A Theory of Zoning and Local Decisionmaking

This weekend there’s a conference in the US, YIMBY 2016, by a national network of activists calling for more housing. I am not there, but I see various points raised there via social media. One is a presentation slide that says “NIMBYism is a collective action problem: no single neighborhood can lower prices by upzoning; might still be in everyone’s interest to upzone at city/state level.” I think this analysis is incorrect, and in explaining why, I’d like to talk about a theory of how homeowners use zoning to create a housing shortage to boost their own property values, and more generally how long-time residents of a city use zoning to keep out people who are not like them. In this view,zoning is the combination of a housing cartel, and a barrier to internal migration.

For years, I’ve had trouble with the housing cartel theory, because of a pair of observations. The first is that, contra the presentation at YIMBY, zoning is driven by homeowners rather than by renters; for an overview, see the work of William Fischel. The second is that restrictive zoning typically correlates with local decisionmaking, such as in a neighborhood or small city, while lax zoning typically correlates with higher-level decisionmaking, such as in a city with expansive municipal boundaries or in an entire province or country; see below for more on this correlation. These two observations together clash with the housing cartel theory, for the inverse of the reason in the above quote from the YIMBY presentation: it’s more effective to create a housing shortage in a large area than in a small one.

To a good approximation, land value equals (housing price – housing construction cost)*allowed density. If a small municipality upzones, then as in the quote, housing price doesn’t change much, but allowed density grows, raising the price a homeowner can get by selling their house to developers who’d build an apartment building. In contrast, if a large municipality upzones then housing prices will fall quite a bit as supply grows, and depending on the price elasticity, land value might well go down. If x = housing price/housing construction cost and e = price elasticity for housing, i.e. price is proportional to density^(-1/e), then maximum land value occurs when x = e/(e-1), provided e > 1; if e < 1 then maximum value occurs when x is arbitrarily large. Price elasticity is much higher in a small municipality, since even a large increase in local housing supply has a small effect on regional supply, limiting its ability to reduce prices. This implies that, to maximize homeowner value, small municipalities have an incentive to set density limits at a higher level than large municipalities, which will be seen in faster housing growth relative to population growth.

What we see is the exact opposite. Consider the following cases, none a perfect natural experiment, but all suggestive:

1. In the Bay Area, we can contrast San Francisco (a medium-size urban municipality), San Jose and generally Santa Clara County (San Jose is medium-size for a central city and very large for a suburb), and San Mateo County (comprising small and medium-size suburbs). San Mateo County is by far the stingiest of the three about permitting housing: over the last three years it’s averaged 1,000 new housing units per year (see here); in 2013, the corresponding figures elsewhere in the Bay Area were 2,277 new housing units in San Francisco and 5,245 in Santa Clara County. Per thousand people (not per housing unit), this is 2.63 in San Francisco, 2.73 in Santa Clara, and 1.31 in San Mateo. In Alameda County, comprising medium-size cities and suburbs, with a less hot housing market because of the distance from Silicon Valley jobs, growth was 2,474 units, 1.51 per 1,000 people. In small rich Silicon Valley municipalities like Palo Alto and Menlo Park, NIMBYs have effectively blocked apartment construction; in much larger and still rich San Jose, the city has a more pro-growth outlook.

2. Among the most important global cities – New York, Paris, London, and Tokyo – Tokyo has by far the fastest housing stock growth, nearly 2% a year; see article by Stephen Smith. In Japan, key land use decisions are made by the national government, whereas in Paris, London, and New York, decision is at a lower level. London builds more than New York and Paris; its municipal limit is much looser than Paris’s, with 8.5 million people to Paris’s 2.2 million even though their metro areas have similar populations. New York has a fairly loose limit as well, but the development process empowers lower-level community boards, even though the city has final authority.

3. Canada has a relatively permissive upzoning process, and in Ontario, the planning decisions are made at the provincial level, resulting in about 1.3% annual housing growth in Toronto in the previous decade; in the same period, San Jose’s annual housing growth was about 1% and San Francisco’s was 0.9%.

4. France has recently made a national-level effort to produce more housing in the Paris region, especially social housing, due to very high housing prices there. Last decade, housing production in Ile-de-France was down to about 30,000-35,000 per year, averaging to 2.6 per 1,000 people, similar to San Francisco; see PDF-pp. 4-5 here and the discussion here. With the new national and regional effort at producing more social housing, plans appear to be on track to produce 30,000 annual units of social housing alone in the next few years; see PDF-p. 6 here. With 7,000 annual units within city limits, Paris expects to build somewhat more per capita than the rest of the region.

In France, the combination of a national focus on reducing housing burden and the observation that higher-level decisionmaking produces more housing makes sense. But elsewhere, we need to ask how come homeowners aren’t able to more effectively block construction.

My theory is that the answer involves internal migration. Consider the situation of Palo Alto: with Stanford and many tech jobs, it is prime location, and many people want to move there. The homeowners are choosing the zoning rule that maximizes their ability to extract rents from those people, in both the conventional sense of the word rent and the economic sense. Now consider decisionmaking at the level of the entire state of California. California can raise housing prices even more effectively than Palo Alto can by restricting development, but unlike Palo Alto, California consists not just of residents of rich cities, but also of residents of other cities, who would like to move to Palo Alto. In the poorer parts of the state, there’s not much point in restrictive zoning, because there isn’t that much demand for new housing, except perhaps from people who cannot afford San Francisco or Los Angeles and are willing to endure long commutes. On the contrary, thanks to the strength of internal migration, a large fraction of prospective residents of Palo Alto live elsewhere in California. Nor do people in poor areas, where houses aren’t worth much as investments, gain much from raising house prices for themselves; the ability to move to where the good jobs are is worth more than raising housing prices by a few tens of thousands of dollars. This means that the general interest in California is to make Palo Alto cheaper rather than more expensive. The same is true of Japan and Tokyo, or France and Paris, or Ontario and Toronto.

While superficially similar to the point made in the presentation quoted at the beginning of this post, my theory asserts the opposite. The issue is not that individual municipalities see no benefit in upzoning since it wouldn’t reduce rents by much. It’s that they see net harm from upzoning precisely because it would reduce rents. It is not a collective action problem: it is a problem of disenfranchisement, in which the people who benefit from more development do not live in the neighborhoods where the development would be taking place. High-level decisionmaking means that people who would like to move to a rich area get as much of a vote in its development policy as people who already live there and have access to its amenities, chief of which is access to work. It disempowers the people who already have the privilege of living in these areas, and empowers the people who don’t but would like to.

Individual rich people can be virtuous. Rich communities never are. They are greedy, and write rules that keep others out and ruthlessly eliminate any local effort to give up their political power. They will erect borders and fences, exclude outsiders, and demagogue against revenue sharing, school integration, and upzoning. They will engage in limited charity – propping up their local poor (as San Francisco protects low-income lifelong San Franciscans via rent control), and engaging in symbolic, high-prestige giving, but avoid any challenge to their political power. Upzoning is not a collective action problem; it is a struggle for equal rights and equal access to jobs regardless of which neighborhood, city, or region one grew up in.

42 comments

  1. Bjorn

    I was in the room that this picture came from.

    Devin’s theory was that at the ‘neighborhood’ level, the willingness-to-pay curve is essentially flat as there are substitute neighborhoods of similar quality that people are choosing from. As an example, if a few blocks in Palo Alto are upzoned to high rises, rent prices won’t necessarily fall as the people moving into the new high rises have a very similar willingness to pay as people that already live there. However, if all NIMBYs cared about was their wallet (they don’t, as other conference members explained quite clearly), it would still be in their best interest to upzone – their one million dollar bungalows become five million dollar bungalows as land value increased in that specific neighborhood.

    Perhaps the largest takeaway message from this conference is that “NIMBY’s” tend to behave in ways that are rooted more in emotion rather than logic – we can’t go in screaming “SUPPLY! DEMAND! FACTS! DATA!” like we in urbanist circles have a tendency to do (myself included). A factual response does not win when competing directly against an emotional response.

    • Alon Levy

      Right, it’s in the best interest of a homeowner to be the only person in town who’s allowed to sell to a high-rise development. However, even at the level of a small-ish community like Menlo Park, there’s no perfect substitution. If Menlo Park doubles the amount of housing it permits, that’s worth a few years of San Mateo County housing growth, so it wouldn’t change county housing prices by much, but it would make it much easier for people working for Menlo Park firms (e.g. Facebook) to live there, so it would exercise some downward pressure on prices.

      Of note, in municipalities with very small numbers of residents, the residents extract rents from developers in different ways, as in rotten boroughs like Industry and Teterboro. In those areas, restrictions on residential growth come directly from rent dilution: if more people get to live in Industry, then the fees the residents can extract from employers have to be split among more people. It’s not the same model as for housing prices, but the basic outline, in which NIMBYism is an economically rational form of rent-seeking, is the same.

      I’ll deal with emotional factors in another post, hopefully very soon, since I do think it matters for urban renter NIMBYism – the kind that fuels anti-tech bus rioters in the Mission. In the Mission, unlike in Industry, the economic rents are not enough to live on, so it is not economically rational for the neighborhood NIMBYs to oppose new development. Thankfully, we have Julia Carrie-Wong telling us exactly what it’s about, and even seeing it as a positive.

  2. andrewla

    The other thing is that homeowners want the most restrictive possible zoning on their property every minute until the point that they sell, to keep their property tax assessments low. This is distorted when you have significant caps on assessment increases, but still relevant when people are planning to use their property as a primary residence. If they and their neighbor are both switched from Single Family to Multi Family zoning, they get no benefit at all until they sell, but they face both the potential assessment rise and the possible inconvenience of their neighbor selling and an apartment building going up next door. Or even just a larger house. The nuisance of construction let alone multiple neighbors is something many people would prefer not to deal with.

  3. dr2chase

    I agree with andrewla’s point (we’re right across the street from plain old zoning-conforming-ish construction right now, and it is a PITA). Any proceeds from a future sale of our home/land are deeply discounted, and in the short run there’s all the costs of our neighbors turning their homes into apartments. Increased car traffic is another short-term issue. The car traffic issue is an interesting one in our area, because very many commuters here travel into Cambridge and Boston, and we are just one town out from Cambridge. Each car that our town puts on the road results in more “traffic backpressure” on towns further out, who have even fewer alternative options (less transit service, longer bicycle commutes) than we do.

    A second issue that I most often see mentioned in the town where I live is the cost of educating “more children”. In Massachusetts and I think also California, the cost of K-12 education is mostly covered by property taxes at the city/town level. If our town adds people, a certain fraction of them will be children, and they’ll need to be educated, and using emotional arithmetic it will cost “a lot” (I arrive at a figure of about one dollar per child-household-year).

    There’s an obvious cure for that which would be zoning for more commerce and industry, but we also vote against that. The only consistent theory I’ve been able to come up with for this is “we hate change” and perhaps “we hate traffic, but only think tactically, not strategically”.

    • Alon Levy

      The schools are a thing, yes. But there’s plenty of NIMBYism in places where schools are not funded by local property taxes (say, Sweden, where local government is funded by income taxes), and in places where schools are governed regionally (say, France, where middle schools are run by departments and high schools by regions). And this is in cities with low car ownership. If Stockholm decides to replace my block with high-rises, it’s not going to induce more car traffic, because the public transit access here is so good that tenured professors do not own cars. But it’s not going to do so, because why would a Stockholmer want to make more room for Norrlanders and Syrians?

    • name99

      I think these arguments are bound to misunderstand what’s happening because they focus too much on economics. The important issues (IMHO) are
      – what’s wrong with “we like our current way of life and don’t want change”?
      – how much do “people” owe “other people”

      The same argument that says “you suburbanites should give up your low density, even though you like that, for the greater good of other people” is the argument that “you native peoples should give up your low density use of your land, for the greater good of settlers”. It’s the argument that “you Palestinians should give up the land you’ve lived in and the lifestyle you’re used to for the greater good of the Zionist project”. etc etc. These are obviously inflammatory examples, but they are not WRONG examples — there is no difference at the abstract level, and you’re going to have to come up with a mighty subtle knife to cut your way to an argument that insists that you have the right to demand Palo Alto residents alter their life style to accommodate you, but that that same right does not extend to the examples I gave.

      I’m not saying that communities don’t have the right to ask things of other communities; I am saying that it is THIS issue (and all it implies) that has to be explored, and that is not being explored in these facile economic arguments.
      And of course, as soon as you do raise this issue, you get into THE elephant in the room that no-one wants to discuss — the role of population growth in all this. If, for example, Palo Alto residents are willing to maintain a flat population, making an informed trade-off that that’s what they want in return for their chosen lifestyle, do they still owe anything to populations in the rest of the US that insist on having more than replacement kids and who then demand that other localities sacrifice their lifestyle to accommodate that population?

      • Alon Levy

        The analogy you’re giving to Palestinians and Native Americans is something I’ve seen San Francisco NIMBYs say. One organization claimed that gentrification is equivalent to ethnic cleansing.

        The reason this is wrong is that neither group was outbid for land its members owned. In the pre-1948 settlement of what is now Israel, the Zionists bought land from Arab owners and built their own cities and agricultural communes, but this was a small minority of land. There was rural displacement, but no net urban displacement: Jaffa had extensive development in the first half of the 20th century, and its Arab population was growing. But during and after independence, the Nakba happened. Israeli forces entered Jaffa and expelled nearly all of its Arab residents. In less urban parts of the country, people fled the advance of the proto-IDF, and when the war was over, the state did not permit them to return. In the Negev, the state informed the Bedouins that it did not recognize their land ownership titles, and ordered them to move to a new town (Rahat, Israel’s poorest city) or to less agriculturally useful land.

        Something similar happened in the settlement of the US, only a lot worse. The federal government did not purchase land from the Five Civilized Tribes at fair price to develop the gold mines; it forcibly relocated them to Oklahoma. In California, the Spanish missions forced the Indians into the mission system (effectively, concentration camps); subsequently, Mexico and then the US seized land that had been owned by indigenous people and distributed it to white settlers. Bounties for scalping occurred from the 17th century through the postbellum Indian Wars.

        In the Mission – let alone Palo Alto – what happens instead is that the legitimate private owners of buildings wish to redevelop them at higher density or sell them to developers who will. Nobody who owns anything is forced to depart with it. At most, people with appreciating assets are asked to pay taxes on them in proportion to their value. This is not what happened in any ethnic cleansing episode I am familiar with; on the contrary, as a sop to treating them as foreigners in their own country, the US did not tax the Indians. YIMBYs demand that homeowners give up the right to tell their neighbor what to build, yes; they do not demand that homeowners be forced to move.

      • Matthew

        You’re question is wrong to start. The real question is: what right do the Palo Alto residents have to claim the benefits of public investment in infrastructure and industry all to themselves? What gives them the right to reject other Americans from sharing the fruits of those investments?

        There is no such right, and that’s why we object to their behavior.

        We have a system of property rights for managing some of these issues in a consistent and stable way. But property rights are geographically limited for a reason. Your ownership of one parcel does not grant you the right to tell other people what to do with their land. That perversion had to be added later, using a questionable basis in police power. The real political source of that power originates from racism of the 19th and 20th centuries. We no longer accept that racism as a valid basis for law, but there’s a long way to go in fixing centuries’ worth of regulation.

        • name99

          You’re both trying to dodge the central point by relying on technicalities. The essential point is: does a group have a right to maintain a way of life that it likes, even when some other group could make more aggressive use of the first groups resources? In other words, how much of a utilitarian are you REALLY?

          Technicalities have their place (for example when trying to calm down passions inflamed by lawsuits), but they are not an appropriate response to the type of question I am posing. And the type of technicality you are throwing up makes no sense — you’ve both suddenly become more Libertarian than Ayn Rand. I suspect this concern with geographically limited absolute property right will disappear down the drain the moment issues of pollution, or requiring eminent domain to build a light rail line, or something similar come along.

          • Alon Levy

            Since when are property rights Randian? I’m not saying the poor are undeserving or A is A or whatever else the objectivists think. I’m saying there’s a vast gap between making it legal for people to replace a building that they own with a taller one, or to sell it to a developer who will, and bombarding cities to force all members of an ethnic group to immediately leave the country. This gap is so vast that the comparison itself offends.

            Now, let’s talk about eminent domain. The eminent domain process involves the government having to prove that it actually needs your property. You can sue if it hasn’t made its case, and you can also sue if the compensation is inadequate. If the government overtly tries to underpay, you can sometimes sue as well. In the US, this is the excess takings doctrine; other schemes, e.g. redlining a neighborhood and then acquiring buildings cheaply to build highways, are legal for convoluted reasons that boil down to “you can’t PROVE that we deliberately depressed your property values, ha ha!”.

            Pretend-humanitarian schemes for compensated ethnic cleansing exist, but a) they never empower the ethnically cleansed to demand more money, and b) the actual pay is always a pittance. Some extreme right groups in Israel advocate paying Arabs to leave, but the pay is always ridiculous, and naturally just about nobody on the other side is interested.

            The pollution comparison offends, too, for a different reason. If I build a steel smelting plant on my property, it makes the air dirtier and endangers people’s health. If I build a taller apartment buildings, it brings in new residents, who are people and not pollution. The idea that new residents are pollution is less like Palestinian resistance to Zionism and more like the English Defence League.

          • Adirondacker12800

            Usual argument for not allowing the denser development is “we don’t have the sewer capacity” which then starts a decades long cycle of environmental studies, lawsuits, new environmental studies, lawsuits… It can take decades to resolve that.

          • Matthew

            I don’t see my argument as a technicality at all. Why should Palo Alto residents be allowed to effectively privatize public investment? And as Alon has said, property rights are not Randian and are the basis of our society. I will try not to reiterate what he has already said.

            Moving on, “does a group have the right to maintain a way of life that it likes?” A way of life is freedom of expression and that is protected under United States law (thankfully). However, a way of life that infringes on the rights of other people is not necessarily protected. For example, the South insisted that they were merely protecting their way of life by splitting the Union in order to keep slavery. I am grateful that Abraham Lincoln did not give into that argument. Slightly more recently, going into the 20th century, much of the Jim Crow regime was about “protecting a way of life”. It just happened to be a way of life that was horrible to a segment of our population. Some of that racist “way of life” was expressed through early zoning regulations and restrictive covenants — until the courts declared such behavior to be illegal. Zoning regulations have continued to evolve in ways that are no longer “explicitly racist” but are often effectively racist, and intended to make it very difficult for people with less wealth to live in certain communities. It’s no coincidence that segregation continues to persist to this day.

            Before I get dragged into technicalities I would like to highlight a major irony in your question. As it happens, your pollution is not protected by property rights because you are harming other people. But if you’ll excuse me for repeating what Alon said: people are not pollution. People who treat other people like pollution are vile. But I promised an irony, and here it is: as it happens, the Bay Area (particularly the Peninsula) is a very dense region of Superfund sites. Possibly the worst such region in the United States. So, what we have in and near Palo Alto are a set of towns and cities that are morally backwards: they treat people like pollution but they were happy to pollute themselves with actual toxic chemicals for decades!

            It would be funny if it weren’t so sad and terrible.

  4. knott

    I think zoning is best understood through simple exclusionary practices when an area is planned for the first time. New incorporated cities seek the biggest possible lot size, simply to make sure that the average income is as high as possible. This is primarily a suburban phenomenon, but then the US is a primarily sub-urban country, and the low zoning in places such as Queens or wealthy inner suburbs in the North East is also best understood from this perspective. Making sure that zoning remains exclusive and avoiding up-zoning is then simply a strategy to maintain as high average prices per household as possible, which dominates over concerns such as maximize the value of land from the politicians in a small political entity. It is more about mayors wishes, than the median voters interests I think. My impression is that these processes are quite well understood in urban history such as Colin Gordons book about St Louis. This problem is much greater in the US than elsewhere due to to the very generous rules for incorporating county and state land by developers. Similar strategies were adopted to maintain a favorable “racial mix” for approximately the same reasons, though the last decades it is all about income.

    This has perhaps less explanatory power in cases such as Manhattan, but for most US zoning I think this is really the primary story. Up-zoning means smaller apartments, instead of giant houses, which equals less wealth residents.

    • Adirondacker12800

      According to Wikipedia, in nice round numbers Brooklyn is twice as dense as Tokyo and Queens is twice as dense as Berlin. 50 percent denser than London.

        • Adirondacker12800

          um um the point is that if it’s more densely populated than most other places it doesn’t have low density zoning.

          • Alon Levy

            What are you talking about, vast tracts of Queens are zoned single-family. Upzoning only happens when white flight is nearly complete and the neighborhood has turned close to 100% Asian (or Hispanic, but I think the upzoning near Flushing is entirely an Asian thing). Queens is overall denser than Tokyo Prefecture, but it’s nowhere near as dense as actual Tokyo, i.e. the 23 Special Wards, which are somewhat denser than New York.

          • knott

            To add to the Tokyo discussion, Tokyo prefecture includes some very rural municipalities with for example 6000 people spread out over the area of Brooklyn and Manhattan jointly.

  5. Adirondacker12800

    tt makes sense to allow medium rise near the train station, if it already isn’t. That doesn’t mean Francis Lewis Blvd should be lined with elevator building like Ocean Parkway.

    Friendship Village is more densely populated than Manhattan. Manhattan is more densely populated than Queens. That doesn’t stop Queens from being more densely populated than most of the Americas. And Europe. Or mean that it should be as densely populated as Manhattan. For one thing women the world over have discovered birth control, it would be difficult to find that many people.

    Vast tracts of Queens are zoned for multi-family. Evidenced by the vast tracts of walk-ups and elevator buildings. Vast tracts of Brooklyn and Bronx are zoned one family. It can be a good thing. It stops the developers from buying cheap land far away from the trains and plopping car-less people in transit deserts. Or turning car-less people into automobile owners. Co-op City and North Shore Towers come to mind.

    There are places that never should have been built on. Having single family houses on it cuts the insurance payouts. And places that are on peninsulas or in cul-de-sacs formed by the railroads and highways that are always going to be out of the way. Everyplace doesn’t have to look like the Grand Concourse. And if it did there isn’t enough subway. Or highway or water or sewer and hauling out the garbage would be expensive. Until the freight tunnel to Jersey City opens. Or electricity or…

    • Alon Levy

      Developers already buy cheap land in transit deserts far from the subway and plop carless people there. Those transit deserts are places like Florida, Atlanta, and anywhere else people who can’t afford New York move to.

      • Adirondacker12800

        Building haf million dollar condos in Corona isn’t going to make New York any more affordable.

  6. Roland S

    So politically how do you shift the locus of land-use decision-making to a higher level? What caused the state legislature of Massachusetts to pass a bill that curbs the zoning powers of local municipalities, and forces them to plan for multi-family growth and (seemingly) creates a blanket protection for accessory dwellings? Why Massachusetts specifically, and not a bigger liberal state like California or New York?

    • Alon Levy

      In both New York and New Jersey, and I think also in California, there are rules mandating that local municipalities zone for growth. In New Jersey they came out of the courts; I’m not sure about New York and California. This works on the state level, because civil rights organizations have extensive statewide networks that can lobby legislators and sue in court to compel high-income suburbs to be less exclusive. On the local level, this breaks down, partly because politics is less ideological, partly because in the US urban zoning does not have the same racial history as suburban zoning (the zoning mandates were fine for the housing demand of the 1950s, unlike in the suburbs, which were often exclusive from the start), partly because too many beneficiaries live outside the city.

      The problem is that fair housing rules are only enforced via the courts. Cities can ignore them, and the only recourse you have is to sue. This is happening in Westchester as we speak – there’s a lawsuit over the richer municipalities’ refusal to provide zoning capacity for apartments. By dragging the process for years, the suburbs in question can remain exclusive – perhaps less than they’d prefer, but more than they would be if they had no right to zone. If every upzoning is a fight, it also makes things harder for small developers, which is why in some areas, for example Toronto (where there’s no as-of-right upzoning, just a very liberal permitting process), there’s a fair amount of high-rise upzoning, but not much redevelopment of single-family houses into medium-density apartment buildings. This is why I push for a solution that entirely deprives municipalities of the right to zone. Instead of forcing prospective residents to sue the NIMBYs every time they want new housing, let the NIMBYs try to sue the new residents every time they want to extract political rent out of having lived in a rich area.

      • Misha

        A small correction re:Toronto. Large municipalities in Ontario have Official Plans that define general land uses; the municipalities are expected to approve rezoning applications if they are in accordance with the official plan.
        In Toronto, most of the area in the city is defined as “Neighborhoods” and can only be zoned for low-rise residential, mostly single-family housing. That is true even in some areas just minutes away from subway stations. The only sites with single-family houses that can be up-zoned are in Downtown. Almost everything else that can be upzoned is already commercial.

        • Alon Levy

          So, it’s the same situation as Vancouver – upzone aggressively near SkyTrain, but don’t touch the expensive single-family areas?

          • Misha

            I’m not very familiar with Vancouver, but from what you described – generally yes. But there are more opportunities to upzone, including in areas not necessarily adjacent to (the quite limited) rapid transit: in all commercial areas, along many arterial streets (that were designated as “Avenues”) and some manufacturing areas (though low density manufacturing is also protected).
            If you look at the Official Plan land use map (here – http://www1.toronto.ca/planning/landuse-all.pdf), you’ll see there are quite some opportunities, even though it’s not always for unlimited densities.
            Another political difference is that in Ontario there is the Ontario Municipal Board which is a professional court that has a final say in development approval disputes and should decide based on policies – this often forces councils to compromise if they have no case. In BC, there is no equivalent and the council has almost arbitrary power.

  7. Chris Corliss

    Could you explain two parts of your theory in more detail? First, how are the economic rents manifested for NIMBYs. You mentioned forcing employers to pay higher wages.

    Second, could you explain the rent (i.e. monthly rent) vs capital appreciation. It seems like you are saying that small communities wouldn’t see drops in real estate prices but would see drops in rental prices, even though small communities presumably make up a very small part of the rental market. Even if rental rates per square foot did drop, the upzoned property could increase square footage. Another way to state this questions is that the cost to own a building should be equal to the discounted cash flow of future cash flows, mostly rent minus tax and maintenance. So upzoning should change property price and total property rent in the same direction.

    • Alon Levy

      You’re right that the upzoned property would increase net rentable area, raising rents relative to a counterfactual in which demand were lower. However, I don’t think it would raise rents relative to a present-day situation in which the demand is there and the supply isn’t.

      Even if you assume unit elasticity, which is almost certainly too elastic at the regional level, total revenue per unit of land area remains the same no matter what the zoning is, but if you build more then you have to pay extra construction and maintenance costs to get the same rent.

  8. devin

    Hi Alon,

    These are my slides! Yay for bringing #YIMBY2016 to the internet!

    So, I totally agree with your point about larger geographies being more pro-housing, and for the same reasons you identify (those who benefit are included in the choice). As I hinted on twitter, (part of) the point of this slide was that upzoning would unlock substantial increases in land-use intensity that could be profitable for homeowners in their role as landowners, such that most everyone in a city *could* be better off under a broad upzoning (whether they would is a bit of an empirical question depending on the different elasticities). I think that’s sufficient for making it a coordination problem, regardless of why any individual location chooses not to upzone, right?

    Two of the reasons discussed in the talk for why households wouldn’t want to upzone their local area are (1) increase in congestion that would accompany it and make the location less attractive and (2) linked to this, a higher tolerance of lower-income households for congestion could mean upzoning would change the composition of the neighborhood in a way that initial residents find unattractive. I am happy to hear more ideas for why they would oppose development! To be honest though, I don’t really understand your argument for why we see strong opposition at the local level: how *precisely* do Palo Alto homeowners “extract rents” from new residents? Under your argument about local elasticities, it seems they should want to upzone to extract those rents from more people–what am I missing? Of course, towns like Vernon are another story, but I don’t understand how the logic transmits.

    Finally, thanks for noticing that this was an unhelpful first bullet point under the collective action problem! I agree the problem is that they don’t want to lower prices locally, not that they can’t do so by much (probably should have written the slides before the plane ride over..) and the talk did reflect this. The half-point that this was linked to in the talk (although it didn’t really belong under that bullet) is that *renters*, who might like to lower prices, might not be able to do so if they only control one neighborhood.

    Anyway, hopefully I’ll get a chance to write up the slides soon so that I can post them online with the context that’s hard to get from slides alone!

    -Devin

    • devin

      (I do understand there are specific instances of straightforward rent extraction of developers: getting a developer to build a park or something. But it’s hard for me to think this is the main thing, given that most tightly-zoned areas [eg, most burbs] don’t actually see any development from which they could extract rents!)

      • andrewla

        I believe “extract rents” is being used in the economic sense rather than the leasing one. If a particular area is in high demand but limited to 1000 housing units, if 5% are sold every year the top 50 bidders get to become households in that area. If an existing owner wants to sell, they will get at least what the 50th wealthy household will pay to live there.
        If you permitted an increase to 1100 units, the top 150 (100 new units+50 resales) bidders will get units and the existing seller will only be guaranteed what the 150th wealthiest bidder will offer, which is almost certainly less. So by keeping supply suppressed, each owner knows that a wealthier bidder will be making the winning bid than would be guaranteed under the increased supply. You might still be the person who sells the most expensive house, but you might also be the one selling the cheapest one, depending on when exactly it hits the market etc.

        • devin

          Hah yes quite!

          But I don’t agree that there’s a strong case that the demand curve is sloping downward at the local level–and Alon seems to possibly agree. With so many potential residents (and so many similar neighborhoods) it’s unlikely to be so steep as that. Or in other words, there’s easily 150 people who are willing to move into any particular neighborhood at approximately the going rate. And in any case, if you upzone to allow 2 units on some lots then you get two of the 150 most-interested buyers, not just one.

          • Alon Levy

            In the case of Silicon Valley, I do think the demand curve slopes downward, with low elasticity to boot. The towns are not interchangeable, because they are edge cities, each with its own employers. If Menlo Park upzones, it’s going to get more people from everywhere, but especially Facebook employees. If Palo Alto upzones, it’s going to get more people who work at Stanford. If Mountain View upzones, it’s going to get more people who work at Google. The sort of people who live in San Francisco and reverse-commute to Silicon Valley wouldn’t move to just any Silicon Valley city if it upzoned; they’d move to it if they worked there or nearby, but if it was a longer commute they’d just stay in San Francisco, with its consumption amenities.

            Now, I realize this is an ad hoc explanation. It is weaker in Westchester, which has edge city development but less than Silicon Valley, and much less substitutability with New York than Silicon Valley has with San Francisco. There’s just about no substitutability between different quadrants, e.g. Westchester and Long Island’s North Shore, but each quadrant has a fair amount of internal substitutability. The analysis does apply to the suburbs of Boston, though – suburbs with good access to Route 128 jobs, like Lexington, are not in perfect substitution with suburbs with good access to CBD jobs, like Brookline, and within each locus of proximity to a job cluster, there aren’t usually many options.

            I don’t think this is about congestion, and I should post about that, because some NIMBYs do say things like “the infrastructure here can’t support more housing.” The tl;dr version is that these complaints do not seem to be correlated with whether there is an actual infrastructure crunch. Take subway crowding, for example: where are all the YIMBYs of southern Brooklyn, where each subway branch runs every 10 minutes off-peak and not much more frequently at rush hour? Where are all the YIMBYs on Central Park West, where the B and C are comically underused?

          • devin

            Maybe! I am not convinced, but I’m also not convinced it’s congestion. It’s hard to buy that ppl have a rank like 1. Menlo Park 2. SF 3. Seattle. If Palo Alto abolished zoning, I suspect it wouldn’t just be Stanford ppl moving in!

            Re:congestion. It’s a fun idea for a test, although I’m not sure subway crowding is a typical example: in most places it’s about cars, especially parking them. And it’s indubitably true that my dingbats+sfh neighborhood has a much more challenging street parking situation than nearby sfh-only neighborhoods (even ones without parking permits!), so there’s something there for them to preserve.

            Now whether this is enough to justify NIMBYism ¯\_(ツ)_/¯… I think wedding “congestion” with neighborhood composition changes will get a bit closer, but even that might not be enough to really explain things (how far down the income scale is a neighborhood likely to slide, really?). I also think anti-change “when did I move in” effects are probably real and potentially salient.

          • devin

            On the subject of whether your story is ad hoc (cause it need not be, even if your examples are specific): do you think NIMBYism inside of big cities is similar? In Beverly Hills and Santa Monica, and in SF (or NYC!) neighborhoods? What about NIMBY renters?

            One of the reason I like my stories is that they work ~similarly for renters who lack house-price incentives–especially if they’re under some type of rent control. But that doesn’t mean I’m right..

          • Alon Levy

            At the risk of continuing to be ad hoc, Santa Monica and Beverly Hills are both wealthy independent cities within the larger Westside region, offering well-funded public schools, so there’s limited substitution with the rest of West LA.

            NIMBY renters is the big issue here, you’re right. The problem is that they, too, don’t seem to vary their NIMBYism based on infrastructure issues. At least in New York and San Francisco, there’s rent control that protects tenants who have lived in the same place for a long while, who politically dominate renter communities because of their deeper social ties to the neighborhood. Those tenants don’t directly benefit from reduced prices, and can effectively extract amenities from developers, such as parks, by being intransigent. They also have an interest in not diluting the neighborhood with too many outsiders, especially if they’re all from one social class that the long-timers don’t identify with, because then those outsiders would want to exercise political pressure to get different amenities.

            The dilution issue is also present elsewhere, and even in national immigration debates, but it shouldn’t obscure the huge financial incentives for NIMBYism among homeowners even in small municipalities.

          • devin

            I find this more convincing for why these localities wouldn’t support large-scale upzonings, but if it’s not the real effects then it still seems like they should be able to profit from small-scale upzonings? (i.e., the demand curve isn’t thaat steep, and more-than-unit-elastic demand => supply increases will increase profits for if cost curves are flattish). I guess we may lack a profit-sharing mechanism? But as with renters extracting amenities (although, are these developer-amenity parks actually used? I’m not sure renters really care and aren’t just finding legit-sounding excuses..), it seems like there should be a path for them to upzone a bit and profit.

            In any case, I think we’re in agreement on the larger point: there’s *some reason* why prices (or at least, utility) falls with local increases in housing supply, but that larger polities will support upzoning because they can migrate to more-attractive locations. I’m still down with this being a coordination problem for some of the other reasons touched on in my talk (e.g., cities that are denser everywhere can better support amenities like a metro–an upzoned Menlo Park cannot). If you don’t mind, I’ll incorporate your points into the “why might utility be falling in population” section of my slides!

  9. devin

    (re-reading your comment, I regret that cutesy ranking, which obviously never reflected your views! i also don’t think it applies very well to most suburbs, which aren’t home to The World’s Largest Corporations but are still plenty NIMBY. Also, don’t tech workers move around a lot? And marry other tech workers? These things should flatten demand!

    It’s an interesting point though, and I’ll consider it more!!)

  10. johndmuller

    There was a recent article in the New York Times: (July 3 or 4, 2015 – “How Anti-Growth Sentiment, Reflected in Zoning Laws, Thwarts Equality” or “When Cities Spurn Growth, Equality Suffers”, by Conor Dougherty), with a decidedly similar subject matter.
    (Linked Here perhaps)

    It seems to be on the same track as you, although perhaps a bit blunter when it comes to some of the overt elitism (or perhaps more like objectivism) involved in the suburban restrictive zoning club.

    The issue itself is a rather sticky wicket of the sort that would seem to recommend the Philosopher-King form of government (or maybe just a tremendously rich person with ideal values, determination, and somehow a perverted interest in electoral politics).

    • Alon Levy

      What people who recommend philosopher-kings miss is that kings of any kind aren’t any smarter or fairer than the rest of the population. Of note, rich people with determination and interest in electoral politics have not really done anything like what I’m recommending here: Bloomberg upzoned more central areas but downzoned others, Berlusconi enriched himself and did little else. Also of note, the developed countries where there’s more liberal development policy disempower local communities in decisionmaking to some extent, but are still governed democratically.

      In Singapore, evidently, housing construction isn’t especially high: housing growth since 2010 has been strong, ~5.5 per 1,000 people (=23/1,000 units), but from 2001 to 2010, it was 2.5/1,000 (10/1,000 units), comparable to this decade’s San Francisco. See here for private data and here for public housing data. At the same time, due to liberal immigration policy, population has grown 2.2% a year since 2000, resulting in a crunch in the private housing market, as the immigrants are not eligible for public housing. Paris has had a big social housing push, as noted in the post, and Yonah Freemark tells me they’re building 10,000 new social and market-rate units per year (4.5/1000 people) citywide and 70,000 regionwide (5.8/1000 people) – in other words, the supposedly bureaucratic and dysfunctional French government manages to build about as much housing in its expensive city as the supposedly efficient, son-of-philosopher-king-run Singaporean government.

  11. Nathanael

    Perhaps the most dramatic and obvious example of the theory you describe here is Beverly Hills, incorporated by a rich group specifically in order to exclude itself from the city of Los Angeles… so that they could keep people out and keep housing prices high.

    I think your theory is 100% correct. The people who incorporated cities specifically *for* this purpose often actually *said* that they were doing so.

    This scheme does not always work, of course. If I remember correctly, some of the independent cities in South Central LA were incorporated to keep black people out, but eventually the rich people left….

  12. Pingback: Housing supply and land values – Club NIMBY

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