Density or Exclusion: the Perils of Local Zoning

In my last post, I suggested that while we like to think of housing as an investment, it’s really more like a crappy savings plan, potentially redeemed by the fact that you can live inside the piggy bank. Land can be a profitable speculative investment, but allowing land to appreciate and drag the cost of housing upward in real terms is fundamentally incompatible with housing being affordable.

Economists (including Adam Smith, David Ricardo, Thomas Paine, Henry George, Thomas Friedman, Joseph Stiglitz, and Matt Yglesias) have highlighted the negative impacts of allowing land owners to collect monopolistic “ground rents” but nobody seems to care. So now tens of trillions of dollars worth of real estate in the US is predicated on the idea that landowners get to retain these speculative gains. Barring a glorious Georgist Revolution, this is probably the arrangement we have to work within.

Build, Baby Build!

Luckily, in a city with increasing land values, where property owners get to keep all of those unearned financial gains, there’s an All American Capitalist Solution™ of sorts, which can potentially keep housing affordable, even when land is expensive: build more housing on less land. By building densely, high land costs can be shared across more households, reducing the overall impacts of expensive land, and allowing home buyers & renters to pay primarily for housing instead of land.

Many cities (including Boulder) have minimum lot sizes as large as 7000sf in their low-density residential zones.  Lots that big can easily host almost any kind of missing middle housing  while retaining the fundamentally quiet, family friendly nature of the neighborhood. This allows high land costs to be spread out across more dwelling units.  The same square footage (and roughly the same construction costs) can house more people more affordably, and at the same time provide better profits for developers. The horror! Getting developers to built modest, family friendly housing is about creating zoning rules where that’s the most profitable thing to build.  Which is best for affordability and the environment: using a big $500,000 lot to provide a single 5000sf custom home, a single 2500sf custom home, or four 1000sf homes that share walls in a fourplex?

Frances Apartment Building, 534 Cleveland Ave., SW, Canton, OH via Wikimedia Commons
A traditional, compact, small apartment building in Canton, OH via Wikimedia Commons

But the supply side solution can only work if housing costs are set by the cost of production, which means you need lots of competition producing lots of housing. In a city ruled by zoning, you have to ensure that there’s always a healthy surplus of zoned capacity available (see Dan Bertolet’s excellent post on zoned capacity at Sightline for more information on what that means).  And you need to have that surplus of zoned capacity within any housing type that you want to keep affordable, hopefully across a wide variety of locations in your city.

But this is emphatically not what’s happening. Mysteriously, we are not building fourplexes on single family lots. Because when this kind of thing is suggested, The Neighbors completely flip out.  See last December’s controversy in Seattle, when a draft of that city’s housing plan was leaked, including a recommendation that “single family” zones be turned into “low density residential zones” allowing things like ADUs and duplexes and fourplexes.

But a century ago, before zoning, this type of mixed-density neighborhood was  common. You can still find them in many old streetcar suburbs all across the US — Portland, Oregon is full of them. Often these neighborhoods are within a five minute walk of the mixed-use commercial corridor, where the streetcar line once ran. Walkable, mixed density neighborhoods are now as desirable as they are illegal, which is sad, because and they’ve historically been able to accommodate a lot of economic diversity, including families, in a very livable places, without being auto-dependent.  I’m not raging against zoning here. Zoning has some great applications, like keeping toxic industries away from schools, but I don’t think outlawing mixed density, mixed income neighborhoods is a worthy cause.

The Homevoter Cartels

We aren’t building fourplexes in low density residential neighborhoods becuase in the US, zoning is local.  It’s usually controlled at the city level, and in many US cities, existing homeowners make up a controlling political constituency — sometimes known as the homevoters. Homevoters often fight for zoning that ensures housing density is uniform and low, which ensures housing is scarce and intrinsically expensive. They prohibit the only affordable housing strategy that is compatible with rising land values — sharing those land costs across more housing.  Whether or not it was their original or primary intent, this ends up benefiting existing property owners financially by increasing land values. This is to say, homevoters form cartels, restricting the supply of a valuable commodity which they already own.

There are many non-financial reasons why members of an existing community might be opposed to change (as Lisa Schweitzer explores a bit in this post), but it’s hard to deny that there’s a financial benefit for property owners in maintaining the status quo.  But a community is not just the people who own property, and the financial consequences of exclusionary zoning are as bad for renters as they are good for homeowners. Keeping housing scarce in a desirable location means that poorer people are systematically expelled from or repelled by the community.  As Sara Maxana said this summer: When housing choices are limited, the wealthy always win.

The Dark Side of Open Space

Chautauqua and Flatirons, via Dave Dugdale on Flickr
Chautauqua and Flatirons, via Dave Dugdale on Flickr

Over the last 50 years, the City and County of Boulder have created an incredible greenbelt, preserving tens of thousands of acres of scenic natural and agricultural land from development.  I love the Open Space. I love the well defined edges that it gives the cities within Boulder County, which mean I can run or bike out of town and into a place that feels wild. I love that we’ve made the nearby mountains a public resource, rather than selling them off to oligarchs who would look down on us from their high perches. Boulder’s commitment to not building sprawl is one of the reasons I came here. But the Open Space has a dark side.

At a very basic level, a hard urban growth boundary is a long term commitment to either increasing density or exclusion, and there’s a pretty direct trade-off between the two. You either let more people live within the boundary, or you ration the limited number of spaces. Both of these options result in higher land values. Boulder’s urban growth boundary also provides a local amenity: Flatiron Views, and easy access to outdoor recreation. This amenity further increases land values, but the consequences of increasing land values are not the same for everyone. If we choose exclusion over density, and we ration housing by price, then poorer long time residents get displaced, renters have to choose between spending more of their income on housing or accepting a longer commute, and CU students end up taking on heavier debt loads.

The Open Space is bought with public funds, but much of the value it creates is privatized. It’s transferred to property owners, including the single family homeowners who are constantly complaining about “greedy developers.”  Which would you rather reward: a developer who profits by creating housing, or a homeowner whose property value increases when housing is kept scarce?

On top of all that, the Open Space is paid for with sales taxes, and sales taxes are regressive, which means that poorer people are paying more of their income into Open Space than richer people. Wealthier people (who tend to own homes) then benefit from land value increases, while poorer people (who tend to rent) are punished by exactly the same land value increases, which they helped to fund.

It didn’t have to be this way. A progressive Open Space program could have been funded with a property or land value tax.  This would have directly captured some of the value created by Open Space, while moderating increases in property/land values. The program could have also acquired urban land, and put it into a Community Land Trust dedicated to providing affordable housing in perpetuity.

We could have recycled some of the value created by Open Space to mitigate the problems created by Open Space, but we didn’t.

Rationing Housing

So long as we are committed to exclusion rather than density, affordable housing is about how we choose to ration a finite housing supply. Left to its own devices, the market will use price. The highest bidders will get housing, and the poor will not. Rent control with strong tenant protections instead excludes newcomers more generally — it lets poor people who have been around a while  stay until someone buys them out or they get tired of their increasingly wealthy neighbors. Is this better than purely economic exclusion? It’s less classist, but it’s still awfully exclusive, and it doesn’t address the underlying issue of high land values and scarce housing.

Permanently affordable housing — often called “social housing” in other countries — is affordable to residents because it is subsidized. Typically a public agency or a non-profit housing provider buys an equity stake in the property, and the remaining value is covered by debt, which is serviced by the rent that residents pay.  The bigger the equity stake put down by the public entity or non-profit, the smaller the loan, and so the less rent is required to cover it.  The use of public equity shields residents from high per dwelling unit land costs, but again, doesn’t do anything to address the fundamental reason housing is expensive in the first place: high per-dwelling land costs. Social housing can keep some housing affordable forever, by buying it out of the appreciating land market. Social housing can also be rationed by whatever criteria you want. It can be only for seniors, or only for families. You can screen by income and make sure that residents are actually poor… but not too poor.  You can require people to have local jobs, and work full time.  You can prevent students from taking advantage of affordable housing to get an education. You can do a lot to make sure that only The Right Kind of People benefit.

This kind of  housing allows property owners with a progressive self-image to have their cake and eat it too. Their land values still increase, and they get to exert control over which lucky poor people get to stick around. But as long as land values continue appreciating, the amount of public capital that has to be dedicated to each new unit of social housing also increases. This means the same about of money creates an ever smaller amount of new affordable housing as time goes on. In expensive cities with restrictive zoning, this money goes overwhelmingly toward paying for land, instead of the housing that sits on top of it.  Mission driven affordable housing developers know this, which is why they usually fight to get every last possible unit housing they can on a site they control.

As land values increase, more people need help to afford housing. Some folks are are burdened by the cost of basic shelter even if land is free, and they will never be well served by the market. But when per-dwelling land costs spiral out of control, we start talking about public support for middle income households too: EMTs and dental hygienists, faculty at CU and professionals in the non-profit world. These are people whose incomes can easily cover the cost of housing, but cannot contend with the inflated cost of land. This system clearly does not scale, because while housing has an intrinsic cost (construction, financing, maintenance…) there’s no limit to land values.

In its fullest expression, this dynamic results in a place like Palo Alto, California, which is now pricing out even highly paid professionals, including attorney Kate Downing, who recently resigned from that city’s Planning Commission, citing the city’s unwillingness to approve any housing whatsoever. She and her husband wanted to have a family, and a house to themselves, and they were tired of sharing their home with two other six-figure earners. The mortgage on the house would have been $12,000/month.  Income is no longer enough to live in Palo Alto.  Today you must bring accumulated capital to buy in.

If we continue to choose exclusion over density, this future awaits Boulder, too.

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