minor exceptions administered by zoning and planning boards are subject to rules of procedure such as written notice to neighbors and demanding criteria about unique characteristics of the property in question (Reynolds Reference Reynolds1999). Major rezonings are likewise subject to more rules than most other changes in police-power regulations. One example is the “twenty percent protest clause,” which empowers nearby property owners to demand that changes in zoning be adopted by a supermajority of the governing body (Bartley Reference Bartley1953, 370).
These forces of stability have been supplemented since 1970 by both procedural and substantive changes in land use law. In some states (New York and California), rezoning often involves a state-required environmental impact statement, whose adequacy can be challenged by citizen groups (Sterk Reference Sterk2011). In other states, like Vermont, a state or regional review body can review and veto pro-development decisions. Some states have taken more seriously the requirement for conformity with the master plan (although this can also protect developers from downzonings), and hostility to small-scale rezonings is embodied in the pejorative term “spot zoning.”
A more innovative device is the use of conservation easements. These convey the right to develop unused land to a conservation organization, which promises to prevent development, usually in perpetuity. This resolves the anxiety of prospective buyers that the nearby cornfield or stand of trees might someday be rezoned and used for more homes to compete with the existing homes or at least sully their view. Conservation easements have been made financially attractive to donors in many states through the use of tax deductions and even tax credits (Pidot Reference Pidot2005). Some local governments have seized on them as a way of tying the hands of future officials (Serkin Reference Serkin2010). Conservation easements have been widely used in farmland preservation near cities. Historic districts (rather than just single monuments) have also added to the transaction costs of redeveloping older areas for more intensive “infill development.”
The persistence of growth controls is also due to evolving community values. Once open space and large-lot zoning districts are established, the homebuyers who most care about them are apt to end up in communities that establish them. This sorting by preference is part of the well-known model of Charles Tiebout (Reference Tiebout1956). Even if the original growth controls were created solely to protect home values (and not from preference for open space), the later homebuyers who bought with the expectation of open space as part of their purchase are more likely to want existing land uses to persist. An implication of the institutionalization of growth control devices is that the regulatory framework becomes easier to use by citizens who do not have as intense an interest as homeowners. The transformation of land use regulation was undertaken, I submit, by homeowners, but, once transformed, land use regulation became more accessible to all.
Vicki Been, who is a professor at NYU Law School and Commissioner of Housing Preservation and Development in New York City, emphasized in her comments on this chapter the need to account for what in her experience is the homevoter-like behavior of urban renters. New York’s renters seem as active in policing neighborhood change as suburban homeowners. In the homevoter model, renters should have less interest in land use change because they cannot capitalize on the benefits of neighborhood quality. If local conditions get better and the tenants move away, their landlord gets the benefit of neighborhood improvement in the form of higher rents. Even if the leaseholder does not move, higher rents would offset to a large extent the benefits of neighborhood improvement.
Both of these mechanisms are attenuated by the existence of rent control (Fischel Reference Fischel1991). Improved neighborhood conditions do not result in higher rents under rent control, and renters protected from rent increases are less likely to move and thus can enjoy the improved neighborhood quality. In these conditions, renters should behave much like homeowners in the political realm, even though they cannot fully capitalize on the benefits of neighborhood improvements. New York City renters are also an especially well-organized group – they regularly battle landlords in the political realm – and should benefit from the wide availability of growth controls.
It is important to understand, however, that New York City’s conditions are relatively rare. Two-thirds of the city’s housing is renter occupied, among the highest in the nation, and it should not be surprising that renters rather than homeowners get the most political attention. It is one of the few cities that has had rent control and related tenant protections for almost a century. When economists make models of local government, they usually want to capture the experience of a majority. Outliers like New York are always interesting to test the limits of the homevoter model (as Been, Madar, and McDonnell [Reference Been, Madar and McDonnell2014] have done), but confirmations of the homevoter theory in the nation’s second-largest city, Los Angeles (Gabbe Reference Gabbe2016; Morrow Reference Morrow2013), as well as smaller cities such San Jose (Holian Reference Holian2011) and various municipalities in Canada (McGregor and Spicer Reference McGregor and Spicer2016), suggest that projecting the political influence of New York’s renters to other places may not be warranted.
1.7 Alternative Explanations for the 1970s Growth Controls
The two alternative – or supplemental – explanations for the rise of growth controls in the 1970s are (a) the rapid completion of the interstate highway system and the suburbanization it facilitated and (b) the civil rights movement and the accompanying unrest in central cities and the political response to it. Both of these surely contributed to some of the demand for growth controls.
The interstate highway system was an enormous undertaking and was special in two important ways (Swift Reference Swift2011). One is that it was built within a relatively short period of time, between 1956 and 1972. The other was that it was almost entirely financed and directed by the federal government. Limited-access highways are highly disruptive to the cities and neighborhoods through which they are built. Locations immediately adjacent to them have their neighbors displaced or effectively cut off from everyday commercial and personal connections. Railroad construction did that in the nineteenth century, too, but they were different in several ways. Grade crossings were more feasible for railroads, and the location of their routes was subject to some degree of local control because the railroads needed local facilities (terminals and stations) to be integrated with the through lines. The railroad builders could be high-handed bullies, but their need for continuing local cooperation in the indefinite future stayed some of their excesses.
The builders of the interstate highway were almost entirely federal and state agencies. Their need for local input and cooperation was much less than that of the railroad builders. As an engineering-based group, the highway designers were short of models of behavioral response. The designers expected that the highways would promote urban growth, but they did not anticipate the suburbanization that it caused. The decision to run many of them through central cities was based on the belief that doing so would reduce traffic congestion in those places. Federal planners had contemplated – and rejected – using tolls to finance the system, but no thought was given to using tolls to manage the inevitable congestion that an urban freeway is subject to.
The heavy-handed tactics of the highway builders generated a species of protest in the 1960s called freeway revolts (Mohl Reference Mohl2004). These ad hoc organizations were precursors to the antigrowth coalitions of the 1970s, and many of them continued their lives long after the highways were built – or not built, if the organization was successful. They are important for my argument that growth controls were a bottom-up movement because they did overcome the torpor of local residents – what economists call the free rider problem – in combatting local change that threatens their home values. A proposed new highway was large enough and adverse enough that it got homeowners out from in front of their TV sets to attend hearings and protest meetings.
Thus the interstate highway system could have contributed to the growth-control movement in two distinct ways. One was by increasing suburbanization by making it easier to live farther from the city (Baum-Snow Reference Baum-Snow2007), and the other was by generating opposition groups that became part of the nucleus of antigrowth organizations in the 1970s. The difficulty with the suburbanization argument is that most of the evidence does not point to any special increase in the measured rate of suburbanization in this period (Mieszkowski and Mills Reference Mieszkowski and Mills1993). The way that most economists measure suburbanization is through population density and price gradients, the rate at which density of population or price of housing declines as one moves away from the center of the city. These measures began to decline (in absolute value) in the late nineteenth century with the invention of electric-powered street railroads, and they have kept declining more or less continuously ever since. Suburbanization does not seem to have accelerated during the period 1956 to 1972, when the interstate highways were built.
Local resistance to major highway development was indeed an occasion for citizen action, but its underlying concern was home values. Louise Dyble details the galvanizing effect on local politics of proposals to build new bridges and freeways in Marin County, north of San Francisco, in the 1960s. This antigrowth coalition was successful in stopping most new highway development and making Marin County a pioneer in the growth-control movement. Dyble concluded, “A close look at the dynamics of regime change in Marin reveals that power in the county shifted only when the real value of exclusivity, open space, and natural beauty became clear to property owners. Marin’s celebrated environmentalism was founded on the value of real estate” (Reference Dyble2007, 59).
The other phenomenon that may have made the 1970s land use policies different was the product of the civil rights movement. Desegregation of central city schools often pushed middle-class whites to the suburbs (Boustan Reference Boustan2010; Reference Boustan2012). Even if the rate of suburbanization was not much changed by that, it is possible that the nature of suburban zoning was altered by it. A population increase in a developing suburb in the 1950s was not difficult to accommodate with new public facilities. More families meant towns had to build more schools, but the expanded tax base more or less covered the cost. An important offshoot of the civil rights movement, however, insisted that suburbs had to accommodate low-income people and minorities along with market-rate development (Downs Reference Downs1973; Sager Reference Sager1969).
In the past, allowing more growth brought more of the same sort of people to the suburbs. After political and legal pressure began to be applied to accommodate a variety of housing, general population growth looked less attractive to suburban voters. The thinking by homevoters might have been, if we have to take blacks and the poor along with everyone else, maybe we would prefer to have no growth at all. Of course, public expressions of such ideas was unacceptable, so an alternative rationale for stopping growth was necessary. Preservation of the environment by preserving open space – even environmentally problematical open space like commercial farmland – began to be especially popular (Schmidt and Paulsen Reference Schmidt and Paulsen2009).
As evidence for this, I would note that the two states that have imposed a long-standing obligation on communities to accommodate the construction of low-income housing, Massachusetts and New Jersey, are also the states with by far the largest number of local initiatives to preserve farmland and other open space (Banzhaf et al. Reference Banzhaf, Oates, Sanchirico, Simpson and Walsh2006). The primary means by which communities discharge their state-imposed obligations is a tax on developers of market-rate housing, called “inclusionary zoning.” Such a tax depends on making market-rate housing scarce, which is what growth controls do (Schuetz, Meltzer, and Been Reference Schuetz, Meltzer and Been2011).
On the whole, however, it seems difficult to pin too much on the civil rights backlash as a cause of growth controls. Real pressure to accommodate low- and moderate-income housing exists in only a few states. Politically liberal communities, which one would expect to be sympathetic to civil rights concerns, seem actually more inclined to limit housing growth than others (Kahn Reference Kahn2011). And I have argued that a suburban majority is not all that opposed to them even there (Fischel Reference Fischel2015, chap. 4). A Massachusetts initiative that would have eliminated the obligation to accommodate low-income housing was easily defeated in 2010. Substantial majorities opposed it in all but one of the suburban counties of Boston, which faced the most pressure from the state law that required inclusionary zoning.
1.8 Reflections on Reform: Regionalism and Takings
A substantial number of economists now believe that regional housing supply in productive areas has been adversely affected by growth controls and that the excessively high housing prices have reduced American productivity and promoted inequality (Ganong and Shoag Reference Ganong and Shoag2013; Hsieh and Moretti Reference Hsieh and Moretti2015). Relatively few of these studies have addressed what to do about it. The usual idea is that some higher-level government – the federal or state governments, sometimes a regional body – should intervene to override unreasonable local behavior. Economists typically commend devices such as “a simple system of fees, much like congestion tolls, that cover whatever social costs there are from taller buildings and other consequences of increasing urban density” (Glaeser Reference Glaeser2011, 161). Developers willing to pay for their social cost should not be stopped by local governments or NIMBY forces. The higher government, able to internalize both the political benefits as well as the costs of development, would override parochial interests.
Bob Ellickson suggested a different approach to the problem (Reference Ellickson1977). He presciently identified the burgeoning growth-control movement as at least partly a legal problem. Voters in local government who wanted to control growth by downzoning available land could do so without having to face much of an opportunity cost. Police-power regulations are generally not compensable, and rational governments – a concept embraced by the “median voter” model in public economics – are apt to respond to the low cost by doing too much regulation. Ellickson advocated using the regulatory takings doctrine to make local officials (and presumably local voters) raise taxes to compensate development-minded landowners if the local government wanted to unreasonably downzone land to prevent development.
Neither of these approaches has worked. Land use policies of the state and federal governments have more often worked against development than for it (Fischel Reference Fischel2015, chap. 2). The multiple layers of review have generally been of the double veto variety: only in rare instances do they allow developers to go from a local “no” to a state or regional “yes.” The expansion of legal entitlements and their wide and indefinite distribution has greatly extended the time that development takes, when it can be done at all.
The underlying reason for state governments’ reinforcement of local preferences is the geographic basis for representation in state legislatures. Americans do not select their legislatures from statewide party lists, as parliamentary systems do. Americans elect legislators from local districts whose boundaries usually correspond to some set or subset of municipalities. The saying “all politics is local” is an Americanism – Ngram frequency three times that of British English – because it really is local in the United States. State legislatures remain amalgams of local governments even after the 1960s reapportionment decisions declared that they must be selected according to the principle of one person, one vote. It is possible that the reason American judges feel the need to declare that localities are formally “creatures of the state” is that so many other institutional arrangements work to make the state the creature of localities.
The viability of the takings doctrine is confounded by the numerous parties, most of them not a government that could incur constitutional liability, that contribute to stalling development. James Krier and Stewart Sterk (Reference Krier and Sterk2016) find that the modern takings litigation has had remarkably little success for complaining landowners and developers. Moreover, local land use regulation is so popular that court efforts to rein it in have led to state constitutional amendments and threatened supreme court reappointments. New Jersey voters adopted a state constitutional amendment in 1927 to authorize zoning after its courts had struck it down (National Municipal Review 1927).
The economic-historical account of the rise of growth controls suggests a different approach to reform. It is surely true that growth controls cause housing prices to rise. But it is equally true, I argue, that growing housing prices cause homeowners to demand more regulation to protect their asset. They don’t care whether the additional regulation is more stringent zoning, private covenants, or environmental lawsuits. Home value inflation begets a demand for more regulation, which begets more home value inflation.
The large metropolitan areas of the Northeast and the West Coast are historically unusual in that the demand for housing in these regions increased at a time – the 1970s and 1980s – when the balance of power in land use regulation shifted away from development-minded parties toward seated homeowners who wanted to protect the value of their largest and largely uninsurable asset. I point this out again to suggest that growth control policies are not usefully parsed by region. The states and cities of the Northeast and West Coast do not have fundamentally different legal frameworks from those in other states. Land use laws are sufficiently similar that law professors can put together casebooks and courses that can realistically prepare students to practice (after bar exam study) land use in any state. This suggests that if economic shifts occur that make Chicago and St. Louis the favorite destinations of high-skilled, college-educated workers, the cities of the Midwest will become the centers of growth controls and rising housing prices.
1.9 Demand-Dampening Policies to Mitigate Growth Controls
The purpose of this exercise in recent economic history is to understand what types of policies might work to make housing supply more elastic in regions that are now repelling firms and lower-income immigrants by their high housing prices. Accommodating growth in the Boston-to-Washington corridor and in the larger cities of the West Coast is important for national economic growth and for reducing the level of income inequality in the United States. It is clear from experience that the courts are not able or inclined to protect the interests of development-minded landowners. Federal and state policies that attempt to increase supply or lower local barriers are inevitably frustrated by the political power of the locals and the NIMBY alliance with high-minded environmental goals.
I have argued here that the primary reason people participate in stopping development is their concern with their home values. The policies that I mention next are designed to undercut excessive concerns, but it might reasonably be asked at the outset whether institutional change is actually possible even if homeowners were no longer excessively touchy about nearby development. I mentioned earlier that one reason for the persistence of growth controls in the absence of home value inflation is that the original institutions were designed to be difficult to undo. There is a built-in hysteresis to growth controls that may warrant just leaving them alone.
The evidence that we have about the growth of growth controls suggests that voters make them more stringent as their home values rise (Lutz Reference Lutz2015). Surveys in California show that voters are less inclined to adopt growth controls when home values are no longer rising (Baldassare and Wilson Reference Baldassare and Wilson1996). My own informal evidence is consistent with this. During the housing boom of 2001 to 2007, a new layer of local regulation was developed to provide additional protection for urban neighborhoods. They are called “neighborhood conservation districts,” which give neighborhoods the right to review local development independent of citywide zoning (Fischel Reference Fischel2013; Lovelady Reference Lovelady2008).
What is conserved by the “conservation districts” is the value of existing homes, especially in high-demand areas where city authorities might be inclined to shoehorn some unwelcome development or where existing zoning is not tight enough to prevent an unlovely renovation next door. They differ from historic districts in that the neighborhood does not have to be historic, and they differ from private covenants in that consent of all property owners is not necessary to establish the district. I undertook an online survey of neighborhood conservation districts to see what they were doing, but I noticed an interesting break. After the housing crash of 2007, almost no new districts were formed. Once housing values stopped rising, I infer, residents became less interested in going to the trouble of forming districts.
So perhaps the best that can be expected from demand-dampening policies is to slow down the growth of growth controls, not reverse them. This may be too pessimistic, however. There are signs that the centers of large cities are no longer repelling middle- and high-income people. Indeed, one of the manifestations of the back-to-the-city movement is that the affluent newcomers demand neighborhood growth controls to protect their investments. Unlike the suburbs, though, big cities have an array of other interest groups to offset the growth of the homevoter population. If the homevoter population in the bigger cities can be made less frantic about its assets, it is possible that creative reforms supported by developers, planners, and other stakeholders would have a chance (Hills and Schleicher Reference Hills Roderick and Schleicher2014).
The demand-dampening reforms themselves are mainly to reduce the tax advantages of homeownership. The two big advantages of owning this asset as opposed to most others is the lack of taxation of the implicit rent that owners “pay” to themselves and the explicit exemption of the first $500,000 of realized capital gains for homes of a married couple (Follain and Melamed Reference Follain and Melamed1998). The first advantage – the lack of recognition of imputed rent – would largely be undermined by eliminating the mortgage interest deduction from federal and most state income taxes. This is an imperfect way to tax implicit rent, since it leaves untaxed all the implicit rent for people who have no mortgage – usually the elderly and the very rich. But actually taxing implicit net rent is administratively daunting. Doing so would require all homeowners to file their taxes as if they were small business owners, listing an invisible-to-them hypothetical annual rent and keeping track of maintenance and depreciation costs as well as local taxes and mortgage payments.
The mortgage deduction is sometimes regarded as inconsequential because only a small fraction of taxpayers – those in high brackets – find it worthwhile to itemize their deductions. If you don’t itemize and instead take the standard deduction, goes the story, you don’t get any benefit from the mortgage deduction. This is probably wrong. The standard deduction was conceived as a device to save administrative hassle on the part of taxpayers. The amount of the standard deduction is based on what typical taxpayers in that income bracket could have deducted (Brooks Reference Brooks2011). Reducing one of the usual itemized deductions – mortgage interest paid – should in principle result in a similarly reduced standard deduction. Whether Congress would actually do this is not clear, but doing so would be consistent with the original function of the standard deduction.
More important in my mind is to equalize the tax treatment of capital gains from housing with that of other assets. This is probably a larger source of political distortion than the mortgage subsidy. Homeowners through the 1970s enjoyed the mortgage deduction, but faced a heavily constrained capital gains exemption in that a home of equal or greater value had to be purchased. Homeowners’ excessive attention to the value of their home began, I submit, when they started to think of their homes as a growth stock rather than a steady investment.
A modest, income-contingent subsidy to homeownership in the form of a mortgage deduction (or a tax credit) would serve the national interest in promoting a homeowner society (Glaeser and Shapiro Reference Glaeser and Shapiro2002). The more reasonable and practical reform would be to treat capital gains on homes the same as capital gains on other assets. It may be that we want to tax capital gains more lightly than ordinary income, but equalizing the tax rates among all assets would have both economic and political advantages. Land use regulation could proceed more rationally and humanely if homeowners were encouraged to hold other assets besides their homes.
Practical people may argue that the tax subsidies to homeownership are too well entrenched to be modified significantly. Homebuilder organizations and the multitude of homeowners themselves create a formidable political barrier to reform. This may be too pessimistic. Homeowners are powerful at the local level, but their interests are too diffuse at the national level to form a strong lobby. Homebuilders are well organized and formidable at the national level, but perhaps they would support some moderate reforms if they were persuaded by the arguments of this chapter. The subsidies to homeownership stimulate the demand for housing – good for homebuilders – but cause a political response – growth controls – that restrict supply. Homebuilders might have fewer regulatory problems, of which they complain often, if homes were not regarded as a major source of capital gains for their owners.
Author’s Note
I thank without implicating Vicki Been, Lee Anne Fennell, John Logan, and Harvey Molotch for helpful comments.
Necessity, it is said, is the mother of invention.1 This wonderful volume studies innovation in housing policy. This chapter asks why we need innovation in our housing policy, or rather what is changing to make our current housing policy inappropriate, to the extent that it made sense in the first place. I argue that changing transportation technologies have created opportunities for economic growth, but that land use regulations and other housing policies reduce the gains from these technological improvements. In order to capture the gains from new transportation technologies, and to help reverse the slow economic growth we have seen in the United States in most of the period since 1970, we need a housing policy that matches our current (and future) transportation system.
* * *
In discussions of the American economy, the transportation industry and transportation innovation plays a central role. Politicians regularly point to the health of the transportation industry as an indicator of the economy’s broader well-being. Think of Charles Wilson’s famous (mis)quote that “what’s good for General Motors is good for the United States.” Or of President Obama’s argument that, as a result of a federal bailout, the auto industry is now “leading the way” toward a type of economic growth that benefits middle-class Americans (Miller Reference Miller2015; Patterson Reference Patterson2013).
Similarly, scholars attempting to project economic growth often focus on transportation innovation. Techno-optimists like Erik Brynjolfsson and Andrew McAfee point to innovations like self-driving cars and drones and predict rates of growth on par with the Industrial Revolution (Brynjolfsson and McAfee Reference Brynjolfsson and McAfee2014, 1–12). Skeptics like Robert Gordon argue that growth has been slow since 1970 and will continue to be so based on their assessment of the likely effects of the same technologies (Gordon Reference Gordon2014).
But transportation innovation does not create economic growth in the same way as innovation in other sectors.2 For the most part, people do not directly consume the benefits of innovative transportation technology, nor is its direct use a major factor in determining whether businesses can produce goods more cheaply or more efficiently. Most of the benefits of transportation innovation do not come from faster and easier travel to existing homes, offices, and businesses.
Instead, transportation innovations allow us to move our homes, offices, factories, and stores into more pleasing and efficient patterns. Early automobiles, for example, were not much more effective than streetcars or even horses at navigating the crowded and pockmarked streets of dense, urban cores (Foster Reference Foster1981, 9–24; Norton Reference Norton2011). But cars allowed people and firms to spread outward across a region, creating new opportunities for suburban life, particularly following substantial public investment in roads designed for automobiles (Mohl and Biles Reference Mohl and Biles2012, 204–06). Likewise, the elevator, on its own, would not have provided many benefits to residents of cities; elevators are not that much better than stairs in existing low-rise buildings.3 But elevators make the use of taller buildings possible, increasing a city’s capacity for density. While transportation innovations provide some benefits to people making their existing commutes, the bulk of the economic gains from transportation innovations comes from changes in patterns of land use.
Transportation scholars have long known that infrastructure investments both depend on current land use patterns and spur changes in those patterns. There is a massive literature built around what are known as Land Use Transport Interaction (LUTI) models, which analyze the complex interrelationship between infrastructure investments, land use, and transportation developments (Van Wee Reference Van Wee2015; Wegener Reference Wegener, Fischer and Nijkamp2014).
But the scholars and practitioners in the field (and their increasingly complex software) almost entirely ignore the ubiquity of legal limitations on land use. In comprehensively planned cities, market forces do not, on their own, determine the flow of benefits to the broader economy from transportation innovations or investments. If one wants to know how a road or light rail line will affect land uses in a comprehensively regulated city or region, one must understand both the content of zoning and other regulations – rules governing what can be built, where, and how it can be used – and the politics of changing these regulations. New housing, for instance, will not simply emerge around new highways or rail lines. Governments must allow the market to work by revising zoning and subdivision ordinances that accommodate construction.
The same logic applies to new transportation technologies. The kinds and amounts of gains from advances in transportation technology depend heavily on how land use law reacts (or, sometimes, overreacts) to their presence.
This chapter will assess how well modern land use law has or might accommodate three major recent or soon-to-arrive transportation innovations: (1) global positioning systems (GPS), mobile mapping, and real-time traffic information services (like Google Maps, Apple Maps, TomTom, Garmin, and Waze); (2) e-hailing apps for taxis, shared rides, and shuttles (like Uber, Lyft, and their competitors);4 and (3) still-developing self-driving autonomous cars.
These technological innovations should allow two separate types of changes to land use patterns.
First, they will allow what I will call “distributed density” within urban areas. Each technology should allow for more overall density in cities. To varying degrees, they make travel through dense areas easier, allow for more efficient use of existing infrastructure, and reduce the costs of congestion (and need for parking spaces) for a given density of people and businesses. Further, the advantages of these developments do not depend on extreme density. Nodes of heavy density (e.g., stores along a high street, or apartments within a quarter of a mile of a train station) may spread a bit further outward without losing the gains of agglomeration. Regions will maximize the economic gains from these technologies if they allow dense and diverse development – if buyers can choose townhouses or apartments in towers.
Second, the innovations will allow development to spread around cities, as they – particularly GPS and potentially autonomous cars – reduce the costs of traveling substantial distances, both in time and in effort (Anderson et al. Reference Anderson, Kalra, Stanley, Sorenson, Samaras and Oluwatola2014).
But modern land use law does not equally allow both of these types of development. Land use law and politics are particularly ill-equipped to produce distributed density. Its deep procedural rules and the multiple ways current residents can block new construction make incremental housing growth particularly difficult (Hills and Schleicher Reference Hills and Schleicher2011, 81–89). While massive new projects sometimes can run the gauntlet of the zoning amendment process, environmental review and Not In My Backyard (NIMBY) political opposition, developers and homeowners proposing incremental changes in existing neighborhoods often cannot afford the lawyers and lobbyists necessary to do so (Platt Reference Platt2004, 317–20).
These limitations on “distributed density” precede transportation innovations like Uber and GPS. Housing advocates have started discussing the “missing middle” of the housing market – townhouses, two-tops, triple deckers, etc. – that flourished before modern zoning rules, but that are now almost impossible to construct (Hurley Reference Hurley2016; Schleicher Reference Schleicher2013). Similarly, U.S. land use regulations excessively keep retail out of residential zones, separating land uses more than any other advanced economy (Hirt Reference Hirt2013). Finally, and most pressingly, land use regulations substantially harm the regional and national economies by limiting overall density in many rich regions and cities, a trend that really took off in the 1970s and 1980s, as Bill Fischel details in Chapter 1 of this volume (Hsieh and Moretti Reference Hsieh and Moretti2015; Schleicher Reference Schleicher2013). In contrast, the fringes of metropolitan areas are less regulated, so these transportation innovations should allow our metropolitan areas to spread further.
This leads to two basic predictions. In downtowns and heavily zoned metropolitan areas, the land usages that zoning regulations allow will fall even shorter of what is economically ideal. Today’s urban and inner-ring suburban zoning politics will undercut future opportunities to restructure housing and retail. Innovations in transportation will increase the cost of our dysfunctional land use law regime. Further, land use law will hinder further transportation innovation. The incentive to develop, say, autonomous taxis will be lower in less dense cities. If we hope to maximize the gains from transportation innovation and avoid biasing future technology innovations,5 we must reform land use regimes, particularly in the richest metropolitan areas.
2.1 An Introduction to Transportation and Agglomeration Economies
To discuss new transportation technologies, I lay out a simple model of how transportation technologies interact with land usage generally. This section will discuss (a) the interaction between transportation technology and urban economic activity, and (b) how the study of the economic effect of zoning on regional economies can tell us how to study the economic impact of transportation technologies.
2.1.A Transportation Technologies and Agglomeration Economies
All analyses of urban economies start with the same basic question: why do people and firms move to cities? (Glaeser Reference Glaeser2008a). Economists usually describe three basic types of “agglomeration economies,” or gains from density (Marshall Reference Marshall1890; Schleicher Reference Schleicher2010, 1517–28).
The first kind of agglomeration economies deal with shipping costs for goods. Intermediate goods manufacturers can save on shipping costs by moving closer to one another. Much of the history of American urban development turns on decisions by firms to reduce shipping costs by moving to cities (Glaeser and Kohlhase Reference Glaeser and Kohlhase2004, 198–99; Glaeser and Ponzetto 2007). Almost every major urban center in the United States developed around a major port or rail transport hub. As innovative transportation technologies (like the combustion engine or the shipping container) have driven transportation costs downward, though, manufacturing firms have less and less reason to move to urban areas (Schleicher Reference Schleicher2013, 1551–52). Other factors better explain modern urbanization.
The second major category of agglomeration economies includes the benefits of deep markets. Workers in a particular metropolitan region can often participate in a deeper labor market (Rodriguez and Schleicher Reference Rodriguez and Schleicher2012, 640–47). Think of actors moving to Los Angeles. They can specialize (perhaps becoming an expert in one type of role), match more easily (find a studio that needs their specialty), invest in human capital development (acting school or private lessons), and insure themselves against firm-specific risk. These benefits do not accrue to similarly talented workers in rural areas or regions with less labor market depth.
Further, transportation technologies and infrastructure define the depth of a given labor market. Workers must be able to reach employers in order to work for them, a point clear to those who advocate that we give cars to the poor to increase their labor market opportunities (Logan and Molotch Reference Logan and Molotch1987, 262).
Depth matters in markets besides labor and in areas smaller than metropolitan ones, too. Retail markets benefit from market depth. Perhaps the most traditional form of retail development is the “high street,” where various stores cluster along a single strip. By locating along one strip instead of spreading out through a neighborhood, stores can specialize (Schleicher Reference Schleicher2010, 1522). Consider, for example, a stretch of restaurants and bars. They form “restaurant rows” because consumers can go to the street knowing that there will be lots of different options and that, if one place is too crowded, another place will have seats (Rodriguez and Schleicher Reference Rodriguez and Schleicher2012).
The third big category of agglomeration benefits is information spillovers. People learn from others, and so population density leads to more productive workers. As Alfred Marshall famously noted, in cities, “the mysteries of the trade become no mystery but are, as it were, in the air” (Reference Marshall1890). Software developers and entrepreneurs move to Silicon Valley for more than just the deep labor markets and the California sun; they move to learn from other tech people over coffee or drinks (Rodriguez and Schleicher Reference Rodriguez and Schleicher2012, 651). Indeed, those who move to urban areas see faster wage growth as a result of learning (Glaeser and Mare Reference Glaeser and Mare2001; Rodriguez and Schleicher Reference Rodriguez and Schleicher2012). Patent applications are much more likely to cite other research done in the same place (Jaffee 1993). Chance interactions between residents provide such substantial benefits that firms sometimes design their office space to generate “random” encounters. When Steve Jobs was at Pixar, he placed bathrooms in a central location in order to get different kinds of people to run into one another (Silverman Reference Silverman2013).
The key insight for this chapter is that people move to cities because being close to other people provides economic and social benefits that offset the higher costs for property (and congestion) in cities.6 As Edward Glaeser notes, “conceptually, a city is just the absence of space between people and firms” (Reference Glaeser2008b, 4). This “absence of space between people” is not mere physical space, but rather the ease of communal interaction, either intentionally or by chance. Two people on different sides of a wall are physically proximate, but will find it difficult to interact.7 Similarly, cultural differences can make even physically proximate people quite distant.
The central factors that translate proximity into interactions are the ease of travel and information. Before the invention of the automobile, people living in what are now suburbs of major cities could not participate in regional labor markets. Land that was quite physically proximate to downtown was used for low-intensity purposes like farming because there was no easy way to commute (Mohl and Biles Reference Mohl and Biles2012, 204–05). Only those places attached to downtown by omnibuses and streetcars developed into suburbs, because they made commuting and thus participation in urban labor markets possible (Mohl and Biles Reference Mohl and Biles2012, 87–88). Information plays a similar role. On high streets, for example, stores benefit from colocation because shoppers can easily see nearby retailers. A physically close shop on a side street would not capture agglomeration benefits from being part of a deep market, since shoppers would never see it or know about it.
Urban economic models have always relied heavily on transportation costs to explain land use patterns. Starting with Von Thunen and going through Alonso and Mills in the 1970s, economists developed “mono-centric models” assuming that business would be done in the city center (Glaeser Reference Glaeser2008a, 15–17; Schleicher Reference Schleicher2010, 1516–17). Distance from the city center predicted the kind of economic activity of the land, be it farmland or housing; the longer it took to travel downtown, the less intense the land usage. Trade theorists like Masahira Fujita, Paul Krugman, and Tony Venables use shipping costs to predict where firms will locate (Fujita, Krugman, and Venables Reference Fujita, Krugman and Venables1999; Krugman Reference Krugman1995). Transportation technologies determine urban fates.
This is true across types of agglomeration economies. The depth and quality of urban labor markets turn on the quality of urban transportation networks. Alain Bertaud writes: “The potential economic advantages of large cities are reaped only if workers, consumers, and suppliers are able to exchange labor, goods, and ideas with minimum friction and to multiply face-to-face contacts with minimum time commitments and cost. The productivity of a city with a growing population can increase only if travel between residential areas and firms and among firms’ locations remains fast and cheap” (Bertaud Reference Bertaud2014, 7; Reference Bertaud2004). Studies across countries show that worker productivity correlates with the number of jobs reachable within 20 minutes and 60 minutes (Bertaud Reference Bertaud2014, 10). Labor market depth depends on both housing density and ease of transportation.
Further, patterns of development are highly dependent on transportation technologies. As mentioned previously, suburbs developed first around horse-drawn omnibus stops, then near electric streetcar stops; most of these developments were within walking distance from the commuter stops (Foster Reference Foster1981, 18–20; McShane and Tarr Reference McShane and Tarr2007). Cities, for good and ill, invested heavily in remaking streets for automobile traffic. These investments created much more distributed development across metropolitan regions (Foster Reference Foster1981, 10). The automobile now allows suburban residents to participate in regional labor markets without paying for expensive urban real estate.
Of course, many people want to live in urban areas and are willing to make tradeoffs against housing prices (per square foot) to do so. And labor markets are not purely regional. People who work heavy-hour, high-pay jobs in finance, law, and technology frequently want to live in cities and do not want to commute, meaning firms have incentives to do so (Edlund, Machado, and Syiatschi Reference Edlund, Machado and Syiatschi2015). And cities retain many agglomerative advantages due to information spillovers and market depth in other areas, from retail to dating markets. But the rise of the car is associated with spreading out in all directions around urban areas.
Implicit in this well-known insight that the car enabled “sprawl” lies an important concept. Descriptive accounts of transportation innovation must integrate land use. The importance of a new road or rail line depends on how this new infrastructure will change demand for homes and offices, and how, in turn, those changes will affect the use of the infrastructure.
All (good) modern transportation planning focuses on the endogeneity of land uses and transportation. Land Use Transport Interaction (LUTI) models study the effect of new transportation infrastructure on traffic and land usage (Aditjandra Reference Aditjandra2013; Wegener Reference Wegener2013). These studies recognize that causality points in all directions. To address these difficulties, these models have become unbelievably sophisticated, built around “activity-based and agent-based or microsimulation models working with high-resolution parcel or grid-cell data” and individualized to particular urban areas, making them costly and requiring lots of data and computing power (Wegener Reference Wegener2013).
Their basic idea, however, applies to transportation innovation. All transportation technologies decrease the transaction costs of travel and therefore interaction, allowing firms and people to better capture agglomeration economies. Elevators make possible taller buildings, allowing more firms to be closer together, and commuter rails allow more people to access the regional labor market.
But people cannot just relocate wherever new transportation makes it possible. First, transportation decisions themselves largely depend on state investment in roads, railroads, traffic controls, etc. Second, and more importantly for our purposes here, land use law constrains relocation choice.
Modern LUTI models do little to acknowledge that law and politics – not just market forces – determine land uses. In contemporary American cities, local governments restrict the height, place, and uses of buildings through zoning, subdivision laws, parking requirements, building codes, historic preservation laws, and more. U.S. urban development has been caused not only by the car, but also by regulations that limited denser development and therefore made sprawl necessary (Barron Reference Barron2003). Compared to Europe, U.S. policies encourage (and even require) more sprawl, and both Europe and the United States encourage more sprawl than technological change alone would (Lewyn Reference Lewyn2008). It is law and not just the market that determines how transportation technologies affect land usage.
While LUTI models and software have grown ever more sophisticated, they fail to take into consideration the content (and the pathologies) of land use law. As Michael Wegener has found, the most popular LUTI models are “are not prepared to model policies” (Reference Wegener2013).
This failure bakes in a particular (and wrongheaded) assumption about politics. Burt van Wee reports that there is a saying among LUTI scholars that “in the long term, every light rail line is located correctly. That is, the new light rail line, and in particular its stations, will fuel land-use changes in the vicinity of stations” (Reference Van Wee2015). This assumes that land use planners will permit denser land use near train stations. There is no reason to believe that this will always be the case, at least in the United States. Just look at the lack of density around stations on one of the oldest (and the second busiest) commuter rail lines in the United States, the Metro-North that runs through Westchester and Connecticut. Even in the long run, density does not necessarily follow train construction. By ignoring politics, LUTI models effectively assume that land use regulation will not bias development. This is deeply wrong.
2.1.B How Should We Think about Land Use Law and New Transportation Technologies?
Over the past 30 or so years, there has been a rise of restrictive zoning in the richest metropolitan regions in the United States, as Bill Fischel shows forcefully in Chapter 1. Starting in the 1970s and 1980s, zoning restrictions (along with other land use regulations, like the historic preservation zones Lior Strahelivitz discusses in Chapter 5) began substantially limiting the construction of housing at the regional level (Fischel Reference Fischel2015; Ganong and Shoag Reference Ganong and Shoag2014; Schleicher Reference Schleicher2013). These land use restrictions have become increasingly strict and inefficient. Edward Glaeser, Joseph Gyourko, and Raven Saks have shown that land use regimes in major American urban areas have caused housing costs to rise far higher than the cost of constructing housing (Reference Glaeser, Gyourko and Saks2005).
These local inefficiencies harm the national economy. Enrico Moretti and Chang-Tai Hsieh, for example, analyze how local land use inefficiencies affect the national labor market. They use regional demand for labor, as expressed by the price of labor, to determine how many people would move to rich regions if they were not barred by restrictive land use regimes. They find that lifting land use restrictions and thus allowing labor to move to its optimal location would increase GDP by 13.5 percent (Hsieh and Moretti Reference Hsieh and Moretti2015, 3)!
Peter Ganong and Daniel Shoag have shown that a long-term trend of convergence in average wages and per-capita GDP between states slowed in the 1980s and then stopped entirely. The reason is that a number of rich states and regions made it harder for people to move there (Ganong and Shoag Reference Ganong and Shoag2014). People want to move to San Francisco or southern Connecticut, but can’t; land use regimes make housing construction difficult and thus drive up costs. When people move to less-rich places with cheaper housing, they indirectly harm the economy. As Glaeser notes: “[I]t’s a bad thing for the country that so much growth is heading to Houston and Sunbelt sister cities Dallas and Atlanta. These places aren’t as economically vibrant or as nourishing of human capital as New York or Silicon Valley. When Americans move from New York to Houston, the national economy simply becomes less productive” (Reference Glaeser2008c).8
The same idea applies within regions. People badly want to live in Silicon Valley towns like Cupertino or Mountain View, since they house the richest companies in the country. But limits on housing construction in these towns mean that people move to less desirable but cheaper locales.9 This displacement creates losses. As Daniel Rodriguez and I have argued, the micro-displacements created by excessive or inapt zoning generate deadweight losses as people are forced to move from the locations where their labor or leisure would be most valuable (Rodriguez and Schleicher Reference Rodriguez and Schleicher2012, 638). This is true even if there is, in aggregate, enough housing in a region. A lobbyist forced to move from Capitol Hill to Shirlington, VA, will learn less through information spillovers during chance dinners where legislative procedure is discussed. She will network and learn less, even if she keeps the same job.10
We can use a similar concept to understand the degree to which economies take advantage of transportation technologies. New transportation innovations will affect optimal land use patterns. But laws might not allow the changes that would maximize these gains. The difference between what is allowed and what should follow from the technology should be understood as lost potential output.
This is the basic strategy this chapter will employ. It will first ask what types of land use changes new technologies will encourage. It will then ask whether our land use law system is likely to allow such changes.
One caveat is worth mentioning: while land use regimes can undermine the potential of transportation technologies, the opposite is true as well. If our goal is to have certain types of land uses, we need to engineer (or limit) transportation systems to support them. Governments can use zoning to permit substantial density, but if there is no mass transit, it can be hard to support. Or governments can legislate for spread-out country living through regulations requiring large minimum-lot sizes and other zoning tools, but if locations are attractive enough because of access to transportation, people will cheat, moving more people into a house than are legally allowed, or secretly subdividing lots. For the purposes of this chapter, I will analyze land use policies for their effect on potential economic output created by transportation technologies. But to the extent that the goal of policy is not output or economic growth, but rather something else – the maintenance of traditional modes of living or some such – the question would be whether we should ban transportation technologies that undermine the land use regime, rather than the reverse.
2.2 Today’s Transportation Innovation and Distributed Density
This section will look at three major advances in transportation technology and ask what effects they should have on land use and why we might imagine that they have not.
2.2.A Mapping and Location Technologies and Land Use: Where Should Retail Locate in a World with GPS, Mobile Maps, Mobile Phones, and Waze?
While satellite-based vehicle tracking dates back to the late 1950s, the military developed the Global Positioning System (GPS) in the 1970s and 1980s (Brownell Reference Brownell2014; Pace Reference Pace1995). In the mid-1980s, the federal government made GPS technology available for civilian use. In 1989, the Magellan Company developed a handheld navigation device, and in 1995, General Motors began including GPS devices in new cars. But these early devices were expensive and not particularly accurate. When President Clinton signed an order making “precision GPS” data available, the modern GPS was born. Standalone GPS devices from companies like Garmin, Mio, Navigon, Magellan, and TomTom flooded the market. Today, cell phones combine GPS technology with advanced mapping software, making it unbelievably easy to navigate a city or search for local shops.
There are three central interactions between these technologies and land uses. First, they alter traffic patterns. Services like Google Maps make finding shortcuts that circumvent traditional highways or through-roads much easier. Traffic on nontraditional roads therefore increases. Technologies like Waze (now owned by Google) enhance this effect. Waze incorporates traffic reports from drivers on the road into its mapping software, redirecting drivers away from delayed highways and onto side streets. Both ordinary mapping and social directions have disrupted the quiet lives of homeowners on residential streets (Vanderbilt Reference Vanderbiltn.d.). For instance, in fancy neighborhoods off the 405 in LA (like Brentwood), residents have falsely reported accidents on Waze to prevent the program from directing drivers to their streets (Wallace-Wells Reference Wallace-Wells2015).
From a broader perspective, the problem with mapping technologies sending people down residential streets is not that this disrupts existing patterns of land use. The problem is that zoning regulations distort the way the property market should respond to new technologies. For example, right now, retail locates along highways and major thoroughfares (think strip malls) because of the high amount of traffic. If new technologies spread traffic out,11 then the demand for retail should increase along the now-residential streets that serve as the alternative routes Google Maps or Waze prescribe. The highest value use of property along these streets would change from low-intensity uses like single-family homes into higher-intensity uses like retail and multifamily developments.
Thus, mapping and location technologies open more locations to more intense land uses. This constitutes a real economic gain. More properties can provide retail and hence lower costs for consumers. Mapping and location technologies ought to increase the density of retail in a given shopping area, but also distribute that density along more roads. But it can only produce these gains if land use law allows retail to emerge on these once-residential streets.
The second way mapping technologies can change retail locations is by reducing search costs for consumers. Recall the discussion about high streets. Retail frequently locates along an avenue, often for many blocks, but not on side streets. Why? In order for stores to be part of the same market, and thus benefit from market depth, consumers must be able to find one store from another. Stores arrayed along an avenue present shoppers with information – which stores sell what, how deep the market is, etc. Stores on side streets provide no such information.
Enter mobile maps. Today, to find a shop or bar, consumers pull out a phone and look at Google Maps. Stores need not locate within sight of one another. In a world with mobile maps and searches, stores should locate in a neighborhood – not just along an avenue – effectively increasing the size of the “high street.” Again, this is an economic gain. More properties participate in the agglomeration gains. Overall, retail density should increase, but the density should be more distributed along now-residential side streets.
But Euclidean zoning is famously protective of residential zones. Zoning for retail is permitted along avenues, but largely barred on residential streets, even right next to major thoroughfares. The blocks between 5th Avenue and Madison Avenue in the 60s, for example, are almost entirely zoned residential.12 Similarly, while retail might emerge on the roads in Brentwood that have seen Waze-induced traffic increases, zoning laws do not allow it.13
Third, GPS, mobile mapping and Waze make finding and getting to far-flung places much easier. Shortcuts to avoid traffic matter more the further you travel. These technologies should make living further away from work or stores more attractive, as they reduce travel time by providing better directions. Again, the effect is twofold. Mapping technologies should increase the overall size of metropolitan regions, as more people can commute to jobs, but also should spread that development out.
2.2.B Transportation Network Companies and Residential Density
Perhaps the most debated current innovation in transportation in recent years has been the rise of so-called transportation network companies (TNCs), or ride-hailing services, like Uber and Lyft (Rauch and Schleicher Reference Rauch and Schleicher2015). These companies create a two-sided market. On one side are riders, who press a button on their cell phones and hail a ride. On the other are drivers, either professionals or just people with cars, who agree through the service to drive a rider somewhere. The TNCs provide the mechanism for payment, reputational ranking of drivers and riders, and the technological backbone through which these transactions take place.
These services are both a technological advance and a regulatory “hack.” The services use mobile technology to track the location of both parties, to connect them, and get one where she wants to go and the other some cash. This is an important technological innovation.
But the success of TNCs is also due to their capacity to overcome outdated regulation. Governments have traditionally limited taxi supply with something like a “medallion” system, and then regulated prices too (Wyman Reference Wyman2013). The result was undersupply and prices that were usually too high and sometimes too low (during periods of high demand). Uber and Lyft overcame local regulations by simply not complying with them, then using their political influence and vast customer base to push cities to normalize and legalize their product (Rauch and Schleicher Reference Rauch and Schleicher2015). Backed by incumbent taxi drivers, cities and states across the United States attempted to limit the entry of these firms. But they largely failed. With few exceptions, Uber and Lyft services are available in every major metropolitan area.
Uber and Lyft both provide new drivers with access to the taxi market and create variable “surge” pricing when there are fewer drivers than riders. Because Uber/Lyft drivers are not limited by traditional regulations, they can provide surge services. Many drivers only work during peak demand hours – like early morning or late afternoon, for example – because Uber is for them a part-time job (Hall and Krueger Reference Hall and Krueger2015). Drivers also provide specialized services like child seats or oversized cars for added prices in ways that traditional cabs could not (Uber 2016). Most importantly, they increase supply generally by making cars more available.
The effect of Uber and Lyft on the cab market has been profound. In a comparison between April and June in 2014 and 2015, Uber rides in New York City increased by 6 million and the number of yellow cab rides decreased by 4 million. The price of New York City taxi medallions has fallen from $1.32 million to $600,000. In San Francisco, since the introduction of Uber and Lyft, the number of taxi rides has fallen by more than half. Both Uber and Lyft now have extremely high market valuations – $62.5 billion for Uber and $5.5 billion for Lyft (Barro Reference Barro2014; Newcomer Reference Newcomer2016).
Along with a number of other firms like Via and Bridj, Uber and Lyft have moved into the jitney business as well. UberPool and LyftLine combine riders into cars, driving down prices further. Uber and Lyft say that their real goal is allowing people to live in cities without owning cars (Manjoo Reference Manjoo2014). Travis Kalanick, the CEO of Uber, recently said, “Every car should be Uber” (Wagner Reference Wagner2015).
Despite these changes, few cities or regional planning agencies haves taken TNCs into account when creating long-run transportation and land use plans (Dupuis, Martin, and Rainwater Reference DuPuis, Martin and Rainwater2015). This is a mistake.
To start, consider transit-oriented development. Cities frequently (and reasonably) seek to promote development next to new subway or light-rail locations, for both economic and environmental reasons. They want people to take the train and not drive. But valuable land right next to a given train station frequently gets turned into a parking lot since people have to get to the station somehow. This transforms some of the most valuable land – land right next to a station – into low-value parking spaces, where cars sit useless for the day.
TNCs can ameliorate this problem. Around 25 percent of Uber and Lyft rides are to and from mass transit stops (Higgs Reference Higgs2015; Holmes Reference Holmes2014). There have always been taxis at train stations, but the increased supply at peak hours and the ease of finding a driver make it much easier to get a cab to the station. Thus, TNCs mean more people can get to a train station without driving and parking a car. Further, these companies have increasingly partnered with the agencies that run rail lines to provide an integrated commuting product (Jaffe Reference Jaffe2015).
TNCs should allow greater density near train stations. More people living in more properties can use the station without driving there. Properties right next to stations will not need to be as tall; developers can build lower-rise but still-dense housing units, rather than parking lots, nearby. These can be transit-oriented since residents will not have to drive their own car to the train. Of course, the limiting factor is the cost of a taxi traveling a substantial distance, but TNCs should mean that for every train station, there are more carless developments – or rather, fewer cars per property.
This is somewhat generalizable. TNCs decrease the cost of trips longer than walking distance. Where buildings in cities used to have to be very dense if people were meant to travel between them without driving (or taking mass transit), now they can spread a bit further. This should produce the kind of “distributed density” that I mentioned earlier.
People writing about TNCs frequently ask whether they reduce car trips (Bialek, Fischer-Baum, and Mehta Reference Bialek, Fischer-Baum and Mehta2015). Surely they have both increased trips (when people take an Uber instead of walking or taking mass transit) and decreased trips (because people who use them for some trips instead of owning cars make fewer other trips). More important for land use purposes, though, is their effect on demand for parking and dense land uses.
TNCs should reduce demand for parking and increase demand for density generally.14 TNC cars – like taxis – are either constantly in motion, and thus not parked, or are largely parked outside dense areas. As parking needs decrease, repurposing parking lots and garages could be a tremendous economic gain.
A shocking amount of urban land is devoted to parking; in many cities, surface parking and garages constitute more than 20 percent of all property (Gardner Reference Gardner2011), but not just because the market demands it. Zoning and subdivision laws require parking in unbelievable ways. New housing, for example, frequently has to provide at least one parking space per bedroom, which is substantially more than developers who do not have to comply with minimums provide (McDonnell 2011, Shoup Reference Shoup2005 130–50). These requirements can have huge effects. Donald Shoup has shown they add 18 percent to the cost of construction and reduce land value by 33 percent of the cost of apartments in Oakland. For other uses, the effects are even greater. For instance, the “Golden Rule” for local zoning ordinances for office buildings is four spaces per 1,000 square feet of rentable office space. As long as such rules exist, the country will not see all of the economic gains from TNCs.
Similarly, TNC should increase demand for urban property generally, as it makes it easier to get around in cities. But to the extent land use laws limit urban density, the benefits of TNCs are wasted.
2.2.C Autonomous Cars
Technologists are getting closer and closer to developing autonomous, or self-driving, cars.15 The idea is intoxicatingly futuristic. Riders will input an address, and a car without a driver will take them there far more safely than any human driver could. Google has developed and road tested autonomous cars in several cities, logging a combined 1 million miles. Google claims that such cars will be generally available by 2020 (Korosec Reference Korosec2016; Lee Reference Lee2015b). Similarly, Uber has spent millions and partnered with Carnegie Mellon University’s robotics department to develop autonomous cars (and ultimately hired away most of CMU’s team) (Thompson Reference Thompson2015). Not to be outdone, Tesla has invested in self-driving cars, and CEO Elon Musk declared that fully autonomous cars are only a “few years away” (Hollister Reference Hollister2015). In its last year, the Obama administration proposed spending $4 billion over the next 10 years to study autonomous cars, and promised to develop regulations to enable their use (Spector and Ramsey Reference Spector and Ramsey2016). Even traditional automakers have gotten in on the action, although most of their activity has been in developing partially autonomous driving features. But General Motors invested $500 million in Lyft as part of a joint project to build autonomous cars. Toyota, Nissan, Ford, and others are investing heavily in fully autonomous vehicles, some targeting as early as 2020 for commercial availability (Vanian Reference Vanian2016).
Obviously, challenges to the technology remain. In particular, these cars do not yet react well to other drivers or to changing weather conditions (Lee Reference Lee2015b). But if they can overcome these challenges, autonomous cars will revolutionize transportation. They should reduce car crashes, the twelfth leading cause of death of Americans, and make travel easier (National Highway Traffic Safety Administration 2015). The potential change to the economy presented by autonomous cars is on a different scale from the innovations discussed earlier – it might be truly transformative.
Thus far, governments seem confused about how to regulate them. California is considering regulations that will require a licensed driver available to take over for the machine, for instance (Vekshin Reference Vekshin2016). More pressing for our purposes here, states and localities are not sure how to think about the effect of autonomous cars on land use planning. Although the arrival of autonomous cars seems somewhat imminent, only 6 percent of long-term regional transit and land use plans mention them, and government officials around the country have expressed doubts about how they will respond to developments (Dupuis et al. Reference DuPuis, Martin and Rainwater2015; Guerra Reference Guerra2015).
This lack of planning follows from two factors: first, uncertainty about when these cars will be available; second, and more interesting, how they will be used. Scholars and technologists have suggested two possible models.
The first possibility is that autonomous cars will be used like taxis (Fagnant, Kockelman, and Bansal Reference Fagnant, Kockelman and Bansal2015; Lee Reference Lee2015a; Neil Reference Neil2015). The cars would be constantly in motion, waiting to be summoned by a rider. If this happens, they will drive down the cost of taking a cab significantly. Some models suggest that costs could fall by as much as 80 percent, though other models suggest more modest savings – around 33 percent (Burns, Jordan, and Scarborough Reference Burns, Jordan and Scarborough2013; Fagnant et al. Reference Fagnant, Kockelman and Bansal2015). Either way, many urban dwellers will choose to buy minutes of mobility rather than own their own cars. The need for parking would go down massively, as many fewer cars could provide the same or more rides (Anderson et al. Reference Anderson, Kalra, Stanley, Sorenson, Samaras and Oluwatola2014).
This suggests that autonomous cars will have the same type of effect on land uses, then, as TNCs, but on a far, far greater scale. Autonomous cars will contribute meaningfully to urban density by making it easier to get around dense areas and by reducing the space wasted on parked cars. Further, they will expand the area that can be described as “downtown,” allowing urban density to spread a bit even as it increases.16
Another possibility exists (Ohnsman Reference Ohnsman2014; Smith Reference Smith2015). Autonomous cars may simply replace driver-operated ones. If this occurs, most people will own an autonomous car and leave it parked when they stop to get to their home, office, or stores. Autonomous cars will surely make regions more spread out. People will be willing to have longer commutes as they will not need to drive themselves, making commuting time more productive (or more fun) (Anderson et al. Reference Anderson, Kalra, Stanley, Sorenson, Samaras and Oluwatola2014). Under this model, self-driving cars will result in more sprawling metropolitan areas.
Which model will win out? Perhaps some combination of both. The cost of producing self-driving cars and the path technological innovation takes will both be factors. But so too will land use law. Taxis make sense in dense places, where most rides are short. In spread-out exurbs, however, taxi services make less sense. If people are spread out, cars cannot be nearby when requested. While self-driving cars will permit greater (but distributed) densities, they also need such densities to be useful as taxis. If such density is not permitted, there will be little incentive to build cars to fit that use. That is, land use laws will partially drive technological development.
2.3 The Problem of Creating Distributed Density with Existing Land Use Procedures and Politics
If we hope to maximize the economic gains from transportation technologies that techno-optimists predict, we must overcome certain pathologies in our land use policy and politics. These pathologies persist most strongly in urban cores, so those areas will see the most limited economic growth from transportation innovation. In this section, I plan to outline these pathologies and their effects on economic growth.
To start, American law confines land to certain uses quite stringently. As Sonia Hirt argues, the central goal of the creation of American zoning law was the protection of exclusively residential neighborhoods (Reference Hirt2013). Today, we restrict land to residential uses – and particularly, detached single-family homes – to a far greater degree than any other country. Even on blocks right next to commercial high streets, it is common to find exclusively residential zones. This prevents stores from locating on side streets that intersect a given high street. American land use law’s emphasis on separation frustrates the potential benefits of GPS and mobile mapping for broadening the potential places in which retail exists.
Further, modern land use law prevents “distributed density” in many of our biggest, richest cities. For instance, Glaeser, Gyourko, and Saks estimate the “zoning tax” – the difference between the price of housing and the cost of building housing – to be more than 50 percent in Manhattan (Reference Glaeser, Gyourko and Saks2005).
Regulations that disfavor the “missing middle” of housing account for much of this loss (Hurley Reference Hurley2016; Missing Middle 2016). While older cities have lots of midsized housing, newer-built cities depend largely on either single-family homes or multiunit apartment buildings (Badger and Ingraham Reference Badger and Ingraham2015). For instance, the most common form of housing in Boston is the “triple-decker,” a three-unit, small apartment building. But almost none of them have been built in the past 50 years (Cloutier Reference Cloutier2015). This is not because of a lack of demand – prices are soaring on units in triple-deckers in much of the Boston area – but rather because it is illegal to build them in many places.
This is a product of deeply embedded aspects of land use procedure and law, as I have outlined in a series of articles that I will summarize here (Hills and Schleicher Reference Hills and Schleicher2011, Reference Hills and Schleicher2015; Schleicher Reference Schleicher2013). Most zoning changes happen through neighborhood-specific amendments, rather than as the product of citywide deals. In currently low-rise areas, this often leads to zoning amendments – “downzonings” in the parlance – that prevent any or much as-of-right development. In the absence of citywide partisan competition (something most big cities lack), city councils frequently give members “councilmanic privilege” – the exclusive capacity to make decisions about land use changes in their district. Downzonings succeed because there are no real opponents (no developer has yet made an investment), and nearby homeowners support them as tools to cartelize the housing stock and to avoid externalities from new construction. Even cities with political leaders publicly committed to housing growth, like New York City under Mayor Michael Bloomberg, approve many such downzonings.
As a result, in desirable areas in many cities, there is little or no as-of-right development. Of course, this does not mean that there is no new development. Cities can and do approve new zoning amendments to allow growth. But they only do so either when they can charge high fees – through impact fees, affordable housing requirements, or indirectly through things like community benefits agreements – or when a big developer has the political wherewithal to push a project through the difficult land use review process and subsequent litigation. Or both.
Because of this political, administrative, and legal thicket, the only types of amendments that will succeed are those that provide massive gains to their proponents. Repeat-player developers proposing big new buildings may have the resources and political sophistication to overcome NIMBY opposition and convince the city to approve a zoning amendment. But incremental housing growth becomes nearly impossible. While big developers in theory could develop lots of mid-rise housing (and sometimes do), the problems of lot assembly are severe. The result is the “missing middle” – towers but not triple-deckers.
But there is much less regulation on the urban fringe. There, underdeveloped local governments generally allow growth. Further, many Southern and Sun Belt cities – like Atlanta and Houston – have much less strict land use restrictions. Transportation technologies therefore will create the most economic gains on the urban fringe and in less regulated urban areas. In the richest and most productive parts of the country, in contrast, these gains will be largely squandered.
2.4 Conclusion: Fixing Land Use to Get the Most Out of Transportation Innovation
The simplest answer to the question of what can be done is to change our zoning laws. Allow retail in residential areas. Allow more density generally and more mid-rise construction specifically. And so forth. But many people like our land use laws, so they are hard to dislodge. As Richard Babcock noted, “No one is enthusiastic about zoning except the people” (Reference Babcock1966, 17). Rather than simply advocating for change, reformers should focus on changing the political structure of decision making or the incentives for homeowners.
First, transit innovators should push for changes in land use procedure. In the past, I have proposed that cities adopt “zoning budgets” (Hills and Schleicher Reference Hills and Schleicher2011; Schleicher Reference Schleicher2013). Local government would set a target for the number of new houses that should be built over a period of time. Until that target is met, no “downzonings” are allowed; after the target is hit, all downzonings would have to be matched by comparable rezonings for greater capacity. Nothing about adopting a budget would directly cause housing growth – a city could choose zero or a negative number. But if cities decide the amount of growth at the outset, neighborhoods will not shut off development out of fear that they will become dumping grounds.
“Zoning budgets” offer another benefit. If land use decisions regularly took place at the citywide level, employers and transportation companies would become interested in the issue. Currently, no individual zoning amendment affects the housing supply enough to attract lobbying by general business interests. But employers should want more supply. Lower housing prices mean greater real value for the wages they offer.
The same goes for TNCs, since greater density should lead to greater profits for them. If decisions were made citywide, employers would have a strong incentive to lobby for housing growth against the narrower interests of particular communities. Adopting zoning budgets or like procedures would allow transportation companies to become players in land use.
Second, advocates could use transportation benefits to bribe NIMBYs. Developers have long paid opponents to allow them to build, usually through exactions or community benefits agreements (Been Reference Been2010). These bribes increase the cost of housing, of course, but transportation companies might be able to limit this increase. For example, developers often bribe NIMBYs with parking spaces, so that new neighbors do not take up existing parking. But some cities have allowed or required developers to replace these parking-space bribes with car-sharing contracts, substituting a ZipCar for a few parking spaces (Rauch and Schleicher Reference Rauch and Schleicher2015). Since these benefits are cheaper than parking spaces, the transportation company can reduce the “tax” on new housing. The next step might be doing the same thing with TNCs. Cities could require that developers provide residents with annual Uber or Lyft gift certificates instead of building parking. If TNCs played along (with discounts), you might see greater density instead of more parking (and more demand for TNC use).
These are just a few possible reform ideas. If these technologies are to succeed, firms like Uber and Lyft, Google and Tesla must begin to fight for these important land use reforms. Otherwise, the economic benefits of these incredible, innovative transportation technologies will be squandered.
Author’s Note
I would like to thank Christine Kwon and Garrett West for providing terrific research assistance. I would also like to thank Deven Bunten, Anika Singh Lemar, and Matthew Yglesias for insightful comments. All errors are my own, of course.
Current disquiet about the shape of housing markets in the United States has brought forth systematic proposals for their reform. Some of these move in a pro-market direction. These include removing zoning restrictions on new construction in order to increase supply. They also include direct public subsidies for specific classes of housing paid from general public revenues, such as Section 8 Housing, which offers rental housing assistance to private landlords on behalf of low-income tenants (Housing Act of 1937, 42 U.S.C. § 1437f). As between these two, I prefer the market liberalization because only it can produce the double benefit of lower administrative costs and the expansion of supply. In contrast, direct public subsidies require higher taxes of unknown incidence and severity that generate political controversy and deadweight social losses. This chapter, however, bypasses both these programs to exclusively critique affordable housing mandates for “inclusionary zoning.” These mandates have gained in popularity in recent years, precisely because they do not require any direct appropriation of public funds. In June 2015, a unanimous California Supreme Court, speaking through Chief Justice Tani Cantil-Sakauye in California Building Industry Association v. City of San Jose (61 Cal. 4th. 435 (2015)) (CBIA), rebuffed constitutional challenges to the San Jose affordable housing program that “requires all new residential development projects of 20 or more units to sell at least 15 percent of the for-sale units at a price that is affordable to low-or moderate-income households” (CBIA at 442). Those programs are now operative in more than 170 municipalities in California alone (CBIA at 441).
Inclusionary zoning is defended as a way to combat:
within the urban and rural areas of the state a serious shortage of decent, safe, and sanitary housing which persons and families of low or moderate income … can afford. This situation creates an absolute present and future shortage of supply in relation to demand … and also creates inflation in the cost of housing, by reason of its scarcity, which tends to decrease the relative affordability of the state’s housing supply for all its residents.
The statutory finding, however, does not explain why competitive markets are in permanent disequilibrium. Nonetheless, the California Supreme Court upheld the statute against a takings challenge that treated this mandate as an unconstitutional exaction against developers, without explaining how the inclusionary zoning mandate could achieve its intended result. More recently, New York City in March 2016 adopted an aggressive affordable housing mandate that requires the developers of new housing to include, on a negotiated basis, two tiers of affordable housing: one for low-income persons earning between 40 percent and 80 percent of the median income, and a second for people earning about 115 percent of the median income. Only developers who comply with both mandates will receive the benefit of rezonings offering them either greater height or density. The combined number of units under both programs constitutes about 20 percent of the total units in any project.
In this chapter, I will examine these programs through both an economic and legal perspective. In so doing, note the vivid contrast between bundled cross-subsidies on the one hand, and explicit cash subsidies on the other. The difference is that conditional permits keep these expenditures off the balance sheet, and thus further away from political scrutiny and public deliberation. If these programs are desirable, let the state rent or purchase the units at market value, and then re-let or resell them at below-market prices. As the late Justice Scalia wrote in Pennell v. City of San Jose (458 U.S. 1 (1988)):
The traditional manner in which American government has met the problem of those who cannot pay reasonable prices for privately sold necessities – a problem caused by the society at large – has been the distribution to such persons of funds raised from the public at large through taxes, either in cash (welfare payments) or in goods (public housing, publicly subsidized housing, and food stamps). Unless we are to abandon the guiding principle of the Takings Clause that “public burdens … should be borne by the public as a whole,” Armstrong [v. United States, 364 U.S. 40, 49 (1960),] this is the only manner that our Constitution permits.
Ignoring this principle leads to a broad set of unfortunate consequences. In order to explain why, I shall proceed as follows. Part 3.1 addresses the means-ends question of whether these programs are capable of achieving their stated goals, or whether, as seems likely, they exacerbate the current housing shortages, given that any restriction on new entry into housing markets should both constrict supply and raise prices at all rent levels. But in these cases, it would be a mistake to concentrate attention solely on the particulars of a program, given its interaction with other housing market regulations. Thus, in New York City, it seems likely that its strict rent stabilization law will further reduce effective supply, putting greater stress on affordable housing programs to make up the slack. The combination of higher costs and lower benefits can hardly be expected to improve the overall situation in housing markets.
Once the economic analysis is complete, I shall turn to the constitutional question of whether the effort to force the costs of new housing onto the developers of future housing projects violates the Takings Clause by imposing an unconstitutional condition on new real estate development. That position is widely rejected today on grounds articulated in CBIA, which are that the doctrine of unconstitutional exactions only applies in those cases where the government attaches conditions on the physical occupation and use of land, as in Nollan v. South Carolina Coastal Council (483 U.S. 825 (1987)), in which the state demanded that a homeowner yield a lateral easement to the public across his beachfront property in order to obtain a building permit to build a new and large house on his property; or in Dolan v. City of Tigard (512 U.S. 374 (1994)), which involved a bike path over and a flowage easement across the Dolan parking lot. The requirement that some undesignated fraction of units be reserved for low- and middle-class affordable housing was held not to burden the occupation of land in CBIA, and thus did not qualify as a per se taking under the rule in Loretto v. Teleprompter (458 U.S. 419 (1982)). Accordingly, the court upheld its constitutionality under the far-lower standard of rational basis review articulated in Penn Central Transportation Co. v. City of New York (438 U.S. 104 (1978)), which sustained New York City’s landmark preservation ordinance. But this classification is incorrect even under existing law. Without question, the Loretto rule applies when the state directs a private owner to allow a private person to occupy a specific property. In principle, it continues to apply even when the property owner is allowed to decide which unit will be so assigned to an eligible tenant against his will.
3.1 The Economics of Affordable Housing Programs
The initial inquiry for inclusionary zoning asks why the law of supply and demand fails in an unregulated housing market. One claim is that such housing is impacted by “public actions involving highways, public facilities, and urban renewal projects” (Cal. Health and Safety Code section 5003, subdivision (a)). Two replies should be decisive. First, these commonplace actions have not stopped housing markets from clearing in thousands of settings that do not involve inclusionary zoning. Second, to the extent that intrusive urban renewal projects do distort housing markets, the first-best solution is to curtail those innovations, not to heap a second imperfection atop the first. Less, rather than more, state intervention is required.
Nonetheless, California moves sharply in the opposite direction by creating a complex regime of positive rights in which “the provision of a decent home and a suitable living environment for every American family,” is said, without proof, to depend on inclusionary zoning to create a strong state economy with low levels of unemployment (Cal. Health and Safety Code section 5001). That system is most definitely not one “in which the housing consumer may effectively choose within the free marketplace” (Cal. Health and Safety Code section 5001). Recall that in normal market settings, supply and demand tend to come into equilibrium through entry and exit. Shortages induce new entry until anticipated rates of return are reduced to a risk-adjusted competitive level. Conversely, market gluts lead the least efficient suppliers to exit until the market is once again in equilibrium. To be sure, entry and exit are never costless, even in an unregulated economy, so we can always expect some deviations from optimal housing levels. But these problems are only aggravated by stringent zoning and excessive permitting restrictions that hamper both entry and exit – who can leave if there is no clear place to go? In contrast, open markets allow individual players to rely on their specialized knowledge to decide on entry and exit strategies. The presence of queues in price-regulated markets, as happens with inclusionary housing, is an unmistakable sign of market disequilibrium. Affordable housing is in fact a form of rent control that always creates systematic shortages.
To see the exit point, note that one reason why developers will commit to new construction of housing is if they know that they (or their buyers) can switch their end uses if the original plan does not work. This one insight condemns statutes like the San Francisco Residential Hotel Unit Conversion and Demolition (Ordinance (S. F. Admin. Code) ch. 41), which requires that any property owner who wants to replace long-term resident units with short-term units in a tourist hotel must either supply substitute units of similar housing, or pay an “in lieu” fee to the City in order to construct new units of low- and moderate-income housing. In sustaining the ordinance, the California Supreme Court stressed that the legislation reverted to a rational basis to argue that the City had wide latitude in choice of means to address the perceived shortage of affordable housing within the City, especially for its most vulnerable populations (San Remo Hotel v. San Francisco City & Cty, 41 P.3d 87 (2002)).
The Court acknowledged that the San Francisco ordinance recognized both tourism and housing were essential to the welfare of the City, but then missed the central point. The Court did not explain how any planning agency could know which use is more valuable in what location, which owners do best. In addition, the Court in San Remo thought, incorrectly, that displaced residents had some vested right to secure substitute housing within the City. That analysis misfires on two grounds. First, it requires double benefits from a single move, for in addition to the benefit of the new operations coming in, it becomes critical to supply workable substitutes for the displaced operations elsewhere. Why burden unregulated transactions that produce net social benefit? Second, these communities might easily supply residential facilities even if their locational disadvantages make it virtually impossible to supply short-term rental space for the tourist trade. Needless to say, San Remo did not exhibit a glimmer of recognition that restraints on exit rights will necessarily reduce the willingness of developers to engage in new construction.
A similar logic applies to the inclusionary zoning programs that the California Supreme Court blessed in CBIA. But how these increase housing supply for the most vulnerable populations is left unclear. On the supply side, any affordable housing mandate necessarily increases the administrative costs of running every aspect of the development process. For starters, inclusionary zoning proposals say nothing about required quality standards for the various private units and the public spaces. In practice, it is difficult to find the right level of amenities that meet the budget and preferences for individuals with gross disparities in income levels and personal tastes. To close that gap, developers traditionally catered each project to individuals who shared the same taste in public amenities, which cannot be done under inclusionary zoning.
A similar dilemma arises in designing the individual units. To build units of equally low quality will guarantee a sharp decline in the rents for the market-rate units. To use high-class materials, appliances, and finishes for the affordable units would increase the loss per unit. Thus it is necessary to figure out three different classes of appliances, finishes, and designs, for low-, middle-, and market-rate units, thereby raising costs for all units. Costs further increase when regulations require that the different types of units be evenly dispersed throughout the larger structure. Different brokerage teams, marketing strategies, and credit reviews are needed for the three different types of units, driving up staff size and costs. Qualifying particular applicants for the low- and middle-income units is a constant headache, given annual fluctuations in family composition and income. Higher-income or -net worth individuals cannot be allowed to gobble up the subsidies targeted to lower-income people. But determining annual eligibility is costly and error ridden when current tenants and future applicants change jobs from time to time, often work off the books, or fraudulently conceal income sources. None of these external standards applies to market leases, where tenants are always free to spend less on housing than they can afford. Yet what property owner wants to force out tenants who become better risks when their incomes improve? Much-needed public audits drive costs still higher.
The situation looks no better from the demand side. This entire edifice rests on the vagaries of non-quantified cross subsidies. The basic conceit is that the ability to charge high rents on the market-rate units will offset the mandated losses on the low- and moderate-rate units, thus allowing the developers to secure a reasonable rate of return on the overall investment. But new entrants offer a far better way to constrain developer returns at all market levels. In contrast, this regulatory system is fraught with risk that tenant resistance in the market-rate units not offset the losses in regulated units, thus pushing any comprehensive project into negative territory. The off-book accounting means that increasing the fraction of affordable units magnifies a future risk, which is subject to changes in future regulations. No regulator has any a priori way to determine the level of the net profits needed from the market-rate units or the prospects of their realization. Traditional rate making for public utilities knew of this risk and required a reasonable rate of return on each separate project for each annual period.1
The situation is made even more difficult because unit values are not just a function of their location, size, and quality, but also of their immediate neighborhoods. A New York Times story by Nelson Schwartz (Reference Schwartz2016), ominously titled “In an Age of Privilege, Not Everyone Is in the Same Boat,”2 attacked the Norwegian Line for outfitting its luxury cruise ships with a safe “Haven” reserved for premium passengers who wanted superior accommodations and priority access to common facilities. The separation improved matters for both groups, by increasing total revenues available to cover common costs (e.g., the engine room) without driving away customers in either service tier. Opportunity for gains arises in all forms of housing. A luxury building with large and small units can work if both groups want the same kind of public amenities, but it will fail if one group wants doormen and the other does not. It is just these pressures that drive residential developers to target discrete groups, not the whole population. They internalize all the soft externalities and thus tend to get the optimal mix of tenants along multiple dimensions that outsiders find difficult to identify.
These rules influence the strategic responses of developers to forced inclusion of different social and economic groups. When forced to include tenants with wildly different tastes, developers add a “poor door” to separate their customers along class lines, just as many large, swanky buildings have service elevators to separate maintenance and delivery functions. It is easy to denounce this practice by insisting, as does Manhattan Borough President Gale Brewer, that “[b]uildings that segregate entrances for lower-income and middle-class tenants are an affront to our values” (Keil and Danika Reference Keil and Fears2015). And it is equally easy to pass legislation that provides that “affordable units shall share the same common entrances and common areas as market rate units.”3 But it is far harder to get people to invest money in buildings under rules that reduce anticipated returns from marketplace units. Constraints of this sort will make it far harder for Mayor de Blasio to reach his target of 200,000 affordable units in New York.
The California rules in San Remo are less restrictive because they allow developers to make “in lieu” payments to an affordable housing fund. But money is fungible, so the question from Pennell arises anew: why not use an explicit allocation of general revenues instead of non-monetized cross-subsidies with serious negative impacts? Under that regime, San Francisco can insist on its SRO replacement program only if it pays developers cash equal to the lost revenue from having to include affordable units – including both reduced revenues and higher costs. The absence of these programs is good evidence that they will fail at the local level.
The effect of this novel regime of price controls through inclusionary zoning is to contract overall supply – thereby driving out residents and raising rents. Thus in evaluating San Jose’s affordable housing ordinance in CBIA, Chief Justice Cantil-Sakauye never addressed Benjamin Powell and Edward Stringham’s findings on the impact of affordable housing restrictions on housing supply in San Jose (Reference Powell and Stringham2005). That information was supplied to the California Supreme Court in explicit form by the Amicus Curiae National Association of Homebuilders, which illustrated the negative effects of the inclusionary zoning system: “A $1,000 increase in home price leads to about 232,447 households priced out of the market for a median-priced new home…. The priced-out effect is exacerbated through government regulations and constraints on housing development. Already, regulations imposed by government at all levels account for 25 percent of the final price of a new single family home built for sale.” These numbers suggest that at least in the sales market, the parties subject to affordable housing mandates cannot recover the revenue lost from the legal mandates. Clearly, the loss in supply hurts first-time homebuyers, as well as those who sell one home in order to buy another.
The Powell and Stringham study also demonstrated that the San Jose affordable housing program fell far short of expectations (Reference Powell and Stringham2005). In the seven years before the program’s passage, 28,000 new homes were built in San Jose. In the seven years afterward, only 11,000 new units were built, of which some 770 were affordable. The tradeoff could not be clearer: is the community better off with 770 affordable units at the price of 17,000 fewer aggregate units? This looks like a terrible tradeoff, given that any supply increase lowers home prices and expands housing stock for all homebuyers, not just a select few. Fewer homes meant a smaller tax base, which in turn compromised the ability of San Jose to maintain essential services, while meeting its onerous pension obligations.4 A stronger tax base could have reduced these pressures.
The adverse effects of inclusionary zoning programs are compounded by their interactions with other land use regulations that further erode the tax base. In this regard, note that the highest rates for unregulated rental housing occur in cities like New York and San Francisco (City and County of San Francisco: Residential Rent Stabilization and Arbitration Board 2015). Current rent stabilization programs privilege sitting tenants, who are locked into a unit, often with ample rights of inheritance, for indefinite renewals at stabilized prices until the current tenant on the lease dies or moves.5 Rent stabilization creates a two-tier rental structure without any pretense of incorporating egalitarian values. It also contributes to the shortage in affordable housing units.
Thus in New York City at this time, rent stabilization covers about 1 million of the 2 million total rental units (Furman Center Fact Brief, Profile of Rent-Stabilized Units and Tenants in New York City 2014).6 This statistic is incomplete because it does not separate out the many stabilized units in New York City that currently rent for prices below the allowable maximums, so that the price constraint does not bind. However, that proposition is decidedly not true in key areas of Manhattan and Brooklyn, where the maximum allowable rates fall far below the market rate. In Manhattan, in 2002, the gap was between $2,285 per month for market-rate housing and $878 for stabilized or controlled units. By 2011, the respective numbers in Manhattan were $2,600 for the market-rate units and $1,283 for the stabilized units. These numbers do not set out apples-to-apples comparisons, because they do not try even in Manhattan and Brooklyn to isolate the rent-stabilized units in the high-rent areas from those elsewhere in Manhattan and Brooklyn. However, in 2015, the Rent Stabilization Board authorized a zero percent rate increase for the area. It is likely the gap between market rents and stabilized rents has increased under the influence of progressive politics in the past five or so years. In these settings, the rent differential will in all likelihood reduce the effective carrying capacity of the current usable space. An elderly widow or couple who lives in a large, rent-stabilized unit in one of the premium areas will not move voluntarily, for it is cheaper to hold on to a large unit than to rent a smaller, unregulated one elsewhere. Under a market-rate system, that person would think seriously of downsizing in order to save rent, allowing large families or groups to occupy the larger unit at market rates. The result is an effective increase in the size of usable housing stock. Opening up only 100,000 currently stabilized units could increase total occupancy by perhaps 200,000 people, just as if new stock had been built for that purpose. Rent stabilization does more than give huge windfalls to lucky tenants. It also reduces the available spots for occupation. Phasing out rent stabilization, say by allowing a 10 percent rent increase every year, will allow a smooth transition to a market-based system that will increase total supply. This in turn will exert downward pressure on rents throughout the entire system, at zero cost. Cases like CBIA block this development, but do so under an unsound theory of unconstitutional conditions, even under current law. The second half of this chapter analyzes the current legal situation, using CBIA as a template.
3.2 The Unconstitutionality of Affordable Housing Programs
CBIA sustained the constitutionality of the San Jose affordable housing program by insisting that it had a legitimate police power justification for its restriction on both economic liberties and private property. Its opinion marked a reversal of the victory below for CBIA when the superior court (trial court) held that even if the affordable housing program was for a public use, nonetheless it “determined that the city had failed to show that there was evidence in the record ‘demonstrating the constitutionally required reasonable relationships between the deleterious impacts of new residential developments and the new requirements to build and dedicate the affordable housing or pay the fees in lieu of such property conveyances’” (61 Cal. 4th 454 (2002)).
The CBIA court relied on San Remo Hotel, LP v. City and County of San Francisco (27 Cal. 4th 643 (2002)), for the proposition that:
The controlling state and federal constitutional standards governing such exactions and conditions of development approval, and the requirements applicable to such housing exactions [and] the conditions imposed by the city’s inclusionary housing ordinance would be valid only if the city produced evidence demonstrating that the requirements were reasonably related to the adverse impact on the city’s affordable housing problem that was caused by or attributable to the proposed new developments that are subject to the ordinance’s requirements, and that the materials relied on by the city in enacting the ordinance did not demonstrate such a relationship.
Under that standard, its argument was that new housing did not displace any preexisting units, so the exaction was illegal. That argument was rejected in the Court of Appeal, which was affirmed by the California Supreme Court:
The appropriate legal standard by which the validity of the ordinance is to be judged is the ordinary standard that past California decisions have uniformly applied in evaluating claims that an ordinance regulating the use of land exceeds a municipality’s police power authority, namely, whether the ordinance bears a real and substantial relationship to a legitimate public interest.
The California Supreme Court then explained that the traditional test survived because the doctrine of unconstitutional conditions developed in Nollan v. California Coastal Commission (483 U.S. 825 (1987)) and Dolan v. City of Tigard (512 U.S. 374 (1994)) only applied to cases of “physical takings,” where a property owner was required to dedicate some portion of his property to public use. It did not apply to a mere regulation under the lax Penn Central test. The restriction of Nollan and Dolan to possessory interests flowed easily from the Supreme Court’s earlier decision in Loretto v. Teleprompter (458 U.S. 419 (1982)), which involved the permanent occupation of a small space on the roof of Loretto’s apartment house on which Teleprompter located its cable box. Justice Marshall announced: “We conclude that a permanent physical occupation authorized by government is a taking without regard to the public interests that it may serve” (Loretto at 426 (1982)). In CBIA, the California Supreme Court refused to apply Loretto because, in its view, “the unconstitutional conditions doctrine under Nollan and Dolan [does not] apply where the government simply restricts the use of property without demanding the conveyance of some identifiable protected property interest (a dedication of property or the payment of money) as a condition of approval.”
In essence, the same distinction that applies generally applies to cases of permit application. That extension is incorrect on both grounds. First, the purported line between physical and regulatory takings cannot withstand analysis. The two areas must be treated under a single unified conceptual frame. Second, even if that is accepted, the inclusionary zoning mandates fall on the possessory side of the line.
3.2.A The Unity of Physical and Regulatory Takings
The great conceptual challenge in takings laws is to deal with partial takings, that is, those situations where the original owner is stripped of only some, but not all the rights associated with normal outright ownership. Just that happened in both Nollan and Dolan. In Nollan, the physical taking came from the requirement that the Nollans dedicate a lateral public easement across their property in order to receive in exchange an ordinary building permit. In Dolan, the physical taking took place when the city required the Dolans to allow both a bike path and a flowage easement across the Dolans’ property in exchange for their building permit. Assume for the sake of argument that this distinction can be drawn, so that physical takings involve situations where the government either enters into the possession of private property or authorizes private individuals to do so. The question is whether the distinction matters here.
To see why it does not, it is critical to note why the unconstitutional conditions doctrine applies to physical takings cases in the first place – a point on which CBIA is silent. The explanation is that it is intended to prevent against widespread government abuse, akin to the situation where one private individual takes something of value from its owner and agrees to return it only upon payment of ransom money. The second transaction looked at in isolation leaves both parties better off. I prefer to regain custody of my child or my keepsake. The kidnapper or the thief prefers to keep the ransom money. But the full analysis notes that allowing the second transaction in either case will necessarily increase the likelihood of the initial kidnapping or theft – with adverse social consequences.
The same dynamic is at work in permit situations. The government could first announce that no one could build without a permit, and then agree to sell back that right to build in exchange for some fraction of the property or some easement over the whole. That process leads to widespread abuse because if the two transactions are stepped together, the government now acquires the possessory interest for itself or for some preferred private party at zero cost, a massive circumvention of the prohibition against takings without just compensation. The social distortion arises because the government now has an antisocial incentive to take private property for public use even when its value is greater in private hands.7 Thus assume that the permit to build is worth $100,000 to the landowner, while surrendering the easement will cause the owner only $20,000 worth of loss. The temptation to surrender is overwhelming, given the potential gain of $80,000 to the landowner. Yet if the easement in the hands of its recipient is only $10,000, the transaction generates a social loss of $10,000, which could be avoided if the two transactions were unbundled, so that the case for a permit had to stand on its own, separate from the condemnation of the easement.
At this point, it is critical to note the two key limitations on the permit power are “nexus” and “rough proportionality” – the public law analogs to the private law requirements of legitimate ends and appropriate means. On the first point, the state must show some justification for the restriction it imposes, for which its own benefit is never sufficient. In practice, there are only two ends that justify this state use of its monopoly permit power. The first is to prevent the commission of a nuisance or other tort. At this point, the state only asserts the same powers available to private parties who likewise can enjoin the commission of the nuisance, typically without paying compensation. This line of argument folds into the traditional police-power justification for the protection of health and safety. Alternatively, the state can impose the restriction if it can demonstrate that it has compensated the owner in kind for the loss that it has imposed, at which point the social losses that arise from bundling do not occur. In neither of these two cases is there the risk of the types of abuse that can flow from the power to improperly reduce the returns to investment in new housing.
For all public acquisitions that do not fall into these two classes, the government has to pay for them out of general revenues. Thus it is one thing to require a landowner to take precautions to prevent pollution run-off from his own lands. It is quite another to insist, as in Dolan, that he grant the easement to control the run-off from the land of some independent third party, where the state action is no more legitimate than a revised tort rule that makes A pay for the wrongs of an unrelated B. Indeed, just this distinction is routinely developed and applied under state law cases that allow for impact fees to control potential nuisances, but not to fund various activities like new schools that should be paid for out of general revenues.8
Once the legitimate ends are specified for takings cases, the next inquiry asks whether there is “rough proportionality” between the means and the ends, in order to ensure that common improvements are paid for from common funds. Thus in Koontz, it was improper for the state to condition its permit on the willingness of Koontz to either fix or pay for fixing a broken culvert located upstream along the river. Those expenditures belong on the public books to ensure public officials properly weigh all the relevant benefits and burdens to prevent the overproduction of asserted public goods by an implicit in-kind subsidy levied on one party.
The political risks with implicit subsidies are not confined to possessory interests, but apply to any and all land use restrictions. Thus the same set of considerations applies with equal force to height or setback restrictions. They also apply to the various in lieu fees used in San Remo and in Koontz. Covering all forms of exactions by the same two-part test eliminates the gamesmanship that arises when the government attempts to circumvent important restrictions by using one technique instead of another.9 The endless fragmentation of government strategies to evade this mandate opens the door to massive political abuse. Is there any meaningful difference between the government asking for the lateral easement or for $20,000 that it turns around to buy that easement? Or in using that money to condemn a restrictive covenant that restricts the height of the Nollans’ new house to 10 feet? The private law has long regarded both easements and restrictive covenants as part of the unified branch of servitudes, and there is no reason to deny them like protection under the takings law. Paying cash is an important revelation device that establishes that the easement, or the restrictive covenant, is worth more to the state than to its private owner. Unbundling the easement or restrictive covenant from the permit stops the potential government abuse cold, because the property interest will only be taken if its perceived value is greater than its cost.10
Accordingly, it is easy to see the danger from any switch to the laxer standard that asks about “the real and substantial relations to the public welfare.” Historically, this standard draws on Nebbia v. New York (291 U.S. 502, 539 (1934)), which enshrined the rational basis test in cases of economic liberty. Under that test, San Jose’s preexisting conditions do not matter at all. So long as the legislature thinks it has taken steps to expand the supply of some class of affordable housing, it has met the constitutional standard. Under CBIA, the simple observation that the chosen standard is likely to prove counterproductive is irrelevant to the current system of constitutional law. It is for the legislature to decide on the merits of the means–ends connections, so it is perfectly proper for the Court to bypass without so much as a single word of comment the earlier study by Powell and Stringham, because there is no constitutional issue to which the demonstration of major economic dislocation is directed.
A closer analysis shows how using the lower level of judicial scrutiny led the California Supreme Court badly astray in both San Remo and CBIA. In San Remo, the Court used this test to uphold the requirement that the developer either build similar units at some other (undetermined) location within the city, or alternatively, that he contribute money into an “in lieu” fund that the City thereafter would use exclusively for the purpose of developing long-term housing. The new requirement was regarded as “reasonably related to mitigating the impact that the landowner’s proposed conversion would have on the preservation of long-term rental housing in the city” (San Remo Hotel at 87 (2002)). The use of the term “mitigating” says it all. Where is the wrong that needs to be mitigated? Normally mitigation is required to offset some prior wrong. But here the tenant has no property interest that is violated by any action of the landlord, for the refusal to renew any short-term lease is not a wrong to the tenant, but the exercise of the retained right of the landlord, who may exercise its common law right to regain possession of the property at the end of the lease, on the ground that the holdover tenant is a trespasser who gains no rights by his wrong against the landlord, as holder of the reversion.11 The attitude toward displacement thus explains all forms of rent stabilization and rent control laws, whether they operate on the wholesale or retail basis. In order to close that gap, New York law, consistent with the California approach, requires that all new projects consider “the potential displacement of local residents and businesses, [which count] as an effect on population patterns and neighborhood character.”12
This huge expansion in the definition of harm has literally zero connection to the nuisance prevention rationale applied under the traditional police-power justifications. Under this definition, the question is never whether there are externalities justifying the triggering of public force. It is a virtual certainty that any reduction in existing stock will produce some changes in quantity and price that count as a deleterious effect. Accordingly, the San Remo ordinance is necessarily valid, because the displacement of any long-term resident counts as an adverse effect sufficient to trigger administrative relief, at least if the state is prepared to supply it. There is no way that this requirement satisfies either the “nexus” or “rough proportionality” tests of the Nollan/Dolan line of cases, which is why resort to the Penn Central test is so critical.
At this point, the element of choice between the replacement units and the in lieu fee is quite irrelevant. As Justice Holmes said long ago: “It always is for the interest of a party under duress to choose the lesser of two evils. But the fact that a choice was made according to interest does not exclude duress. It is the characteristic of duress properly so called” (Union Pac. R.R. Co. v. Pub. Serv. Comm’n of Mo., 248 U.S. 67, 70 (1918)). Of course the in lieu fee is, ceteris paribus, likely to be far more attractive to the developer than requirement of new construction, which requires the developer to run the gauntlet of the many zoning and other ordinances that stand in the path of new construction throughout San Francisco. No wonder the developer in San Remo first paid a $567,000 in lieu fee, which he properly sought to recover as a payment made under duress.
From a social point of view, moreover, the San Remo ordinance does not produce any social gains that justify its massive administrative costs. In San Remo, no one doubted that the increase in available short-term housing for tourists was essential for the continued growth of one of San Francisco’s key industries. So this is not a case of property going from a higher- to a lower-value use. Quite the contrary, the set of suitable locations for tourists is much more restricted than the space for long-term housing. Wholly apart from any long-term tenant protection, the shift in land use should generate net social gains.
It is equally clear, however, that this change will not generate a Pareto improvement because the displacement of sitting tenants produces large losses for multiple reasons. First, these tenants have locational benefits that are difficult to duplicate elsewhere, including a wide array of support services and social relationships that are location-bound. Second, finding accommodations in other neighborhoods is no easy feat when housing markets are uncommonly tight because San Francisco’s baroque land use regulations block the new construction that could ease the loss, not only for tenants who are displaced by tourist housing, but also to any and all tenants who are displaced at all. So the San Remo standard compounds the blunder by blocking the landlord’s right to reclaim premises at the end of any lease. In so doing, it takes the law in the wrong direction. The only structural solution to the problem of displaced tenants requires San Francisco to remove the restrictions on supply by allowing freer entry of new housing, including the conversion of other kinds of units, if appropriate, into rental housing. The sad truth is that dislocation losses are compounded by giving inordinate protection to sitting tenants elsewhere. Yet this added round of restrictions will in the end lead to the decline of tourist housing and a shortage of new rental units, accounting in part for the sky-high rentals found throughout San Francisco. No effort to constrain housing supply will produce distributional gains sufficient to offset the allocative losses.
With this said, the superior court was probably right in holding that the San Jose ordinance went too far under the San Remo test. That standard was tailored to meet the situation at hand, i.e., one in which individual tenants had been displaced. The San Jose ordinance did not apply to existing tenants, but only to new housing, removing the displacement of existing tenants from the equation. Filling in of vacant land presents an easier social problem than displacing tenants. So the ordinance in CBIA went beyond what was decided in San Remo by requiring affordable housing concessions from developers undertaking the construction of new units even when no old ones were removed from the marketplace. That rule applies even for projects that only increase, as noted, the long-term supply of housing that is so critical to improving the overall situation.
3.2.B The Higher Scrutiny of Nollan and Dolan
At this point, the only challenge left to the California Supreme Court in CBIA was to justify its unwillingness to apply Nollan and Dolan. In my view, ignoring those two cases was improper because its overall analysis depended on it giving an indefensibly narrow reading of the Loretto test that requires per se compensation when there is a permanent loss of possession. According to CBIA, that test does not apply whenever the state “simply restricts the use of property without demanding the conveyance of some identifiable protected property interest (a dedication of property or the payment of money) as a condition of approval.”
The key mistake here is that the court misdefines a land use restriction as that term was used in Penn Central. Correctly understood, the government in those cases does not change the party in possession but only limits the way in which that party can use what he possesses. Hence the restriction of new construction in Penn Central. But the inclusionary zoning cases are not just restrictions on how the property is used. They are also explicit restrictions on who can use the property. In the Loretto situation, the government told Loretto that she had to allow Teleprompter onto its premises. In the inclusionary housing cases, the government does not identify who shall go into any affordable housing unit. And it does not indicate which units shall be open to some member of the protected class. But it does make very clear that it authorizes some individuals to enter some units at below-market rates. The fact that the government gives the developer the option to decide which unit shall be turned over to a particular tenant does not convert that mandated occupation into a simple restriction on land use. It is still the possessory taking of a particular unit that will be specified not at the time the project starts, but when it is completed. The additional element of choice does not convert a physical taking into a regulatory one. It only allows the landowner to mitigate losses, and thus to reduce the level of compensation owed by the state.
The key mistake in CBIA derives from the confused concurring opinion of Justice Kennedy in Eastern Enterprises v. Apfel (524 U.S. 498, 540 (1998)), which insisted that the Takings Clause does not apply because the Coal Act “does not appropriate, transfer, or encumber an estate in land (e.g., a lien on a particular piece of property). [It] simply imposes an obligation to perform an act, the payment of benefits.” He therefore concluded that the retroactive imposition of huge taxes to fund health care benefits for retirees in the coal industry “must be invalidated as contrary to essential due process principles, without regard to the Takings Clause of the Fifth Amendment” (Eastern Enterprises at 539 (1998)). Note that the word “property” is not used in this capsule summary of the due process claim, because Justice Kennedy believed a general charge on the revenues of certain energy companies called for a higher level of due process scrutiny, because it singled out unpopular groups or individuals. The conclusion is sound. The argument is not.
First, the Due Process Clause requires that the claimant be asked to surrender “life, liberty or property.” It follows therefore that the absence of any property interest removes the protection of the Due Process Clause. But if the want of an identifiable interest does not block the application of the Due Process Clause, it cannot block the application of the Takings Clause either. The retroactivity concern applies equally to both, which in turn requires asking the two questions about the police power and implicit-in-kind compensation relevant in all takings cases. The former does not apply in Eastern Enterprises given that the forced contributions to the black lung disease programs were imposed on firms that had long been out of the coal business. Yet while they were in business, they had complied with all their legal obligations. Similarly, that program generated no return benefit to these firms. Hence we have the pure net loss that the Takings Clause prohibits. General revenues, not special assessments, should cover these expenses if they are to be covered at all. The prohibition against retroactive liability blocks the impermissible burdens on private firms for public benefits. The analysis is identical under both the Takings and Due Process Clauses.
Second, as a matter of private law, the want of identifiable property interests is no obstacle to the protection of property interests. Many businesses commonly use floating liens that allow the borrower to use property freely, especially inventory, until some default occurs, after which the lien attaches to the assets that remain in the possession of the debtor up to the amount of the lien.13 This device increases the value of the business and thereby reduces the likelihood of default – a win/win situation. But on default that lien is possessory and should be fully protected under Loretto.
A similar strategy is involved with taxation. The government identifies the total tax base and then lets the taxpayer pick whatever assets it wants to satisfy the bill – a floating lien. But once the taxes are not paid, the government can attach its tax lien to whatever property it chooses in order to discharge the debt. Taxes and takings do not fall into different worlds, for there is no conceptual gap between them.14 The key difference comes in on the benefit side, where the taxes are justified by the in-kind benefits in the form of public goods.
Indeed, the logic of Loretto also covers any case where government forces the owner off the land that it then declines to occupy, which is what it did in Penn Central when it kept the owner from using the air rights, without using them itself. It is incomprehensible that the government should be allowed to avoid paying any compensation at all if it chooses to leave the air space empty, but must pay full compensation if it develops it in some modest way. Conservation easements often leave land undeveloped. In this case, the difference, if any, goes to the issue of valuation, where the loss to the owner is somewhat smaller (because of the preservation of view and light) if the government leaves the air rights empty than if it builds (Epstein Reference Epstein2013). But there is no on-off switch that tracks the requirement of compensation, or not in such a minute difference.
As has been hinted before, Loretto also applies with full force to all rent control and rent stabilization statutes. In the majority opinion in Yee v. Village of Escondido (503 U.S. 519 (1992)), Justice O’Connor claimed that the typical rent control statute involved only a regulatory taking, not a physical taking under the Loretto rule. Her argument was: “On their face, the state and local laws at issue here merely regulate petitioners’ use of their land by regulating the relationship between landlord and tenant” (Yee at 528 (1992)). But her logic is a transparent misuse of the word “use.” She thus manages in a single sentence to upend 1,000 years of property law. Clearly the tenant in Yee has possession of the premises, and his entry was authorized by the government under Loretto: after all, the basic rent control law found it “is necessary that the owners of mobile homes occupied within mobile home parks be provided with the unique protection from actual or constructive eviction afforded by the provisions of this chapter” (Mobilehome Residency Law, Cal. Civ. Code Ann. § 798 (West 1982 and Supp. 1991), § 798.55(a)). Justice O’Connor cannot deny that a rent control tenant, any more than an affordable housing tenant, is in possession, so she shifts grounds to insist that landlords “voluntarily rented their land to mobile home owners” (Yee at 527 (1992)). But the lease was for a year, not in perpetuity, so that the tenant is, as noted earlier, a holdover tenant who can be evicted as of right. It follows therefore that the affordable housing program, by forcing landowners to set aside given property for tenants or buyers, results in a possessory taking as that term was used in Loretto. The huge loss in capital value is not compensated in kind by the supposed right to evict a tenant, so long as the landlord is prepared to convert the property to some lower-valued use when the applicable constitutional standard under Monongahela Nav. Co. v. United States, 148 U.S. 312, 325 (1893) requires “a full and just equivalent” for the property surrendered. The simple point is that the rent control statutes and the affordable housing legislation are both possessory takings, and hence out from under the Penn Central rule.
Conclusion
In this chapter, I have explored both the economic and constitutional rationales for inclusionary zoning programs. The economics of this area show that the perverse incentives created by the various set-aside programs have a negative effect on overall welfare. For the gain of a few affordable units, the entire housing system is thrown into major forms of disarray that result in fewer housing units available at all levels of income. The takings analysis starts with an abstract commitment to the protection of private property against expropriation, but it too marches off in the same direction.
Once the Takings Clause is understood to cover all takings of partial interests, the inquiry then turns to sensible justifications for takings, of which the control of nuisances is the major one in land use contexts. Nothing of this sort is at issue in the affordable housing set-asides. The next question is whether compensation is provided for the losses in question, to which the answer is always negative. Once these connections are established, the inability to find either cash or in-kind compensation in affordable housing cases should be their constitutional death knell. Why allow any program to go forward that promises losses in excess of gains? But if the economic analysis is clear, the constitutional analysis in both federal and state courts is a hopeless tangle of transient distinctions and pained rationalizations of confiscatory programs that give little help to their intended beneficiaries but cause much social dislocation for everyone else. They are strictly dominated by a program that either removes entry barriers to new housing, or uses direct subsidies to support it. The popularity of these programs proves that their political salience is inversely correlated with their social welfare. They should be terminated forthwith.
Author’s Note
My thanks to Connor Haynes, NYU School of Law, Class of 2017 and Mala Chatterjee, NYU School of Law, Class of 2018 for their excellent research assistance.