The Year We Opened Our Eyes to the Scourge of Zoning
As we take a look back, we can safely say that 2015 was a year of populism in Washington. News cycle upon news cycle documented the rise of presidential candidates Donald Trump and Bernie Sanders. It saw widespread minimum wage increases. It saw a highway bill which included no long-term solution for how to pay for the nation’s infrastructure, amid populist rage against both a gas-tax increase and increased tolling.
The political year ended with two Republican-led houses of Congress passing the most irresponsible, gimmick-filled spending increase since the TARP bailout. The people have spoken, and they have chosen to kick the can down the road.
Yet, while the nation’s legislators were ignoring important fiscal reforms, the Washington consensus on regulatory issues was changing. More environmental regulation is on the horizon. We know that. To keep it from destroying the economy, we need to generate growth by reforming something else, and 2015 was the year we figured out what regulations our economy could no longer afford.
Occupational licensing will see reform in the states in the spring after a White House study made the case for a shift in policy. While voters are generally resistant to privately run toll roads, we saw state after state turn to the private sector to build the roads. The future is clearly a world of desocialized infrastructure. It is Washington against the populist base in the battle over immigration reform, as Jeb Bush’s failure to gain traction with his entirely reasonable, modest reform plan made clear.
2015 was also the year we realized that zoning is a problem. In April, University of Chicago economist Chang-Tai Hsieh and University of California economist Enrico Moretti released a paper with a stunning figure:
“We estimate that holding constant land availability, but lowering regulatory constraints in New York, San Francisco, and San Jose cities to the level of the median city would expand their work force and increase U.S. GDP by 9.5% (page 34).”
In other words, converting land-use regulations in three very expensive cities to the that of the average city would increase the entire country’s GDP by nearly 10 percent. That’s almost unparalleled growth for modest but politically toxic reform in three cities, and that means the cost to the economy of not fixing this issue is high.
So, we understood there’s a problem, but the question was how to fix it. Law professors Roderick Hills and David Schleicher proposed a return to comprehensive urban planning as a way to combat anti-building, NIMBY influence. Yet others disagreed. Dartmouth’s William Fischel thought the mechanism might be too delicate, and that the anti-building sentiments would reassert themselves once again.
Fischel himself made waves with the release of his book Zoning Rules, which I reviewed for the PanAm Post in June. In the book, Fischel makes clear how daunting reform will be, since land-use rules are organic and populist to their core. The rules are popular and unobjectionable to normal people, and they create value for home-owning voters.
In November, Jason Furman, chairman of the President’s Council of Economic Advisers, joined the conversation. In a speech to the Urban Institute, he presented a paper laying out how zoning exacerbates inequality and hurts productivity. That same month, the Mercatus Center’s Emily Washington and SUNY Purchase economist Sanford Ikeda released a study outlining the specific zoning tools which make housing less affordable.
The problem is real, and there’s a lot at stake, including the growth we give up by not letting agglomeration economies work their magic: smart, prosperous urbanites serendipitously meeting each other and coming up with new ideas that move the economy forward.
On December 23, Steve Randy Waldman posted a piece attacking those seeking to deregulate the nation’s housing market. The article is worth reading, and raises a number of concerns, to which others have responded.
The debate over how to fix land-use rules continues, but the direction is clear: more housing in the nation’s most productive places, and pick the low-hanging fruit for economic growth. Indeed, 2015 was the year we realized zoning is a problem, and hopefully, 2016 will be the one when we figure out how to fix it.