Yesterday the Cato Institute hosted an event featuring William Fischel’s discussion of his new book Zoning Rules! with commentary by Mark Calabria, Matt Yglesias, and Robert Dietz. Fischel explained his theory that zoning was an effective tool for minimizing nuisances between land uses through the 1970s. Until that time, he asserts that city planners did a good job of separating incompatible land uses, such as industrial and residential uses, benefiting residents and protecting home values in the process.
His theory is that in the 1970s, inflation increased the value of homeownership relative to cash savings, leading homeowners to increasingly view their houses as investments. At the same time, the rise of environmentalism provided the policy justification for using zoning as a tool to limit the growth of housing supply. According to his theory, homeowners then began using their power to lobby for downzoning to protect their large, undiversified asset, and valued minimizing any potential downside risk in their home value.
In his discussion of Fischel’s book, Matt Yglesias pointed out that today, NIMBYism has gone far beyond keeping out polluting land uses and low-income neighbors. For example, some residents in San Francisco’s Mission District are supporting a moratorium on luxury housing development, and some Brooklyn residents are fighting to keep vacant industrial properties in place on the waterfront. Permitting high-end residential development in these neighborhoods would be more likely to raise than lower nearby homeowners’ property values. This opposition to development is at odds with Euclidean zoning in these neighborhoods where expensive housing now abuts abandoned warehouses. It’s also demonstrates that NIMBYs are not motivated by narrow profit interests, but have complex preferences that are not easily understood by observing the policies that they advocate for.
In the private sector, profit is measured in money, and it’s generally safe to say that both parties to a transaction are seeking improve their financial positions. In the public sector, people similarly enter into transactions to seeking to profit, although this profit may not be measured in money and may not be quantifiable. For example, bureaucrats may be seeking to make personal connections in the industry the regulate with the hope of securing private sector employment. In the same vein, the motivations of NIMBYs acting in the political sphere go beyond the narrow consideration of their home values. In the cases of residents seeking to preserve industrial uses or renters lobbying against an increase in housing supply, NIMBYs are advocating for policies that will reduce their home values relative to what they might be in a freer market. Their preference for the status quo trumps their financial interests.
These many justifications for land use regulations — ranging from propping up home values to preserving vacant industrial blight — fit the definition of what Richard Wagner calls a “shell game.” Because the motives of politicians and interest groups are often self-serving, people involved in public-sector transactions create false justifications for their actions that make it appear as if they’re acting in the common good. Because motivations are complex in public sector transactions, it’s possible to fool those people who are affected by a transaction, but not party to it, with high-minded justifications for policy decisions.
In the case of house prices, it’s often impossible for a casual observer to determine whether or not a single policy change will raise or lower home prices in a dynamic economy. In these cases shell games are particularly effective. NIMBYs motivated to prop up the value of their home by advocating for regulations that constrain supply can say that they are supporting policies to preserve green space or wetlands. As Ed Glaeser points out in Triumph of the City, environmentalism at the hyper local level is counterproductive because it prevents development where it’s least environmentally detrimental. Nonetheless, environmentalism makes a convincing facade for antigrowth policies. Similarly the Brooklyn renter who opposes new condominiums in his neighborhood because he want to preserve a shred of its edginess says that he’s against gentrification, even if new construction is the only way to reduce the growth of New York City housing prices.
As in the private sector, transactions in the public sector occur between two organizations, such as a group of neighborhood activists and an office of planning. However, unlike in the private sector, the public sector gains come at the expense of a third party. In the case of NIMBYism, restrictive policies come at the expense of renters who are unable to become homeowners. Even more insidiously, these policies come at the expense of people who are prevented from moving to the city where they would be most productive. Land use policy shell games dampen economic growth and exacerbate inequality by shutting people out of the places where their labor is most valued.