Doing more harm than good.

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Zoning Has Had a Good 100 Years. Enough Already.

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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On July 25, 1916, the New York City Board of Estimate voted to divide the city into residential, commercial and industrial zones. The measure, the New York Times wrote the next day, was “believed to be the most important step in the development of New York City since the construction of the subways.” It also appears to have been the first set of land-use rules in the U.S. that (1) covered an entire city and (2) used the word “zone.”

That was 100 years ago Monday. So happy birthday, zoning! OK if we kill you now -- or at least maim you?

Over the past few years, zoning has been blamed, mainly by economists bearing substantial empirical evidence, for an ever-growing litany of ills. The charge that zoning is used to keep poor people and minorities out of wealthy suburbs has been around for decades. But recent research has also blamed it for increasing income segregation, reducing economic mobility and depressing economic growth nationwide.

One can never be certain about these things, but it’s quite possible that excessive land-use restrictions are among the major causes of our long national economic malaise.  Jason Furman, chairman of the White House’s Council of Economic Advisers, made this very point in a speech in November. Yet the platform adopted at the Democratic National Convention this week made no mention of either “land use” or “zoning,” while the Republican platform mentioned them only to condemn the current administration’s purported efforts “to undermine zoning laws in order to socially engineer every community in the country.”

The irony, of course, is that zoning laws are themselves a form of social engineering. That doesn’t mean they’re always malign, but during this anniversary week it does seem worth going over how and why the engineering got started.  

New York’s zoning resolution was not the first attempt to restrict who could build what where. Los Angeles, for example, adopted an ordinance in 1904 “setting aside certain portions of the City of Los Angeles as residence districts, and prohibiting the carrying on of certain occupations within such districts.” In a 1915 ruling, the U.S. Supreme Court determined that the city could ban businesses from such residential districts without compensation even if the business (in this case a brick-manufacturing operation at what is now the corner of Crenshaw and West Pico Boulevards) had been established before the residential district was.

You can go back further than that. In 1875, Prussia, the most important part of the newly formed German empire, adopted a Fluchtliniengesetz (probably best translated as “alignment law”) that set guidelines for urban growth. Kings, princes and other rulers had been steering the development of cities long before that, but the Prussian law seems to have been the first codification, and was followed by similar rules in other German regions. Forward-thinking Americans were in those days much enamored of German ideas and innovations, so these changes were watched closely in the U.S.

German ideas about urban order were combined here with distinctly American notions of the primacy and sanctity of the single-family home. German zoning rules generally allow for mixed uses such as shops in residential neighborhoods, apartments next to detached houses, etc. In the U.S., by contrast, early zoning apostles advocated strict separation of residences from businesses, and houses from apartments.

So that’s one major factor behind the rapid spread of zoning and other land-use rules across the U.S. in the early decades of the 20th century: Intellectuals allied with the Progressive movement were pushing their idea of an ideal society on the country.

Dartmouth College economist William Fischel, whose excellent book “Zoning Rules!” has been my most important source on this topic, favors a different explanation. In the decades before the automobile, industrial and residential development was to a large extent constrained by the location of rail and streetcar lines. After trucks and buses became common, though, industrial businesses could locate far from railways (and wharves) and apartment developers could build far from streetcar lines. Anxious homeowners -- and in some cases, merchants -- clamored for rules to keep people from building factories next door.

This does seem to have been one of the motivating factors in New York. According to David W. Dunlap’s New York Times column Monday on the zoning anniversary, “the merchants of Fifth Avenue were losing their retail customers and watching the value of their properties drain away, as big loft buildings for garment manufacturers muscled in around them.” Still, as America’s least auto-centric city, New York also focused its zoning rules on concerns -- skyscraper design, for example -- that were less of an issue elsewhere in the country. It was to be another zoning ordinance adopted six years later in Euclid, Ohio, that ended up fully establishing zoning as a national institution.

Euclid is a close-in residential suburb of Cleveland where officials feared that a large property owner, Ambler Realty, might try to lure factories from the city. It adopted a zoning ordinance that classified most of Ambler’s property as non-industrial. Ambler sued, and the case ended up going to the Supreme Court.

The landmark majority opinion, which will have its 90th anniversary in November, was written by Justice George Sutherland, later one of the conservative “Four Horsemen” who struck down much of Franklin Delano Roosevelt’s New Deal legislation. Sutherland affirmed that cities had every right to zone land without compensating landowners or businesses that were harmed. He also said -- unprompted by the facts of the case -- some strangely nasty things about apartment buildings. A sample:

Very often the apartment house is a mere parasite, constructed in order to take advantage of the open spaces and attractive surroundings created by the residential character of the district.

I find it really hard to read that as anything but an affluent guy justifying the legal exclusion of less-affluent people from his neighborhood. There’s been an element of class discrimination to zoning from the early days -- sometimes mixed in with racial discrimination. Still, there have always been other, more-positive aspects, too. In Fischel’s words, “zoning probably makes for more efficient provision of local services and better neighborhoods than would be available without it.”

After about 1970, though, zoning’s negative economic effects began to grow. Before then, housing prices were more or less the same across the country. Since then, prices in the metropolitan areas of the Northeast and West Coast have risen much faster than in most of the rest of the nation -- in the process increasing inequality, thwarting residential mobility and slowing economic growth. Ever-tougher zoning rules and restrictions on growth appear to be a major cause. Fischel has a long list of explanations for this intensification of zoning that I won’t go into here, other than to mention the one that drives me the craziest -- the dressing-up of self-interested economic arguments in the language of environmentalism and morality.

Zoning was probably inevitable, and it isn’t all bad. Lately, though, it seems to have gotten out of hand. So it’s not getting any birthday presents from me.

  1. Often it’s not zoning per se that’s the problem, but the word has -– not unfairly -- become the catch-all term for land-use restrictions of all kinds.

  2. Which I would date to about 2004, when productivity growth stalled.

  3. Herbert Hoover’s Standard State Zoning Enabling Act helped, too.

  4. In an ironic twist, the U.S. government took control of the site during World War II, over the objections of locals, for a factory that built landing gear and rocket shells. After the war, General Motors took over the property and built auto bodies there. Now its owned by a recycling firm, and theres a new historical marker out front commemorating the zoning case.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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