JOHN HOOD COLUMN: Land-use rules cost us dearly

Published 9:00 am Thursday, December 14, 2023

RALEIGH — Though polarization is a pervasive and powerful force in our politics, housing policy is one area where cross-ideological coalitions have become increasingly common.

For example, there are both progressive and conservative champions of zoning reforms and other deregulatory efforts to allow more construction of houses and apartments, including denser forms of development. Opponents of such a strategy also span the political spectrum, and include neighborhood groups worried about the potential effects on traffic, crime, gentrification and historic preservation.

In an increasing number of North Carolina jurisdictions, including the cities of Raleigh and Durham, local officials have opened up their housing markets with such policies as relaxing parking requirements and allowing homeowners to add accessory dwelling units. Some state lawmakers also back a bill to allow developers to bypass certain local regulations if they reserve some units for lower-income consumers.

You can count me firmly in the “open up” camp. While residential development certainly raises practical questions about nuisances and the delivery of municipal services, rigid zoning and housing codes are rarely the best answers to them.
That heavy regulation significantly reduces the availability and affordability of housing is no longer a matter of empirical dispute. In a study released two decades ago, Edward Glaeser of Harvard University and Joseph Gyourko of the University of Pennsylvania found that “zoning and other land-use controls are responsible for prices in high cost areas of the country.” Rather than focus on public housing and subsidized projects, the professors argued, advocates for affordability should “start with zoning reform.”

Over the intervening years, dozens of other studies confirmed the relationship. In 2021, Emily Hamilton of George Mason University’s Mercatus Center summarized the academic literature this way: exclusionary land-use regulation “creates painful trade-offs for all kinds of households, but it particularly burdens low-income renters.”

I think we can widen the coalition for reform still further by emphasizing that such regulations don’t just affect potential home buyers or renters.

For starters, employers should join the fight for land-use reform, which will make it easier for them to attract and retain the employees they need to thrive. As Cato Institute scholar Vanessa Brown Calder put it in a recent paper, “artificially inflating housing costs discourages migration from rural or suburban areas to cities, which impedes appropriate matching of workers and jobs while limiting the scope of economies of scale and the scope of particular types of economic activity.”

Moreover, the regulation of residential development isn’t the only problem that should concern us. A new National Bureau of Economic Research paper examined the consequences of regulating commercial real estate.

While expenditures on housing represent a mixture of consumption and investment — everyone lives, sleeps, and recreates in their homes, while only some work from or rear children in their homes — virtually all spending on commercial buildings represents a form of investment in future economic production. Indeed, it accounts for about a fifth of all investment in fixed assets.

In that latest NBER study, scholars from UCLA, Arizona State, the University of Minnesota, and the U.S. Census Bureau found that strict land-use rules distort market decisions about how and where to invest in offices, manufacturing plants, retail locations, and other commercial projects. Using a large database of property records, tax records, and land-use rules, they constructed a model to estimate the effects of making the regulations more or less stringent.

“Moderately relaxing commercial regulations across all U.S. cities yields large allocative efficiency effects,” they concluded, “with output gains of about 3% to 6% and welfare gains of about 3% to 9% of lifetime consumption.”

In my view, the default policy should be to let private parties bargain their way to the most productive use of land. When local authorities step in, such interventions ought to be rare and narrowly tailored.

While their intentions may be good, policymakers lack both the information and the incentives possessed by willing buyers and willing sellers. Pretending otherwise is a mistake — and often a very expensive one.

John Hood is a John Locke Foundation board member.