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Saturday, August 16, 2014

Why do big cities strangle themselves with zoning? (And will voting with your feet solve the problem?)

Mayor de Blasio is trying to create 200,000 new units of affordable housing in New York City over the next decade. An essential element of his strategy is to increase floor-area ratios (FARs) in return for developers’ leasing some percentage of the new units for rents below market rates. The entire strategy depends on the mayor’s persuading City Council to “up-zone” land – that is, increase the densities permissible under the NYC Zoning Resolution.

The obvious obstacle to this plan is that New Yorkers – like everyone else – tend to oppose new construction in their neighborhood. The wagons are already circling: Just blocks away from where I live, the neighbors are rallying against a couple of new towers with affordable units, ostensibly because they are too close to the new Brooklyn Bridge Park. But these neighbors’ politics ought to favor de Blasio’s plan, right? After all, de Blasio is standing up for affordable housing, a left-liberal goal, and the NIMBY neighbors are liberal brownstone types who allegedly support such goals. So de Blasio and his housing team (including NYU Law’s own Vicki Been, de Blasio’s new housing chief) ought to be able to talk the NIMBY folks out of their opposition, right?

Wrong. It is not just that neighbors’ fear for their condo down payment tend to trump their liberal sympathies for the poor. As David Schleicher and I argue in City Replanning, the less obvious obstacle is that the political economy of NYC’s legislative process tends to favor NIMBY ism, by placing neighbors from different parts of NYC into a collective action quandary. Even if each neighborhood were willing to take their fair share of affordable housing, there is no mechanism for inter-neighborhood bargains assuring that every other neighborhood will be equally accommodating to new construction. Moreover, the parcel-by-parcel bargaining typical of NYC land-use politics so raises the opacity and uncertainty of re-zoning that many developers will be driven out of the market.

After the jump, I’ll explain why contrary to vote-with-your-feet optimists like Ilya Somin, competition from other cities for NYC’s residents is not a great remedy for the NIMBY problem. Instead, David and I suggest a paradox: Command-and-control, centralized, comprehensive planning is actually libertarian. By getting rid of parcel-by-parcel bargaining and reassuring each neighborhood that they will not be left holding the affordable housing bag when they relent in their NIMBYism, the comprehensive plan can diminish the ferocity of the NIMBYs.

UPDATE: Ilya has a response to my post here. I agree wholeheartedly with his statement that foot-voting "makes the situation [of restrictive zoning] significantly better than it would be otherwise." But I think that Ilya errs in stating that "NYC and many other cities with restrictive zoning policies already have 'comprehensive' land use planning." In fact, New York courts (like courts in most states) have long construed the statutory requirement that zoning be "consistent with a comprehensive plan" to mean nothing more than that zoning amendments have a rational basis -- a test that places no practical limit on ad hoc deal-making.


1. Why won't inter-city competition break the NIMBY stranglehold in big cities? First, why will not migration away from zoning-strangled towns to cheaper jurisdictions solve the NIMBY problem? Ilya suggests as much over at Volokh's, noting that Americans are moving from expensive jurisdictions to pick up housing bargains in Oklahoma and Texas. Ilya is a famous proponent of "voting-with-your-feet" as opposed to the usual hand-voting at the ballot box. The idea is that, if one subnational jurisdiction regulates too much, then buyers aggrieved by the resulting cost increases can flee to a less restrictive locale.

The problem with Ilya's solution, as David has noted, is that cities create "agglomeration economies" by bringing large numbers of people in close proximity with each other. Dispersion through foot-voting destroys these agglomeration benefits. The productivity of, say, an adman, actor, banker, accountant, lawyer, or anyone else with high human capital investments is greater in NYC than in Tulsa, because there are more people in the former locale with whom they can network, from whom they can learn their craft, and through whom they can insure against loss from risky educational investments. An aspiring musician in NYC has hundreds of venues with which to ply their craft. An aspiring musician in Oklahoma City might have a dozen -- which means that they just might stop aspiring and instead opt for an office job. That's fine if they really suck -- but they might actually be diverted from their highest and best calling by the constricted character of the local market to which they have been consigned.

The "Sinatra theory" of NYC, in short, is flat wrong: Just because you can make it here (in NYC) does not mean that you can make it anywhere, because anywhere else might have slimmer agglomeration economies. The result is a serious loss of job opportunities, as NIMBY neighbors slam the door on aspiring workers who are then relegated to second-best opportunities elsewhere. The economist Enrico Moretti has described this effect on labor markets in San Francisco, and Ganong and Shoag have shown how land-use restrictions have walled lower-income workers out of job markets where their labor is most valuable. As they note in an important and widely publicized paper, housing restrictions seem to be slowing regional income convergence, as rich places get richer and poor places ever poorer.

2. The need for a political solution: In short, we need to improve local voice, not inter-local choice, to solve the NIMBY problem. One reform that could ameliorate the NIMBYism of big cities and their suspicious brown-stoners is comprehensive planning. Libertarians traditionally have disliked planners, so it might seem odd to tout the comprehensive plan as a de-regulatory device. David and I argue, however, that binding land-use plans could help solve two distinct problems that contribute to the restrictiveness of Big City zoning.

First, big cities lack competitive political parties, which means that landuse politics in the local legislature tends to disintegrate into an orgy of mutual, non-ideological log-rolling. Each member of the non-partisan local legislature exercises what is known as "aldermanic privilege," excluding all new development from their district opposed by vocal neighbors. The other members support each other in these exclusionary ventures in an informal universal log-roll: You vote for mine, and I'll vote for yours. Absent a strong party leader to allocate new construction across districts, the norm of "universalism" (everyone votes for everyone else's restriction) is the only way to get things done in a disorganized legislature.

The comprehensive plan can mitigate this problem by facilitating inter-neighborhood deals, all of which are contained in a single plan, passed under a closed (non-amendable) rule. Think of the plan as akin to the military base closing commission that solved the problem of Congress' clinging to obsolete bases by presenting a single take-it-or-leave-it package of closures for up-or-down approval.

Second, plans increase zoning transparency and thereby enlarge the market of developers willing to bid on projects. Right now, NYC zones are essentially requests for proposals: Swathes of land are in zoning classifications like non-cumulative manufacturing that everyone knows need to be re-negotiated. The process of negotiating an up-zoning, however, is a matter of insider knowledge, with a few well-connected players massaging the process through lengthy backroom deals at the "pre-certification" stage and protracted public acrimony during the various public hearings. There is no plain price sheet setting forth what a developer must pay to obtain the up-zoning, and this uncertainty is exacerbated by the possibility of a last-minute city council demand (as in Council's 2010 insistence on a 15% set-aside from women- and minority-owned firms at 15 Penn Plaza). This unpredictability and opacity drives away developers, making it more difficult for de Blasio and Vicki to extract the maximum housing contribution from the developers that remain in the market.

Comprehensive plans that set forth precisely how much any bidder will have to provide to the City in return for any up-zoning can reduce these informational costs and thereby enlarge the market, to the City's advantage, Of course, this requires that the plan tie the City's hands -- a tricky matter, when Council stands ready to overturn the plan for any particular parcel when they think that they might be able to extract a bit more.

In short, planning might be a libertarian's best friend. At least, given the lousy track record of parcel-by-parcel negotiated rezoning, David and I think that comprehensive planning is worth a try.

Posted by Rick Hills on August 16, 2014 at 11:49 AM | Permalink

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