The Impracticality of Zoning; J. Gillis

Growth controls usually supersede existing zoning controls. That is, if the zoning laws clearly allow you to build a factory or a house on a certain site, the growth controls can say: Mr. Gillis heads his own architectural firm in New York City. "No, not this year, or not until further notice by the City CounciL" So even if you can do such and such "as of right," growth controls can eliminate your government-granted "right. " ,'As of right" is a basic term in zoning. There are two ways of building something, or using your land, in a zoned community. 1) You can use the land within the precise limits of the zoning laws, which makes your action "as of right. " (Here the government is giving you a privilege which they call a right.) 2) You can attempt to use your land in a way that varies from the zoning laws, and take ac tion to persuade or influence the zoning board to let you do this - and if the board agrees, they give you a variance. (A variance, in ef fect, is a permit to violate the zoning laws this one time, by you, at a specific site.) Why Is There Zoning?

What prompted the creation of zoning laws? Here are some major motivations of zoning ad vocates. • The desire to restrict or prohibit uses con sidered undesirable by established land owners and tenants, and the related desire to hold onto a specific appearance or at mosphere of an area which is threatened by newcomers. • The desire to reduce the problems that come from the high density of people in urban areas. • The desire by established builders/owners to protect themselves from the competi tion of new developers.

• The desire of political radicals to seize control of private property, or the desire of political moderates for public solutions instead of private contract solutions. This list is not exhaustive, since the motives people may have for controlling other people's actions seem to have no limits. But this list covers much of the territory usually cited by zoning advocates, and will help in illustrating the consequences of zoning. Oil Refineries, Garbage Dumps, and Your Home Perhaps the most common practical argu ment for zoning is the demand to restrict or pro hibit uses considered undesirable by established landowners and tenants. For example, the classic horror illustration is the specter of an oil refinery opening on the lot next to your lovely home. Aren't limits on the uses of land and the sizes of buildings a sensible matter for cities, counties, and states to coordinate-to avoid damage to existing landowners by nasty new uses or massive buildings? Most people would like to have some assurance about the long term status of the surroundings they have in vested in. This is natural. Zoning advocates take this natural desire and offer an anti-market solution.

The next-door oil refinery, or auto parts store, or supermarket (or a thousand other ex amples) are generally economically absurd, be traying no sense of how businesses operate. No sane businessman would set himself up on a quiet, residential street, since his chances of success would be remote. Because most busi nesses require easy access to major highways, high visibility (for retail businesses), parking areas, loading areas, and room to expand, they would not locate on such a street. (Conversely, such businesses often oppose having residents moving into their business or factory area be cause such residential uses often are a nuisance to the businesses.) An office building development is another specter often cited. But no developer will lo cate in an area that does not provide direct ac cess to public transportation and highways, 373 commercial support stores, parking areas, and so on. There are businesses, such as law of fices, doctors' offices, convenience stores, or other low-key economic activities that conceiv ably could be happy on some residential street.

But what is the damage to the neighborhood? Businesses such as these are just as likely to be as quiet and compatible as the residents around them. And convenience stores are aptly named - most people are happy to have one nearby. But what if you and people with similar tastes want to have an exclusive residential area untainted by commercial or professional ac tivity, no matter how discreet? You still have no need for zoning. A Way Out If you and your neighbors want to insure that there will be no grocery stores, doctors' of fices, and such in your neighborhood, or if you are fearful that someone, acting against his own interest, will open a shopping center on an in accessible street, you can have your desire. You can achieve this end without forcing other landowners to bend to your wishes or the gov ernment's edicts. There are different approaches depending on whether one is discussing an existing neighbor hood or one being built.

The easiest method is in a new neighborhood being formed by a developer, or by several de velopers in a contiguous area. Agreements to limit uses and bulk can be made among the de velopers (or by each developer alone) and in corporated in the property deeds. In real estate law, these limitations are called restrictive cov enants. This approach is in the interest of the developer, since he expects that many of his buyers will like the security of knowing their neighborhood will be stable and no garbage dump will sprout. The only usual way it can change is by a unanimous vote of the property owners, or by the expiration of one or more of the covenants. But at the same time, the developer is un likely to make the covenant overly restrictive, since he may find no buyers wanting to own a highly restricted property. So a balance is struck based on the best estimate of what the developer's prospective buyers will like, just as 374 THE FREEMAN. OCTOBER 1987 in every other estimate of what buyers will want. The developer must please the buyer, or go bankrupt.

In an existing neighborhood, where a desir able atmosphere may have been created without zoning or restrictive covenants, property own ers may decide at a later date that they need to preserve this state of affairs. This is much harder to do than in a newly developed area. Because of this greater difficulty, people de siring highly restrictive land use usually buy property that already has clear limitations in the deeds. This, in fact, is often one of the compo nents that make up a decision to buy a specific property. However, the advocates of zoning, in effect, say that one need not make the issue of restrictions a part of the purchase decision, be cause one can later petitionthe governmentto force your neighbors to yield to your will. But some measures can be taken in an ex isting area. A property association can be formed, and members can agree to abide by certain limits on the uses or bulk of new por tions of buildings. And if there are some hold outs, there are two options. If the agreeing landowners feel strongly enough, they can offer to purchase the few holdouts, so that deed cov enants can be added to those properties. Then they can resell the property to a new owner.

Another option is to ignore the few holdouts for the time being, since most of the neighbors have agreed on a certain set of conditions. Then as the few holdouts come up for sale over the years, the association can bid on them and slowly complete the process of protection. Put ting money where your values (or mouths) are is an old American tradition. And it is much better than inducing the government to reduce your neighbor's rights of ownership. In new communities, the practical results of a private, restrictive covenant approach are dra matic. • There is clarity about the nature of your land's use and any limitations. • There is security in the knowledge that no politician has special power over your property. • There are no zoning meetings. • There are no taxes for maintaining an army of bureaucrats to administer zoning laws. • There are no special privileges that some one can inveigle.

• Land and building values will not be sub ject to wild speculation due to the possi bility of governmentally granted changes in use or bulk. • And it is unlikely that any covenants on your property will be so restrictive as to make the property forever uneconomic if conditions in your area change substan tially. (If it became valuable to change the restrictive covenant, then this is a decision for the landowners to make, not a political group.) Functionally, zoning and restrictive cove nants have a basic similarity: They both pro vide some control over land use. Zoning laws, in fact, may be less restrictivethan covenants in some neighborhoods. But zoning usually is more restrictive and more complex. Major city zoning laws share some qualities in common with the Internal Revenue Code: unwieldy, complex, ambiguous. But aside from a common functional origin, zoning and freedom in land use are opposites in every fundamental way.

The Problem with Crowds Another motive for zoning is that few people like to be crowded. So it is natural to take mea sures to prevent that condition. How do people come to live in crowded con ditions? They may prefer the close contact and stimulation of myriads of people. Or they may grudgingly accept such conditions for profes sional or business reasons. Or they may have been in an uncrowded area that became popular and drew more people. How can the person who was there in the first place, or the person who came later (con tributing to the density, but not liking it) pre vent further crowding? Zoning advocates say: limit landowners' rights. Establish laws that outlaw whatever use an owner may desire, and substitute the rule of political appointees. When such laws are passed, the following happens: The price of land, the price of buildings, the price of renting, the price of doing business, the price of government, the price of being a newcomer and trying to establish yourself-all must rise (other factors re maining equal). Zoning penalizes everyone, and particularly the group that is the weakest: those without large resources or without polit ical connections.

Why do these prices all go up? An example will illustrate. A new zoning law limiting bulk is instituted, and says, in effect: "You thought you could build a 50,000-square-feet, ten-story apartment building here, but we now say you can make it only 25,000 square feet." If the land has cost $50,000, suddenly your cost of the land (per square foot of new building) goes from one dollar to two dollars. Now you have to decide whether your project is economic or not. If it is uneconomic, you don't build. In this case the number of places to live in that community stays the same, rather than going up. Thus the price of housing will tend to rise, since the presumed reason for a new building was an increase in demand for housing. Since there is less housing than there would have been, the price of existing housing rises. Alternatively, if you decide it is still eco nomic to build, the asking price of your new apartments will be higher since you want to in clude your increased costs in your sale or rental price. If it is offices or warehouses being built, the same conditions occur, and rents tend to go up. (As always, the city needs a bevy of offi cials to interpret these rules and enforce them.

The price of building permits tends to include these higher costs.) Since these price rises and all the other cost increases that can be traced through this pro cess are mainly hidden, some people believe that zoning is beneficial and adds no real costs to anyone. But such "benefits" are illusory and, in the long run, are detrimental to ev eryone in the economy. The SocialistUndercurrent Most rationales for zoning given in this essay spring from pragmatic and self-interested mo tives-whether for financial or political gain -despite what public, altruistic reasons people may give. But there are those who have ideo logical motives. Some people want zoning beTHE IMPRACTICALITY OF ZONING 375 llIIIi i~\_\W«~\~1~~\4~R\I\K~Mmllitll~~~@im\\I\ cause they believe that the marketplace should be strictly controlled. They are socialists at heart. And while this is not the place to critique socialism, the wider philosophical/economic issue of socialism vs. capitalism gives a valu able perspective on zoning.

Zoning should be seen as the local socialism it isnational socialism, city-style. Most Americans would object to the depiction of their "benign" for-the-public-good zoning boards as socialist organizations. But beneath the pragmatic politics, one can see the same ar guments which are being offered by advocates of national economic policy. What they are pushing is straightforward socialist philosophy, wrapped in standard mixed-economy language making it palatable to pragmatic Americans. There is a clear similarity in principle to the fascist form of socialism, wherein government becomes a "partner" with the owners of cap ital. The unique aspect of this new' 'partner" is that it wears a gun (the police power) during negotiations. The practical results of this local socialism are the same, in essence, as the consequences of socialist experiments in countries around the world. The living conditions of mostly free economies vs. mostly government-controlled economies stand out clearly. From the poor, anemic economies in socialist Eastern Europe, to the human devastation in socialist African countries, the impracticality of government control (or "partners") of the marketplace is clear.

This zoning-socialism is an attempt to re place the myriad decisions of an area's inhabi tants with the decisions of a few politicians and the people who influence those politicians. Just as the debate in a national economy is be tween the socialists (national economic policy advocates) and the capitalists (let-the-market alone advocates), so a fundamental division exists between the zoning advocates (who be lieve overall planning is essential) and the op376 THE FREEMAN. OCTOBER 1987 ponents of zoning (who believe in laissez-faire land policies). Do Unto Others What You Would Hate Developers and real estate investors who have built up a region, or invested in it, are as prone to narrow, unprincipled motives as any other people. They would like to stop new de velopers from entering the region and putting up competing apartment buildings, office buildings, or shopping centers. But the market place offers no opportunity for such venality to function. Only when the political process is in troduced can some people's bad motives be come public policy.

Those who are established in an area are more likely to be politically connected than newcomers trying to get in. This makes it easier for them to influence politicians who de cide the fate of potential developers. Often those politicians and their friends on the zoning boards have received campaign funding from established real estate interests. This makes for conflicts of interest, and leads to distorted land use in the community. In an unfettered land market, there is no way to restrict competition among businesses in an area by not allowing them to build-except by buying them out. Nor are there any restrictions on putting up homes, offices, or factories. The only restrictions possible in a free market are those of agreement by the landowners, acting in their own interests. Thousands of communi ties use such private means, and they work. The Near and the Far Since the concept of zoning-and to a lesser extent growth controls-has been accepted in our culture, socialist/zoners will keep pushing this particular frontier of statism. A recent de velopment has been for city governments to re quire builders to pay them a sum of money be fore the builders are even allowed to begin a project. The premise is that developers make so much money that they should be singled out for special "taxation." These are not ordinary taxes, but negotiated sums demanded by the city, earmarked for the homeless, or the less privileged, or for public transit, and so on.

Under this new approach (San Francisco has become a leader in using the police power for economic extortion), "as of right" becomes meaningless. A developer's ability to build be comes dependent on the views, feelings, and attitudes of those in power. How can a businessman plan the costs of a development, or know how much to pay for a piece of land, if such power is held over his head? Thus development becomes even more risky than usual. And risk is always paid for, primarily by the future buyer and the renter. However, there is reason to smile in the face of worsening land controls in some areas. Many localities vote down proposed zoning laws each year. Thousands of small to large cities are still zoning-free-with Houston being the largest u.S. city substantially free of zoning. Studies providing hundreds of concrete details, legal arguments, and practical problems have been presented in such works as Bernard Siegan's seminal Land Use Without Zoning (D. C. Heath and Co., 1972). And re cent work by such scholars as Richard Epstein in his book Takings (Harvard University Press, 1985) has shown (with some zoning examples) the illegitimacy of government seizing property or a portion of the owner's rights. These princi pled attacks may turn Americans away from zoning in the coming decades.

Also encouraging is a recent Supreme Court decision. On June 9, 1987, the court ruled by a 6-3 vote that the Fifth Amendment, which bars the taking of property "without just compensa tion, " requires that landowners be reimbursed not only when the government seizes.property through eminent domain, but also when it thwarts the use of property by land-use regula tions (The Wall Street Journal, June 10, 1987). An awareness of the impracticality, the costs, and the economic dislocations (which have been only lightly touched on here) will help change attitudes toward zoning. Amer icans, by and large, are a practical people and will respond to the damages wrought by zoning if these~damages are explained. And many Americ~ns also will be open to arguments re garding the errors of laws which violate good moral theory-because they want to be both practical and good. D 377 Do Unions Have a Death Wish?