This post will be the first of many of an ongoing feature at Market Urbanism entitled Urbanism Legends. (a play on the term: “Urban Legends” in case you didn’t catch that) In many public forums and in the blogosphere, I consistently encounter myths about land development and Urban Economics. These myths typically look at how policies may benefit or harm a specific person or groups of people. However, as with many popular economic misconceptions, these viewpoints fail to look at how a particular policy may affect other, less visible people. These less visible people are the ones who William Graham Sumner called “The Forgotten Man” in a famous 1883 lecture. These myths are plentiful, and I expect the feature to be stocked with myths to dispel well into the distant future.
In many different contexts, I have heard people argue that liberalizing zoning restrictions will cause “over development” or high density development filled with low income people. Even in relatively low density areas, people make the sensationalist argument that if zoning restrictions were lifted, high rises would be built in their community, creating congestion and overburdening infrastructure.
On the other end of the spectrum, I have even heard free-market advocates argue against Smart Growth and other urbanist concepts using several Urbanism Legends. They argue that Smart Growth goes against the market and causes density to increase in urban areas. They are correct when they refer to Urban Growth Boundaries that restrict development in outlying areas. Strangely, these market advocates rarely applaud Smart Growth proponents advocacy for loosening zoning restrictions in infill areas. They have argued that the upzoning discourages single family homes, which is the desired living arrangement for most people. And that the market should allow for more single family homes.
The reality is that zoning can not create density. Zoning only restricts density. Loosening zoning restrictions only allows market forces to meet the demands of the marketplace.
So, if there were no zoning would skyscrapers go up in quiet single family neighborhoods? Most likely not, unless zoning restrictions have serious hampered redevelopment or something drastic has caused demand to skyrocket in an area.
There’s the simple reason why: Construction costs (per square foot) rise as height and density increases. This is because more expensive construction materials and systems are necessary to build densely. So, building a 50 story building in a quiet suburban neighborhood rarely makes economic sense for a developer. Construction costs would be so high that the developer would not be able to sell the space in the tower at a high enough price to justify the construction costs, since space in single family homes would be significantly cheaper.
Other than construction costs, the other main variable driving density is land prices. Higher density development does allow for the cost of land to be shared by more constructed space. However, in typical suburban areas the land cost is relatively low, and has a very negligible affect on the cost of building densely.
In order for a higher density development to be feasible, it must be in a location desired by many more people. The land prices are likely higher in such a location. However, demand is sufficient enough to charge more money per square foot for that location. The developer will be willing to build more expensive, high density construction which spreads the high land costs over more units.
A rational developer would likely not be willing to build single family homes on very expensive land in normal circumstances. By the same rationality, if developers were restricted from building densely on desirable property by zoning, land values are held artificially low. This helps values of already built homes, but hurts the value of the land under them.
There are even instances where zoning has no effect on density since zoning restriction may be so loose that a developer could build the highest and best use as-of-right. In such cases, loosening density restrictions have not effect.
In microeconomics terms, zoning is a supply ceiling, which behaves almost inversely to a price ceiling. As the market is not allowed to optimally meet full demand, prices are forced higher by the shortage. These measures are regressive in that wealthy homeowners can afford to remain in the area, while middle class people are forced to look elsewhere for housing. Often, those middle class residents are displacing poorer residents from their low cost housing.
Wealthy municipalities, such as Beverly Hills use zoning to protect it’s wealthy home owners from more optimal higher densities. Beverly Hills is proud of their market distortions, and use the “Zoning Creates Density” legend (among other legends) to deceive people in their own propaganda video called, It’s a Wonderful City.
The bottom line is that zoning itself cannot determine density. Construction costs and desirablity are the main factors that determine density. Zoning can only restrict market forces from meeting demand, artificially driving up housing prices, while driving down land prices, thus pushing people to more affordable, yet less desirable locations.
To receive future Urbanism Legends posts, subscribe to the Market Urbanism feed by email or RSS reader here. If you come across an interesting Urbanism Legend, let me know by email or in the comments and I’ll make a post debunking the myth. Of course, I’ll give you credit for the tip and any contributions to the post you make…