Re-Regulate, Don’t De-Regulate, for Affordable Housing

3 03 2014

A recent bit of productive back-and-forth between two of my favorite writers on urban policy, Aaron Renn and Daniel Kay Hertz, provides a good opportunity to talk about the idea, increasingly popular, of zoning deregulation as a path to creating affordable housing in desirous urban cores. In this context, deregulation can mean one of two things–either abrogating zoning restrictions altogether (or limiting them to general designations, like “residential” or “industrial”), or “upzoning,” meaning changing current zoning that allows only single-family homes or townhomes to significantly denser standards, like mid-rises.

Renn casts doubt on the idea that there is an any definable or comprehensible “right” to a des res address, and questions whether property owners (and as a derivative matter their lessees) have some corresponding duty to be subject to changes in the classification of their property. Hertz argues that property owners in, for example, San Francisco, have their exclusive position not because of some natural right but precisely because of a positive act of legislation–a zoning ordinance that protects the value of what they own by artificially limiting supply.

The issue of course isn’t just making housing cheaper–as Hertz point out, there’s plenty of cheap housing in Detroit, or in distressed neighborhoods in more affluent cities. The issue is affordable housing in “attractive” areas and neighborhoods–places with safe and clean streets, good schools, quality of life amenities, access to transit, etc.

The idea of deregulating housing development as a means of providing affordable housing is a paragon neoliberal policy solution.* Here is a perfect opportunity to allow market forces and the self-interested disposition of property by rational agents to efficiently allocate goods.

My tendency is to agree with Hertz, that cities, particularly cities like Chicago, are entirely “over-zoned” for non-dense (single-family) residential uses. This map that Hertz generated showing the single-family zoning in Chicago is appalling for the third largest city in the wealthiest nation on Earth, with a GDP greater than Shanghai or Moscow. Unfortunately, deregulation in the form of generalized up-zonings (or total deregulation of density inside residential zones) is not likely to work the intended effect.

It is true, as Hertz argues, that property owners in attractive areas of cities benefit from a positive act of government (restrictive zoning), and that this is no more a “right” than people have a right to live in Russian Hill. The counter-argument seems to boil down to a “first in time, first in right” kind of mentality that is not only increasingly misfit in American law and civic norms, but also inefficient as a matter of market economics.

The problem is that large scale, or even systematic, upzoning or deregulation to allow higher-density likely will not have the effect its proponents imagine it will, without active regulation and reformation of policies and laws that govern the externalities associated with zoning changes.

You Have to Build on What’s Already There

There are two interrelated problems. As Renn points out, to make a dent in costs, you need to build a lot of housing in a short period of time (otherwise, normal supply and demand suggests the cheaper housing will just be gobbled up quickly and increase in price). And as Hertz points out, the purpose of density is to make housing more affordable in those places that are “attractive”–places with safe streets, good schools, and cultural amenities (since, after all, there is plenty of housing in distressed neighborhoods, and distressed cities like Detroit).

The limitations of space, even in geographically large cities like Chicago and New York, suggests that when talking about housing density you’re talking about building midrises and highrises. This is because it isn’t feasible to build lots of three- and four-story apartment blocks, particularly in Manhattan or San Francisco, or even in tony Chicago neighborhoods like Lincoln Park or Hyde Park.

If a city tries to zone for a midrise or highrise building abutting, or within a block, of single family homes, there is a legal implication for the city (this will vary by jurisdiction). In Illinois for example, a property owner with a single-family home facing the prospect of an eight- or ten-story, 120 to 200-unit midrise or highrise could feasibly bring suit on the argument that the rezoning violates their due process rights as to their property. In all jurisdictions, courts consider general zoning changes (e.g., amendments to a zoning ordinance) legislative acts afforded high levels of deference. In just as many jurisdictions, however, particular zoning acts (rezoning a particular property or range of properties) are treated as “quasi-judicial” acts because of the individuated impacts on specific property owners; the idea being that where individual property interests are uniquely impacted, the impacted parties have amplified rights.

Thus an Illinois court ruling on a suit brought by a homeowner challenging the high rise next door would apply the so-called “LaSalle factors” (so-called because of the case creating them, LaSalle Bank v. City of Chicago) to determine the validity of the change. It wouldn’t be a slam dunk, but the prospect of such suits should be a deterrent; the LaSalle factors (analogs of which are fairly common throughout jurisdictions) specifically consider “uses of surrounding property,” “diminution of value of the property,” etc. While typically these challenges are brought by a property owner whose own property has been rezoned, they can be brought by anybody with standing–whose property interests have been injured by a zoning change. It is one of the last vestiges of economic substantive due process in the American judicial system, and it persists in these cases precisely because of the unique place held by real property in American law.

But besides the prospect of unending substantive due process and Fifth Amendment takings suits (not to mention political backlash), there is also just the more basic issue that property rights so strongly define the underlying structures of a political community. What we want to see evolve from what exists has to take into account the outward limits of what can be supported by the existing system. Not unlike the evolution of biological structures, each incremental step is limited to growing from what is already in place. We can’t unfortunately just bring forth a new world from the ashes of the old, as good as that sounds in song.

chicagobungalows

Communities built around those property interests cannot simply be changed in the course of a few years or even a decade into something that can support something like highrise residential housing in formerly single-home areas across vast swaths of land. While a rush of developers buying up property may mean a bounty initially, those homeowners who find themselves as neighbors to a bunch of a highrises, with their attendant stress on streets, power, noise, views, public transit, schools, etc., is just as likely to put them in the position of having to sell or face values in free fall, not to mention the injury to their enjoyment of their property as purchased.

Whether or not individual property values matter though is not as important as the fact that the very thing that makes particular neighborhoods and areas attractive may be erased by the introduction of density sufficient enough to impact costs.

Something should jump right out at those of us who support increased density. Obviously, anybody who has lived in a public housing project would dispute the elemental assumption that density attracts, for example, employment. Just as tragedy requires time to become something pleasant, density has ineluctable attendant requirements to attract employment and preserve both rivlarous and non-rivalrous local public goods: most primarily, infrastructure, public safety, and a mixture of incomes.

So, Why Are Certain Neighborhoods Better than Others?

The problem as I see it is that when it comes to land use, what makes a neighborhood “good,” in the sense we mean here is often precisely the exclusivity of the neighborhood. In other words, it isn’t that the people in exclusive neighborhoods stumbled upon a promised land and, to preserve their find, enacted laws to keep out the unwashed hordes. Rather, as a community area develops attractive public goods–good schools, clean and safe streets, good transit, access to cultural and natural amenities–the fact of an economically homogeneous limited by zoning regulations positively feeds back and makes the area attractive. The implication is that, in a pleasing bit of sideways spelling, density is not destiny. If a city is going to upzone properties (or abrogate the zoning designations altogether), it has to be in the form of comprehensive re-regulation of the land uses and attendant infrastructure.

The Supreme Court’s decisions in Euclid, Penn Station, and the pleasingly rhyming Nollan and Dolan exaction cases have cemented the expansive authority cities have to tie conditions to zoning relief in order to advance the health, safety, and general welfare of the public.

To achieve sufficient density to lower costs, cities need to use these broad powers to re-regulate, not de-regulate, through zoning. That is, they need to provide for the serious externalities that tend to extinguish the benefits of exclusivity in a neighborhood.

If you’re going to upzone a neighborhood to allow more families access to parks and good schools and to escape high-crime neighborhoods, you also need to require developers to fund buses, set aside public open space, pay for expansions to local schools, and to the extent permitted by law to contribute to public safety costs (including fire safety). Eliminate the pernicious parking requirements, but give Plan Commissions discretion to require proportional exactions for a new covered bus station. If you anticipate that every additional 500 units in a census tract requires a new bus to maintain efficient transit, each developer contributing to that 500 should pay their proportional share. If a new development is going to add 50 students, the developer should pitch in to expand the school’s capacity. Yes, these costs theoretically are passed on to lessees. But without them, all those “rivalrous” public goods (schools, public transit, parks and recreation) lose their utility. And all those non-rivalrous goods (vistas, public safety, cleanliness) begin to diminish.

There are some things that also likely can’t be secured through exaction on developers (though the law is not settled on this issue), but are just as important: the social services necessary when there is a greater diversity of incomes. Whether this is accomplished through comprehensive plan requirements, or ad hoc through the granting of plenary discretion given to planning commissions, it is another obvious necessity. It seems unreasonable to expect families that rely on such services to leave neighborhoods where they may be provisioned or accessible, for neighborhoods where they are not.

So, yay for density, so long as its “density-plus.” American cities, even geographically small ones like San Francisco or the borough of Manhattan, have plenty of room and capacity to grow upwards, as a means of deflating housing costs and encouraging transit-oriented development. But we can’t forget that plus. Density for its own sake may deflate housing costs, but if it isn’t tied to enforceable requirements to mitigate externalities, it truly will be for its own sake, and that’s of no use to anyone.


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4 03 2014
City Notes

[…] for being the very first person in Chicago to publish my writing, has joined Aaron and me in the latest round of conversation about zoning deregulation as a way to get some control over housing prices and build more equitable […]

5 03 2014
Four Points: It’s Not about Highrises | Smart Growth for Conservatives

[…] for being the very first person in Chicago to publish my writing, has joined Aaron Renn and me in the latest round of conversation about zoning deregulation as a way to get some control over housing prices and build more equitable […]

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