Tag: zoning

Oregon’s Rent Control Bill Would Ultimately Please Nobody

The Oregon Senate has passed a rent control bill that would limit annual rent increases to 7 percent above the annual change in the consumer price index.

This sort of legislation is, in the longer term, likely to please nobody.

In markets where rents are rising faster than earnings, but slower than this cap, groups representing tenants will complain that the price restriction is not tight enough to help tenants financially.

In markets where demand for rental property is growing rapidly relative to supply, the controls will bind and bring the negative effects we’ve seen from rent control historically: reduced incentive to bring new supply to market (and so rising underlying market prices), a misallocation of properties, a lock-in of tenants reducing labor mobility, and a worsening in the quality of properties available.

So why introduce the legislation?

The stated goal of its proponents is that it’s a defense against so-called “economic eviction.” That is, to guard against instances where tenants face steep unforeseen rent hikes, that suddenly makes living in a rented property unaffordable.

To give these tenants more security and certainty, many polities around the world are experimenting with new forms of “rent regulation.” Most common is for the introduction of fixed term tenancies, say for three years, during which rent increases are linked to some inflation measures. Between tenancies, landlords can adjust rents as they wish.

Over time, these forms of regulation allow rent levels to track market fundamentals. They can still have some of the negative effects crude rent controls bring in the short-term, especially in overheating markets. They also tend to have to be coupled with other regulations that ensure security of tenure, restricting landlords’ rights to evict within tenancies. This change in who bears the risk might reduce the supply of available property, as might the perception this type of regulation was a precursor to more stringent regulation.

Overall though, these forms of rent regulation are not as damaging as first-generation price controls. By construction, they cannot improve overall affordability and will likely raise market rents. Their use really entails a trade-off: providing more time-limited security for existing tenants, at the cost of economic inefficiency and lower investment in the rentable housing stock.

The Oregon Senate’s bill - with a high but crude cap on annual rent increases – is quite different. The bill does contain some new restrictions on evictions, including prohibiting a landlord from terminating month-to-month tenancy without cause after 12 months of occupancy.  But the rent control cap proposed suggests policymakers also desire to signal to renters that they are concerned about general affordability within tight city markets too.

The stark truth is this: the only policy means of ensuring that both perceived problems are minimized is to set land-use planning and zoning regulations such that housing supply is responsive to new demand. Fail to recognize that, and the rent controls advocated will either result in disappointment and demands for tighter controls, or else exacerbate the relative scarcity of supply in tight markets.

Oregon is notorious for its land-use regulations. My colleague Randal O’Toole has long explained how extensive urban growth boundaries create severe restrictions on building outside of cities. This leads to demand substitution into the restricted urban areas, driving up the price of land and, ultimately, housing. And in recent decades it has been getting worse:  Vanessa Brown-Calder has noted that between the years of 2000 and 2010, Oregon added more land-use regulations per capita than 43 other states.

Little surprise then that, dividing the median house price by median income in each of Oregon’s three biggest cities, Demographia’s Median Multiple Index finds two to be severely unaffordable (Eugene with a multiple of 5.6 and Portland at 5.2) and the other merely seriously unaffordable (Salem at 5.0). For context, using these calculations there are just 13 severely unaffordable metropolitan markets in the whole of the U.S.

The best way to make housing more affordable and to lessen the prospect of abrupt rent hikes is to reform these cost-inflating rules on land use. In the absence of that, rent control amounts to little more than trying to muffle the message that rental and house prices are screaming about the relative scarcity of land developable for housing.

Race for Amazon Headquarters Should Be Race to Reform Zoning

“All the Benefits of Boston, Without the Headaches” New Hampshire claims in its Amazon Headquarters II (Amazon HQ2) bid. “Choose Boston and next year when you leave your tiny $4,000-a-month apartment … you’ll be wishing you were in New Hampshire” it declares.

Although New Hampshire may not be winning friends, it isn’t exactly wrong about Boston’s housing affordability challenges. As Boston residents are painfully aware, a one-bedroom apartment in the city will easily run $2,200 per month. Boston was recently named the 5th most expensive city to rent an apartment in the United States.

Surely this isn’t news to Bostonians. Perhaps more of a surprise is that something can be done about it—for free. Improving affordability can be accomplished by reforming zoning regulation. Academic research supports the view that restrictive regulation increases the cost of housing.

For example, Harvard Economist Edward Glaeser found “zoning and other land-use controls play the dominant role in making housing expensive,” and one study attributes 30-50% of the cost of housing in places like Manhattan, Los Angeles, and San Francisco to the regulatory tax associated with regulation. Massachusetts is no exception: according to a recent Cato study new zoning regulation is associated with increasing home prices in the state.

But increasing home prices is just one of many unsavory impacts of restrictive regulation. There is evidence that racial and economic segregation, geographic mobility and economic growth are all significantly affected. For example, a recent Harvard University study suggests that more than 50 percent of the difference in levels of segregation between strictly regulated Boston and lenient Houston could be attributed to zoning regulations. Another study found “a strong and significant relationship between low-density zoning and racial segregation, even after controlling for other…metropolitan characteristics.”

The quantity of zoning and land-use regulation continues to grow, despite the relationship between regulation and its adverse impacts. This is especially true in Massachusetts: my research indicates Massachusetts fared particularly poorly in recent years, adding more zoning regulation than ever before. Between 2000 and 2010, Massachusetts added more zoning regulation per capita than 45 U.S. states.


ma zoning over time

Source: Zoning, Land-Use Planning, and Housing Affordability


One silver-lining? Massachusetts’ Granite State rival isn’t faring much better. The “Live Free or Die” state isn’t living free at all. For example, New Hampshire relies heavily on exclusionary zoning and is one of the four worst states in the country for residential building restrictions according to Freedom In the Fifty States. New Hampshire’s declining population helps reduce some pressure, but not enough to escape zoning regulation’s harmful impacts on affordability.

In fact, the rival states may have more in common than they thought. For example, either state could focus on regulatory reform to boost competitiveness. Likewise, almost any of the 20 metropolitan area contenders for Amazon HQ2 would benefit from a similar approach. Many of these cities suffer from housing affordability problems and would benefit from reforming the regulatory morass which drives up development costs and crushes resident’s ability to innovate, work, and live affordably.

Because you know what would be even better than winning Amazon HQ2? Reducing home prices across the board for current residents.

Lack of Zoning Is Not Houston’s Problem

An urban fairytale is emerging in the aftermath of Hurricane Harvey. Commentators claim that because Houston lacks a traditional zoning code, Houstonians recklessly built a city with too many roads, buildings, and parking lots, and these impervious surfaces collected water rather than absorb it, exacerbating flooding. They argue Houston doesn’t have enough absorbent surfaces with trees, grasses, and soil because of the lack of zoning.

The facts don’t support this story. It’s true Houston is the only major U.S. city without conventional Euclidean “separate-all-land uses” zoning. But this has not reduced absorbent surface cover relative to other cities with more aggressive regulation.

In fact, a map of Houston indicates the city has a low level of impervious surface cover across more than 90% of the city. Most of the remaining 10% falls under the “average” impervious/pervious surface ratio category, and hardly any falls under the “high levels of pavement” category.

houston impervious surface map


Source: Houston-Galveston Area Council Planning & Development Department

How Regulations Impede Economic Mobility

Why are Americans less likely to move to better opportunities than they used to be? The Wall Street Journal reports:

When opportunity dwindles, a natural response—the traditional American instinct—is to strike out for greener pastures. Migrations of the young, ambitious and able-bodied prompted the Dust Bowl exodus to California in the 1930s and the reverse migration of blacks from Northern cities to the South starting in the 1980s.

Yet the overall mobility of the U.S. population is at its lowest level since measurements were first taken at the end of World War II, falling by almost half since its most recent peak in 1985.

In rural America, which is coping with the onset of socioeconomic problems that were once reserved for inner cities, the rate of people who moved across a county line in 2015 was just 4.1%, according to a Wall Street Journal analysis. That’s down from 7.7% in the late 1970s.

One particular problem with today’s immobility is that people find themselves in areas where jobs are dwindling and pay tends to be lower. Why don’t they move to where the jobs are? This comprehensive article for the Journal by Janet Adamy and Paul Overberg points to a few factors:

For many rural residents across the country with low incomes, government aid programs such as Medicaid, which has benefits that vary by state, can provide a disincentive to leave. One in 10 West Branch [Mich.] residents lives in low-income housing, which was virtually nonexistent a generation ago.

Fair Housing or Federal Agency Running Riot?

In case you missed it, Ben Carson has been labeled as being “at odds with fair housing.” During his senate confirmation hearing last week, Carson was required to defend his position on Affirmatively Furthering Fair Housing (AFFH), the Department of Housing and Urban Development’s (HUD’s) controversial 100-page-plus contemporary interpretation of the Fair Housing Act.

It may sound appalling that anyone anywhere would be against fair housing. Still, there are sane reasons to object to the rule. Carson suggested a couple of possibilities; for example, he worries about Washington, D.C. administrators demanding that local communities “go looking for a [racial] problem” when no evidence of such a problem exists a priori.

If you don’t like intemperate federal agencies running riot, there is another process-related objection that Carson missed: AFFH may insert the federal agency into policy areas not even remotely authorized by the legislation it purportedly interprets.

The table below provides a comparison of the original Fair Housing Act language and AFFH language, so that you can decide for yourself:

Fair Housing Act of 1968 (original legislation) Affirmatively Furthering Fair Housing of 2015 (HUD’s re-interpretation)
1)    Prohibits landlords from discriminating against minority tenants. 1)    Stated objective is to “replace segregated living patterns with truly integrated and balanced living patterns [within cities].” 
2)    Uses the word “segregated” or “segregation” a total of 0 times. 2)     Uses the word “segregated” or “segregation” a total of 126 times and urges“overcoming historic [geospatial] patterns of segregation.”
3)    The original FHA law uses the word “zoning” just 1 time, wherein it instructs the HUD Secretary to refer discriminatory local zoning or land use laws to the Attorney General so that he/she can file a lawsuit. 3)    The AFFH mentions “zoning” 53 times, wherein it suggests that communities change their zoning to improve racial integration (not a bad suggestion, but a departure from the original law).
4) The original FHA law uses the word “affirmatively” 2 times. Each time, it asks executive departments and agencies to administer their programs and activities in a way that affirmatively furthers “the purposes of this subchapter,” where the subchapter focuses on prohibiting a discriminatory relationship between landlord/seller and tenant/buyer. 4) The AFFH rule uses the word “affirmatively” 423 times, wherein it redefines the term to mean “replacing segregated living patterns with truly integrated and balanced living patterns” and “transforming racially and ethnically concentrated areas.”
5) The original FHA law uses the word “concentration,” referring to the concentration of poverty or concentration of minorities in cities, 0 times. 5) The AFFH rule uses the word “concentration” 56 times and urges “reducing racial or ethnic concentrations of poverty.”

HUD believes the rule merely implements the Fair Housing Act’s intent.  You can form your own view.

Micro-Housing, Meet Modern Zoning

Beginning in 2009, developers in Seattle became leaders in micro-housing. As the name suggests, micro-housing consists of tiny studio apartments or small rooms in dorm-like living quarters. These diminutive homes come in at around 150–220 sq. ft. each and usually aren’t accompanied by a lot of frills. Precisely because of their size and modesty, this option provides a cost-effective alternative to the conventional, expensive, downtown Seattle apartment model.

Unfortunately, in the years following its creation, micro-housing development has all but disappeared. It isn’t that Seattle prohibited micro-housing outright. Instead, micro-housing’s gradual demise was death by a thousand cuts, with a mushroom cloud of incremental zoning regulation finally doing it in for good. Design review requirements, floor space requirements, amenity requirements, and location prohibitions constitute just a few of the Seattle Planning Commission’s assorted weapons of choice.

As a result of the exacting new regulations placed on tiny homes, Seattle lost an estimated 800 units of low-cost housing per year. While this free market (and free to the taxpayer) solution faltered, Seattle poured millions into various housing initiatives that subsidize housing supply or housing demand, all on the taxpayer’s dole.

Sadly, Seattle’s story is anything but unusual. Over the past almost one hundred years, the unintended consequences of well-meaning zoning regulations have played out in counterproductive ways time and time again. Curiously, in government circles zoning’s myriad failures are met with calls for more regulations and more restrictions—no doubt with more unintended consequences—to patch over the failures of past regulations gone wrong.

In pursuit of the next great fix, cities try desperately to mend the damage that they’ve already done. Euphemistically-titled initiatives like “inclusionary zoning” (because who doesn’t want to be included?) force housing developers to produce low-cost apartments in luxury apartment buildings, thereby increasing the price of rent for everyone else. Meanwhile, “housing stabilization policies” (because who doesn’t want housing stabilized?) prohibit landlords from evicting tenants that don’t pay their rent, thereby increasing the difficulty low-income individuals face in getting approved for an apartment in the first place.

The thought seems to be that even though zoning regulations of the past have systematically jacked up housing prices, intentionally and unintentionally produced racial and class segregation, and simultaneously reduced economic opportunities and limited private property rights, what else could go wrong?

Perhaps government planners could also determine how to restrict children’s access to good schools or safe neighborhoods. Actually, zoning regulations already do that, too.

Given the recent failures of zoning policies, it seems prudent for government planners to begin exercising a bit of humility, rather than simply proposing the same old shtick with a contemporary twist.

After all, they say that the definition of insanity is doing the same thing over and over and expecting different results.


Zoning, Grandmas, and Affordable Housing

On its front page today, the Washington Post writes about legal and regulatory obstacles to building small second housing units on single-family lots, often for aging family members.

Second homes, often called “granny flats,” have become a new front in the conflict that pits the need for more housing in the country’s most expensive cities against the wishes of neighbors who want to preserve their communities. The same battles flare over large developments that might loom over single-family neighborhoods. But even this modest idea for new housing — let homeowners build it in their own back yards — has run into not-in-my-back-yard resistance….

Homes like the Coffees’, proponents argue, could help ease housing shortages that have made $2,000-a-month one-bedrooms look like a bargain in cities such as Los Angeles. They could yield new affordable housing at no cost to the public. They could add rentals and economic diversity to more neighborhoods. And they could expand housing options for a population in which baby boomers are aging and millennials are stuck at home.

Many neighbors, though, protest that a glut of back yard building would spoil the character of neighborhoods designed around the American ideal of one family on one lot surrounded by verdant lawn. …

“You have surging housing prices in the most prosperous cities in the country, and at the same time income inequality is growing, and there’s a cultural and demographic resurgence of urban living,” [Alan Durning, executive director of the Sightline Institute] said. Young people with less money, in particular, he adds, are “slamming into their parents and grandparents’ regulatory regimes of strict limits on construction of new housing.”

It’s not the first time I’d heard of the problem. In 1996 George Liebmann wrote in Regulation about how “Zoning makes it more difficult to keep aged parents close by and care for them.” He recommended that “Duplex homes and accessory apartments should be permitted in all new residential construction. Housing options such as these allow elderly persons to live near their adult children without intruding on their children’s privacy.” (“Modernization of Zoning,” pp. 71, 75). Note that he was talking not about separate structures but simply residential units attached to the main house. And even those were impeded by zoning regulations. I mentioned them briefly in my 1997 book Libertarianism: A Primer and my 2015 update, The Libertarian Mind (p. 309).

Local officials think their zoning rules are more important than keeping families together.  They fume that allowing such small structures for grandma would “turn our zoning ordinance upside down.” And what’s more important, saving money and keeping grandma near her family or strict adherence to zoning regulations? The Post article, featuring a conflict in Los Angeles, notes the problem of NIMBY or “not in my back yard” attitudes by neighbors. And in this case, as reporter Emily Badger notes, it’s actually in your back yard. Or technically, it’s a matter of “not in my neighbor’s back yard.”

Brink Lindsey wrote about how zoning limits affordable housing in his recent paper on regressive regulation, as did Edward Glaeser and Joseph Gyourko in Regulation.