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Review of The Economics of Zoning Laws by William Fischel, Chapters 10-12 Note by Austin Troy For NR 277 University of Vermont.

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Presentation on theme: "Review of The Economics of Zoning Laws by William Fischel, Chapters 10-12 Note by Austin Troy For NR 277 University of Vermont."— Presentation transcript:

1 Review of The Economics of Zoning Laws by William Fischel, Chapters 10-12 Note by Austin Troy For NR 277 University of Vermont

2 Politics of Suburban Zoning: Special Interests When there is imperfect information (voters don’t know what politicians stand for and politicians don’t know what constituents want), opportunity for special interests to prevail in local gov’t In small jurisdictions, developers have little influence because info is less imperfect: voters know issues and politicians know what voters want

3 Who are most influential suburban interest groups? Homeowners, because in small suburban community they are only effectively organized interest group, because all share the same basic interest However, response differs with past legacies and with demographics, especially income, since higher income people are generally more exclusive

4 Fischel community typology Suburban communities Non-suburban communities: –Rural –Isolated Small City –Central City

5 Rural Not commuter community or second homes Largely agricultural Less zoning, more permissive that ‘burbs Why? Because residents stand more to gain from development than they have to lose from it; also zoning wouldn’t make much difference because demand is low, so generally not even necessary

6 Isolated Small City Also more permissive than suburbs and often pursue development Why? Because people in these areas tend to live and work in the same jurisdiction Hence exclusion of new business and development seen as a cost, development seen as overall benefit because of new economic opportunity; no clear anti-growth constituency Not the case in ‘burbs where people work in different jurisdiction from where live; expansion of employment and retail are irrelevant as benefits, since already accessible elsewhere. Is this valid?

7 Central City Developer generally wins out over residents Why? Because so many residents live and work in same jurisdiction, hence some gain, some lose by development, no clear resident constituency comes out on top. Also, income lower, so economic opportunity generally seen as more important than reduction in nuissance Also, big information gaps in cities because so many people, politicians and issues Hence special interests have more influence relative to citizens. Eg. NYC example Also: vote trading issue: so many issues

8 Monopoly Zoning A large municipality that is restrictive will have a larger effect on development than a smaller one because affects supply curve However, few metro areas have a large enough suburban municipality to allow this

9 Effect of large lot zoning If zone large lots, p ↑, but p/ acre↓ City Suburbs Ag zone A’A BB’

10 Result People displaced from suburbs go to central cities and rural areas. Rural areas become suburban Leap Frog pattern of development However, if capital is good substitute for land, favors growth in the cities Other alternative: open cities model in longer term, especially for smaller cities, draws those residents elsewhere

11 What is the reality? Urban areas usually don’t get infill effect as much as would expect. Why? Because costly to tear down housing Central city housing doesn’t meet middle class tastes; expensive to rehab it Hence residents often willing to accept additional commute over city conditions Fischel says the result of zoning then is to lower housing costs, since suburban per unit values fall more than ag zone values rise.

12 What is the significance? Land values are lower because of demand side, not supply side: people derive less utility from the land. Major cost: commutes are too long; hence lose many of the benefits of agglomeration economies

13 Speculation and sprawl Fischel: speculation exacerbates the leapfrog pattern Withhold land from market in seeking profit, cause developers to look farther out The longer he waits, the more density the speculator may get, but the more leapfrogging If misjudge and sell too early can facilitate more sprawl

14 Regulation and housing costs Increase in price could be seen as a good thing (more efficient allocation of resources), because WTP↑, maybe means reg made community more desirable Question: did P ↑ because of inward S shift or outward D shift? If one town’s zoning only affects prices locally, probably reflects D; if affects zoning outside the town, probably S. Must also look at P of undeveloped land (potential housing) to assess efficiency. Only efficient if P ↑ in developed and undeveloped Higher P for undeveloped land reflects potential residents’ (the market) demand for living there Do gains from restriction outweigh losses to landowners and the housing market?

15 Regulation and housing costs Fischel cites evidence suggesting that modern zoning may be too restrictive at the expense of potential homeowners (remember that developers are the only “representative” of potential future owners). If town is small relative to metro area, should not affect outside housing prices, but probably won’t affect their own either, because housing market is regional Key point is that when one town zones restrictively others nearby are likely to copy them, which then, marginally, causes prices to increase.

16 Existing and potential housing This applies to existing housing. What about P of potential housing? Must look at P of vacant land We can only conclude that more efficient allocation if increase in net benefits to BOTH existing and potential residents Only way potential residents register demand is through bids of developers George Peterson (1974) found that in this case, benefits are less than the costs, suggesting zoning is too restrictive.

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