Measuring the impact of zoning on housing in a city
blog.jonathannolan.net
blog.jonathannolan.net
Lost me at the first sentence. Let me fix it:
“Planners follow the flavour of the day while committing the same sins over and over, their failures recognizable only in retrospect once replaced with a new (also faulty) paradigm based on centralized planning. Despite their repeated failures, as an industry or field of study they show no contrition and continue to act as if they and only they know what’s best.”
As a whole planning departments seem unable to defend decisions with relevant data and instead rely on indefensibly old manuals and standards. Some of which themselves use indefensible statistics- particularly traffic manuals (lets plan our roads based on a survey of a similar road in Atlanta in 1994!). Or worse municipalities follow each other in circles and trends.
This would all be fine if the downstream effects weren’t affecting investment with a floor of tens of millions dollars.
I don’t know what the answer is but Parking Reform, Strong Towns and Not Just Bikes are my north stars on this stuff. Do you have any others?
What’s worse, is to watch governments now rush to “fix” the mistakes that they are solely responsible for by punishing people - retroactively changing the rules - and costing average folk their savings. I refer to Canada specifically which made it so challenging to build housing for 40 years that we have a massive scarcity and housing crisis that is being “fixed” by taxing / fining people for having a second home.
IANAdeveloper… if a developer is otherwise within code/zoning, SCOTUS is probably correct. If they’re asking for zoning changes, there should be room for negotiation on nearby improvements.
The problem is that in many areas (of Canada at least), zoning bylaws are horribly outdated and inconsistent with municipal priorities. But municipalities don’t have an incentive to change them because if they allow things to be done “as of right” with modern zoning, they can’t shake down developers to fund their pet projects. So everything is a negotiation, which again adds uncertainty and cost.
Governments need to get out of the way and let developers build, or accept that they are the source of the housing scarcity.
I don't see the issue with this? The profits in Canadian real estate are not on the back of some new found resource. It's entirely an effective wealth redistribution from have-nots to haves.
If you have property, the vast amount of value in it is strictly from the fact that it is artificially scarce. To get into the "haves" you have to pay an artificial tax in the form of a grossly inflated price.
Tight zoning is the primary driver of real estate value, because it further increases the scarcity of land. It makes small homes worth absolutely insane values.
Further, though eliminating cheap loans will limit the amount that people can pay for the real estate, it also reduces the ability of people to pay, so every person is back to the same place with scarcity. So though eliminating loans may change the face value of the cost of housing, in real terms, eliminating loans does nothing for ordinary's people ability to obtain housing where they want it. Only increasing supply by removing overly restrictive zoning will actually improve the material conditions for people.
All that said, we should definitely eliminate financial products in the US like the 30 year fixed rate mortgage, a government creation that does inflate prices, while reducing the ability of people to move. But we should get rid of it primarily because it reduces the ability of people to move by trapping them into the home they were in when mortgage rates were low.
The same, in my opinion, with inflation. Inflation has been caused by government monetary policy being too loose for three decades and effectively neutering its anti-competition authorities, but now they are getting tough on grocers as if the grocers are both the sole cause of the problem (false!) and that they made the problem in a vacuum (false!).
I have historically been extremely liberal, voting Liberal or NDP (even more liberal than the Liberals for those outside Canada) my whole life. The last few years of seeing our Liberal government fumble the ball so badly and point at everyone but the government itself (left and right governments of the current and past!) has made me realize the truth of the Reagan quote “government isn’t the solution to your problems, it is the source of your problems”.
Hayek’s Nobel speech on the pretence of knowledge is as accurate as ever.
Consider the incentives the government has created here.
You can't build new housing, or it's extremely expensive because it's limited to specific lots and then you have to buy out whatever happens to be there even if they don't want to sell, and destroy a 5 story building in order to build a 10 story building, doubling costs while halving the increase in housing. Housing is thereby expensive.
So you tax people who own housing. Well, that doesn't lower rents, because there are still the same number of people who need somewhere to live but now fewer people to invest in new construction because it's less profitable with more of the money going to taxes, so that lowers supply even more and rents increase to cover the new taxes.
This an undersupply problem. You don't fix it by taxing suppliers.
If they rent it for a nominal amount, they're effectively losing money on the property and gambling on appreciation. If someone wants to do that, good luck to them.
If they're buying multiple homes to rent out at market rates to the general public then they're just an ordinary landlord -- the thing that wouldn't be paying a tax on "second homes" by design.
I don't know if it definitely works. But it's plausible. Tax what you want less of, right?
Construction occurs until the point that it stops being profitable, which is a price point more than a number of units. Zoning rules make it so you have to buy a 5-story building, then knock it down and pay the cost to build a 10-story building in order to add 5-stories worth of units. That's much more expensive than putting a 5-story building where there is currently a single-family home or an empty lot, which is prohibited. So if landlords stop being willing to pay for that, it doesn't cost less, it just happens less, because at any lower price the construction doesn't happen.
Which is how rents increase. Suppose 100 new units would have been built and landlords would have bought half. They stop buying, so construction companies only build 50 new units because there are only 50 buyers at a profitable price. Then demand for rental properties increases over time but supply of rental units doesn't, so rents go up. Then the landlords start commissioning new units again, because rents have increased enough to make it profitable again, but only for as long as they stay that high. The price of the building stays the same -- it's set by the construction cost -- but the rents go up because the landlord has to recover the cost of the building and the tax, or they're not commissioning a new building.
> Tax what you want less of, right?
The trouble is you don't really want fewer rental units, unless you like high rents. What you want is maybe more owner-occupied units, but this is only a trade off when supply is artificially constrained -- otherwise you can build more of both, which is obviously better.
Whereas building fewer rental units without building any more owner-occupied units is quite useless.
Let's review the situation here. 1) The large majority of the land in the area is zoned exclusively for single-family homes. 2) Some people don't have the money to buy, e.g. no down payment or bad credit.
Where are they supposed to live?
Only ~5% of homes are second homes, not 33% as in your example.
Now suppose there are 25 homes and 30 families, better reflecting current reality. If you can't make more you're screwed. But you can create new housing. Zoning makes this expensive, because zoning requires it to be done in an expensive way. You have to destroy a large building to build an even larger one because multi-unit buildings aren't allowed where there are currently single-family homes. But you can do it. It just costs $600,000/unit as a result.
Since there are more families than existing homes, everybody bids up the price of housing units because they don't want to be homeless. When the prices hit $600,000/unit, construction companies build more units because now it's finally profitable. Then all the units stay that expensive because there are only just enough -- or not enough, but the remaining people don't have $600,000. But they don't go higher than that because that's the price at which more can be created under existing zoning rules.
If Richie Rich comes along and buys two second homes, that doesn't raise the long-term price, because the price is right at the threshold of profitability for new construction. So two new units get built at that price and the market price stays where it is -- at the cost of creating more units. If you want units to cost less, that cost has to go down, because units can't be added for less than that and eliminating 100% of second homes is not enough of a reduction in demand to shift from that being the price-setting factor.
Whereas if you could build new units for $200,000 then Richie Rich could buy a hundred of them and they'd still cost $200,000 because construction companies would just build a hundred more.
Every time I go looking for statistics to back this argument, I come away underwhelmed. In most cases I see little change in the ratio of dwellings to households over the past few decades.
Take a look at the first figure (HM1.1.1) in the following document - particularly those for the US, Canada, Australia, and NZ (all countries with prominent housing issues).
https://www.oecd.org/els/family/HM1-1-Housing-stock-and-cons...
On the other hand, I think there is a strong argument to be made for increasing underutilisation of housing (more second homes, short term rentals, etc).
These are country-wide numbers. The obvious problem is that there is existing housing in Detroit but demand for housing in San Francisco.
It's also somewhat self-defining. If millennials are forced to live with their parents because they can't afford their own home then this is counted as one "household" when there is demand for two.
> On the other hand, I think there is a strong argument to be made for increasing underutilisation of housing (more second homes, short term rentals, etc).
There isn't anything inherently wrong with short-term rentals or second homes, they're just another type of housing demand that requires supply to increase to compensate. Until it isn't allowed to.
I think you might like this planning talk given in the 90s. One of my favourite videos on youtube and quite hilarious at times:
Over the last century, economics has build some of the necessary concensus to move closer to a science and architecture has moved closer to art + compliance, leaving the rest to civil engineers.
But global urban planning communities remain at each other's throats, and if anything, have diverged even further.
Traffic engineering is a joke because Uber and Google Maps run better traffic simulations than any planning committee in the country. The science has been available to those who want to find it. It's avoidance by planning groups (not blaming the engineers so much as the overall organization) evokes the incompetence/malice comparison from Hanlons razor.
The Urban planning outcomes of the anglophone vs the rest of the 1st world might as well be spitting in each other's faces. Given similar policy goals, cultural values and weather....one of them is wrong.
And I know I have placed my bets.
https://islandpress.org/books/arbitrary-lines#desc
By getting planners out of some of the unnecessary minutiae of their jobs, they can, well, actually plan for things. Ensure that we have good street grids, land set aside for parks and schools that are harder to retrofit into a pure 'anything goes' system, and also try to do some planning to keep genuinely noxious uses away from where people live, rather than "keeping apartments away from the 'nice' neighborhoods".
I find it wild how much the west abhors eastern communist central planning and then adopts it for the very fabric of its communities.
I’ve seen them be quite proactive with plans near the Metro extension. But then VDOT does dumb shit like failing to build out multi-modal transit to meet the vision of the local planners.
The Suburbs Are Bleeding America Dry | Climate Town (feat. Not Just Bikes) : https://www.youtube.com/watch?v=SfsCniN7Nsc
The city zoning board denied me, saying that that 5-acre plot had been zoned for ONE house and an ADU of no larger than 300 sqft.
That was when I realized why housing is so expensive.
In theory, the state requires the city to allow for 2x population growth, and the zoning process directs where the growth should happen. In practice, the city pushes back so hard on everything, that the growth is going to happen wherever whoever has patience and money to spend on fighting the council wants to build. Everyone else is going to be frustrated by the long process of back and forth on pulling permits over many years and many dollars that actually the city won't let you do whatever you wanted to do anyway.
But then there is a corresponding increase in property tax revenues to pay for it, so this should require no approval and just be something that happens. The city pays for the new infrastructure from the taxes paid by the new people using it.
Precisely.
> Sewage treatment plants have finite capacity, can't be built on a 'serves 20 units' incremental scale
Nor would they need to be. If your sewage treatment plant has a capacity for 100,000 units and you have 99,981 existing units, you already need a new sewage treatment plant regardless of where you put the new units, unless your plan is to never approve any new construction anywhere in the city, which is manifestly unreasonable.
> and oftentimes new plants have much stricter requirements than grandfathered in one.
And whose doing is that?
At least in the San Jose area, the sewage treatment was largely built 50 years ago, when it was doing a lot of agriculture, and flows are way lower with people than they were with food processing and other industrial processing. The new plant that's in progress needs and has way less capacity, even though the standards are much much much tighter.
At the one house per acre level though, you can likely manage with septic, which is incremental sewage treatment capacity, and not a huge municipal undertaking (there is record keeping and regulation and what not, so it's not nothing)
This is a conjecture that as far as I know does not match what actually happens, which is that the new infrastructure is paid by debt, and the 4 new taxpayers will not have paid off the debt before the infrastructure needs replacement, paid for by more debt.
If it was 600 new units rather than 4, maybe it works out that the corresponding taxes pay for the infrastructure, but property taxes just aren't high enough, and the people who live in these boondoggle houses aren't wealthy enough to pay the taxes for the infrastructure their houses need
If four taxpayers aren't paying the amount of taxes required to fund the infrastructure needed by four taxpayers then your city is already bankrupt and zoning and planning is irrelevant.
> If it was 600 new units rather than 4
If it was literally only 4 units then you shouldn't need any new infrastructure anyway. Nothing should be operating with margins that thin to begin with.
If it's 4 units here, 4 units there then it adds up to hundreds which is the thing you admit isn't a problem.
For example, you might have an acre of land, but if too much of the soil underneath is clay, or if the water table is too high, the wastewater might not drain fast enough, so it sits and stagnates or mixes with freshwater, despite having "lots of land". You generally need a surveyor to produce and sign off on a Topographical Survey to assess that.
So yeah, "there were no sewers once upon a time", sure. But if you try to build suburban-like densities out here without a solid plan signed off, you are likely to end up piping your own sewage right into your own water taps.
Yes, they also got very sick from doing this.
How were any houses originally built?
Well, sometimes they were just built.
It's a good thing we've learned a few things since then. Not that city planning is perfect. Far from it. But it certainly does serve a purpose.
I've lived a ridiculous number of major USA cities and I'll never forget what Houston, which is the only one I can think of that had no zoning, looked like.
https://www.chron.com/news/houston-texas/houston/article/Wei...
You'll notice that the model is additive instead of exclusionary. Basically if a block is zoned light commercial, you can put stores, apartments, or single family homes on it. Here is a nice chart https://1.bp.blogspot.com/-Lweabho82d0/U0HCJsQ3tbI/AAAAAAAAA...
Tokyo does zoning right, and the simplest first step to solve housing problems that plague major American cities is to just adopt a model of zoning that is proven to work.
A national zoning law is very interesting.
My biggest complaint about every city in TX I lived in (Houston, Austin, SATX, Dallas) was the lack of MDUs (among other things) causing them all to be painfully sparse. I lived in the densest neighborhoods I could find, usually Uptown or with Austin right off Guad by UT and 5th/Comal and my life now living in Denver which has a HUGE amount of MDUs/Duplexes/etc everywhere is so drastically different even though Denver has nowhere near the population of those. I haven't driven my car in months and nearly everyone I know lives in a 1-10 block radius.
What was my previous mountain view from my 4 story townhouse is now an 11 story office building directly behind me that glares down at my patio, though, so there's that. I think it's coming with 400-1000 car parking spots (underground garage).
We've been trying to get this (currently) low-traffic, low-mph throughfare street to completely ban car traffic and be turned into pedestrian/restaurant walking only, which it was during COVID and was wonderful, so that's probably dead in the water now.
By the way, this is very common in many Latin American countries such as Colombia. When you walk through these neighborhoods it's at first a bit odd because you're not used to seeing single family homes next to towers (coming from the US at least). But then you realize it's totally fine and the neighborhoods are in many cases really really nice.
I feel like one partial solution for NIMBY brain is travelling to cities in other countries and seeing things are different and realizing that it's actually totally fine.
I'd be surprised. Plenty of people would be horrified at the idea of living in a detached home next to a skyscraper.