Economist Bill Fischel recently published a book called Zoning Rules! and discussed it last week at a Cato Institute book forum. It’s ultimately an argument that zoning is a bottom-up institution arising from universal demand among homeowners, but along the way he traces the history of zoning, explains the economic issues at play, and makes some policy recommendations for improving the process.
I strongly recommend the book (or the video of the forum) for anyone interested in learning more about land-use regulations.
However, I think Fischel could be wrong about why NIMBYs [Not In My Back Yard-ers] oppose local development.
The stated reasons NIMBYs offer for their opposition to projects or zoning liberalization are usually some combination of implausible, paranoid, or bizarre.
For example, neighbors in a Richmond suburb rallied against a proposed bed and breakfast because it would attract criminals that would “kill [them] and [their] children.” Members of the Dupont Circle Citizens Association filed a lawsuit to block the construction of a mid-rise building because it would provide would-be snipers with an unobstructed view of the White Hose.
Local NIMBYs in DC tried to ban new liquor licenses in the U Street neighborhood because, among other things, bars led to the proliferation of pizza. In Montgomery County, opponents of light rail pretend to worry about the destruction of an endangered shrimp that probably doesn’t exist.
These NIMBYs simply didn’t like the projects in question, but resorted to dissemblance because it can appear uncouth to oppose a third party’s project out of narrow self-interest. Fischel, like most people who cover this issue, assumes that most of the stated motivations for NIMBYism are fabricated and developed an economic theory to explain their behavior.
According to him, uninsured risk is the real issue driving this wellspring of creative argumentation. In Zoning Rules!, Fischel repeats the theory made in his 2001 paper, “Why Are There NIMBYs?”
NIMBYism (and by extension, zoning itself) is a way for homeowners to protect themselves from highly unlikely but potentially devastating risks caused by development. Because a home is often the owner’s largest asset, and there isn’t a way to diversify it, homeowners will oppose almost any change to their neighborhood to protect themselves, he says.
Developing an insurance market to protect home values against loss could, according to this theory, eliminate the kind of NIMBYism that breeds opposition to new apartments, density, transit, and other kinds of urban improvements.
Fischel’s argument seems sound, and it may apply to large parts of the country — especially where home prices track construction costs, and the success or failure of a given neighborhood is an open question. Benefits from liberalization in these circumstances are speculative and may not be realized if future development brings unwanted land-uses or nuisances.
But the economic self-interest underlying Fischel’s model doesn’t exist in America’s highly-regulated leading cities or the desirable suburbs that grew around them.
Zoning restrictions are especially binding in popular neighborhoods. Economists Ed Glaeser and Joseph Gyourko have found that the legal right to build a dwelling unit — not construction costs or land prices — is the primary driver of property values in cities like New York, Los Angeles, and San Francisco.
This implies that in many places where regulation has preserved single-family homes or rowhouses, developers would gladly build much larger structures like apartment towers or mixed-use developments.
Homeowners in this situation could get rich simply by having their lots rezoned to allow significantly higher density. Instead, they lobby for “downzoning” to prevent any kind of development that would alter the “character” of their neighborhoods.
Rather than hedging against unlikely risks, urban NIMBYs are foregoing nearly-certain (and very large) paydays. And, as Matt Yglesias noted during the book discussion, these same NIMBYs often actively agitate for the importation of potential drags on property values through “inclusionary zoning” (requiring developers build low-income housing along with new development) and rent control, and simultaneously fight financial boons like new restaurants and upscale retail.
It could be the case that urban NIMBYs don’t understand their own financial interests, but I think there’s something else at work. They are essentially paying large sums of money to pursue other goals they care about more than property values.
Contra Fischel, Benjamin Ross offers a theory of NIMBY motivation in his book, Dead End, in which NIMBYs attempt to stop all development as a form of status seeking.
The sixties upended the hierarchy of social status, giving authenticity a prestige to rival wealth. This reversal outlasted the counterculture that gave birth to it; the new rankings had an economic function to fulfill. Homeowners sought psychological differentiation in neighborhoods as in soft drinks, clothing, and automobiles.
Run-down suburban subdivisions, too, could assert their unique character. Anything that might carry lower status had to be excluded, even a big new house, something that formerly only added prestige, might threaten the brand image.
The only safe course was to resist all change… The neighborhoods with the strongest brands were most opposed to growth.
Though Ross’s book is more a theory of suburbs than a theory of NIMBYism, I think it applies broadly to people who oppose development in major cities. Living in a place like Dupont Circle not only means that the homeowner prefers a certain type of architecture or development, but that the homeowner is the type of person that would live there, and certainly not Georgetown or Potomac, Maryland!
Along with this opposition to development comes a desire for excluding the wrong type of people, be it yuppies, young people, old people, renters, rich people, poor people, minorities, or hipsters. The goal is to carefully curate the type of people who live in the neighborhood just as one would curate new buildings through zoning or design review.
If status is a primary motivation behind NIMBYism, it means that people who oppose development are telling the truth in one regard: they really care about the character of their neighborhoods and are willing to forego lots of money to preserve it.
The problem with this policy preference is that it also places large costs on third parties in the form of higher rents and encourages workers to live in suboptimal locations.