At Discovering Urbanism, Daniel Nairn offers an interesting summary of Edward Murray Bassett’s 1922 defense of zoning (available as a free e-book). Bassett faced opponents who were against a new type of land use regulation, many arguing that zoning was unconstitutional. In retrospect, some of his arguments defending zoning are comical. He asserts that zoning would never go so far as to direct aesthetics because the courts would protect us from the overreach. It would be interesting to hear what he’d have to say about a planning commission meeting today. Nairn’s entire analysis is interesting, but I was particularly intrigued by Bassett’s assertion that zoning fosters cooperation. As Nairn summarizes:
Cooperation yields overall larger return on investment for all property owners. This was Bassett’s primary concern, one that he underscored with a number of prisoners’ dilemma scenarios. For example, “In some of the larger cities a landowner in the business district is almost compelled to put up a skyscraper because if he put up a low building, his next neighbor would put up a higher one that would take advantage of his light and air.” He asserted that skyscrapers were probably not a sound investment in their own right, but they were built anyway in a virtual arms race for public goods of light, air, privacy, and scenery. Zoning was the truce that made everyone better off.
I’m not sure that I follow Bassett’s logic here. If light and air are only available on floors that are higher than the floors of the neighboring buildings, then only the top few floors of any building would typically have this asset. It’s almost as if he’s talking about a race to the highest roof deck here. Aside from the problems with how he makes this argument, it is worth a look to determine whether or not zoning takes a positive step toward cooperation in the land market. Whether or not an institution fosters cooperation is a key factor in determining its success or failure. With cooperation, trade becomes a positive sum game rather than a negative sum game. For example, property rights is an institution that clearly fosters cooperation; when they are not well-defined, as in black markets, trade is often accompanied with violence.
Restrictions on land use, whether they come from public sources (zoning, height limits) or private sources (deed restrictions, HOAs) face trade offs between providing clear expectations of future development and permitting flexibility as land’s highest-value use evolves over time. On the far end, deed restrictions make it difficult to impossible to change land use restrictions, while HOAs and BIDs can often change restrictions with super majority votes from their members. Of course HOA rules often veer toward the draconian, but they are easier to overturn than other types of regulations. HOAs and BIDs also lack the stability of government entities. Since they are not likely to be around as long as cities, the time horizon of their rules may be indeterminate in some cases.
According to Bassett, zoning represents the best of both worlds, a compromise between permanent deed restrictions and rules that can be overturned too easily. On the one hand, it allows a landowner not to worry about his neighbor “taking advantage of his light and air” by prohibiting buildings taller than what zoning permits. Bassett writes from the perspective of developers and suggests that building skyscrapers is much like an arms race. He asserts that because elevators take up square footage that cannot be leased, skyscrapers are less profitable than lower buildings. He suggests that the only reason for building skyscrapers is to prevent the next door building from casting a shadow on a wasted setback. Of course it is the case now, as then, that when developers build tall buildings is because they think the net present value is greater than that of a shorter building. Only the exceedingly rare developer who doesn’t want to make money would pick a building design for the purpose of not allowing his neighbor to take advantage of light.
Many people have made the argument that tall buildings produce externalities, but he doesn’t quite identify these externalities correctly; they do not fall on the developer who wants to prevent his neighbor from taking free light and air, but rather on the owners of shorter buildings and their tenants. Bassett’s argument is instead more reminiscent of the fallacious Marxist argument that competition among firms hurts welfare. So, in my estimation, he does not make a strong argument that zoning produces cooperation by preventing a race to the bottom, or top, as the case may be. Collusion among building owners to restrict building supply may be a form of cooperation, but it’s not the type that benefits society.
As Nairn summarizes, Bassett also support zoning because:
Zoning stabilizes building and property values, by signaling to investors what they can expect from a certain district. Markets work when people know what they are buying, and zoning creates some assurance that the product will not change fundamentally. This reason is why housing developers were among the most ardent supporters of zoning in the early stages.
For much of the history of Euclidean zoning, this may have been its most important quality. Once cities introduced comprehensive plans, it was clear what types of buildings could be built on each land parcel, providing rule of law in the land market so that buyers and sellers both knew land’s potential uses, and all buyers and sellers were equal before the law.
Today, one of the biggest problems with zoning is that this rule of law has been eroded in some major cities. Rather than introducing broad changes, such as widespread upzoning, to meet cities’ evolving needs, planners in cities such as New York and DC have taken the approach of relying on variances and Planned Unit Developments as well as requiring projects to achieve neighborhood approval. Going into the approval process, developers often don’t know whether their plan will be approved or denied, and this makes buying and selling properties highly speculative. These tools permit flexibility in land use, but at the great expense of losing the rule of law that is key to allowing market participants to form expectations for the future. Without the rule of law, planning approval processes that don’t rely on as-of-right development are the worst of all worlds; they limit potential opportunities for trade while introducing uncertainty into the market.