“Zoning regulations control what kinds of buildings can be constructed where, and then what activity can happen inside them. They effectively socialize private property while controlling even the most mundane features of our physical environment and daily routines. Zoning rules flip property rights on their head, curtailing the owners’ ability to do what they wish on their land. In exchange, they sometimes give people near–veto power over what happens on their neighbors’ property.
Whether a disused shed stays cluttered with rusty lawn care equipment, is turned into a home business, or is converted into an in-law suite might not seem like a major decision. But the existence of a whole body of laws dedicated to controlling that decision tells you how far zoning reaches into American lives. The consequences of these laws are as far-reaching as they are devastating.”
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“The immediate costs of zoning are straightforward: By limiting new housing construction, zoning drives home prices up in—and drives people out of—the most in-demand neighborhoods. By micromanaging commercial activity, zoning prevents entrepreneurs from trying new things, making everyone poorer in the process.”
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“The conventional view of the Great Recession is that excess demand for housing—caused by some combination of loose monetary policy, government-subsidized credit, and unscrupulous lenders—inflated a bubble that inevitably had to pop. Leftists, liberals, libertarians, and conservatives can all find something to agree with in this theory.
But it’s wrong, according to Kevin Erdmann, a senior affiliated scholar at George Mason University’s Mercatus Center. Erdmann has advanced a heterodox theory that this century’s most serious economic contraction before the pandemic can be traced back to zoning laws in the most in-demand cities.
In a 2020 paper on the origins of the recession, Erdmann and economist Scott Sumner argue that monetary policy was not exceptionally loose in the lead-up to the financial crisis and that new residential investment was not high by historic standards. Most of the toxic assets and bad mortgages originated after housing prices had already started to decline.
Erdmann and Sumner also point out that prices were increasing fastest in coastal “closed access” cities like New York and San Francisco, where the economy was booming but restrictive zoning regulations prevented much new housing from being built. The result was an out-migration of lower-income people to “contagion cities” in Nevada, Florida, Arizona, and other places where home building was less regulated. Erdmann and Sumner lay the housing crisis directly at the feet of NIMBYs—”not in my backyard” activists who opposed the construction of new housing.
“The NIMBY phenomenon that led to housing scarcity in closed-access cities induced households to migrate from large multi-unit buildings in dense coastal cities to single-family homes in cheaper cities,” write Erdmann and Sumner. “The primary source of demand was households looking to economize on housing consumption by moving out of the expensive coastal cities.”
Think of Mark and Patricia McCloskey as a class of activist. The McCloskeys of San Francisco, Los Angeles, and New York City tried to protect their views, their property values, and their relatively low-traffic streets with zoning laws that banned apartments across whole swaths of the city. Lack of supply met huge demand, hiking prices in the process. Middle-class people were effectively priced out of urban apartments because those apartments were simply never built.
So instead of living in Los Angeles and New York City, middle- and lower-income people moved to Las Vegas and Phoenix. That influx of demand saw prices spike and builders respond by throwing up lots of new homes. The glut of new homes in inexpensive Sun Belt cities wasn’t just the result of an overinflated financial system. It was a response to real demand from cost-burdened coastal emigrants.
All this had massive macroeconomic consequences. Erdmann and Sumner argue the Great Recession was ultimately caused by federal officials misinterpreting rising home prices as a bubble rather than the result of a real shortage. So they tightened monetary and lending policy, and that tipped a rational building boom into an artificially induced recession.
It’s an out-of-the-box theory that deemphasizes or disputes many common libertarian diagnoses of the Great Recession that center on an overly profligate Federal Reserve or on reckless financial institutions banking on an inevitable federal bailout. But it does explain how the country was able to go from a supposed glut of housing oversupply to a shortage of somewhere between 4 million and 20 million homes. The glut was overinterpreted—and the shortage never went away.”
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“When NIMBY zoning rules cut off industries from innovation-breeding cities, the economy’s productivity as a whole suffers. Fewer inventions are created; fewer new ideas catch on. The higher wages and standards of living all that growth would have created do not materialize.
In “The Housing Theory of Everything,” a 2021 essay for Works in Progress, Sam Bowman, John Myers, and Ben Southwood cobble together the most recent research to estimate that zoning restrictions cost the average American somewhere between $8,800 and $16,000 a year in foregone income.”