The detrimental effect of zoning regulations on society.

By Daniel Walton

Old conservative white people and the modern progressive left – what on earth could they have in common? Well, look to the streets of San Francisco, Sydney or even the inner suburbs of Brisbane and you can find these types united in one goal: complete opposition to any new form of housing development.

This unlikely coalition, colloquially referred to as NIMBYs (hence the title) has formed to support regulatory practices known as zoning in order to “protect neighbourhood character” and prevent unsavoury buildings or people from popping up in their backyards. Some may have good intentions, such as a misguided suspicion of property developers or an *incorrect* belief that high-rises are bad for the environment, whilst others are motivated by more troubling factors. But however well-meaning a NIMBY is, there is almost nothing positive about this creed.

Indeed, the origins of this ideology stem from the post-segregationist American South, as white suburban families drafted complex zoning codes to inflate house prices and prevent black families from integrating their neighborhoods [1]. Overtime, the phenomenon spread across America and spread its ugly arms overseas to Europe and Australia. It most commonly manifests itself in the form of “single-family zoning”, a regulation which prevents a community from building any type of housing except a detached single-family home. Other notorious NIMBY laws include building height caps and minimum plot sizes, which reduce the availability of land for new housing.

Quite simply, these zoning laws produce a clear deadweight loss to society by restricting supply and thus pushing up the price of housing:

Figure 1: Basic Economics

The effects of NIMBY policies can clearly be seen in the housing affordability crisis in some of the world’s richest cities. San Francisco, the wealthiest city in the world by household income, has the highest homelessness rate in the US. With a median home value of $1.3 million, most of San Francisco is subject to strict restrictions that prevent high-density development. In fact, apartment buildings are illegal to build in 73.5% of San Francisco, and that number is far higher for the wider Bay Area. Indeed, NIMBY policies across California have contributed to it having the highest poverty rate among US states once adjusting for cost-of-living [2].

Closer to home, a discussion paper released by the RBA found that arbitrary zoning effects amount to approximately 42% of housing costs in Brisbane, and up to 73% in Sydney[3]. Australian arbitrary zoning laws include limits on building heights and land density, for example in most Brisbane suburbs plot heights are restricted to three stories in the absence of an agreement with the Council. These restrictions, introduced largely in the early 21st century, coincide with skyrocketing house prices that cannot be accounted for by physical input costs or demand growth. As Australia’s population grows and suburban sprawl reaches its limits in our most populated cities, increasing pressure will be placed on transport, infrastructure, and housing stock in the absence of reform.

Figure 2: Estimated Zoning Costs in Australian capital cities

Worryingly, this system of complex zoning rules largely serves to segregate suburbs along wealth lines. In Brisbane, most suburbs are subject to uniform laws, leading to very little variation of house prices within suburbs, and as a consequence high-income and low-income families are clustered amongst their own kind. In an education system where public schools are divided into catchment areas, such an arrangement can exacerbate lifelong inequalities – for example the education received in the wealthiest catchment (Brisbane State High School) consistently performs above poorer catchments such as Albany Creek and Everton Park. In America, where public school funding depends on local tax revenue, the effects on long-term educational and racial inequality are much grimmer.

Likewise, to tackle the homelessness problem in Australia and the United States, it must be accepted that these zoning practices are largely the underlying cause. It has been commonly observed that once housing costs exceed 30% of median income (a rate exceeded in Sydney and Melbourne), that homelessness rates rise rapidly [4]. Indeed, Federal Housing Aid in the United States is directly correlated with restrictive zoning laws [5].

Figure 3: San Francisco’s high homelessness rate is directly attributable to the insane cost of housing.

Which brings us to some of the dark motivations behind NIMBYism. In California, the NIMBY capital of the world, a state-wide survey found that wealthy, white homeowners were more likely than any other demographic to oppose new housing developments [6]. Much of this opposition is driven by an irrational fear of immigrants, diversity, or a depreciation in property values, perhaps signified by one of NIMBYisms main proponents:

Figure 4: NIMBY Exhibit A

This is not to say people like myself are exempt from criticism. University students across the globe are some of the biggest offenders of NIMBYism. There is a certain level of hypocrisy when the modern left pushes for increased immigration and environmental sustainability (quite rightly I might add) yet is vehemently opposed to any sort of new housing development, pushing instead for counter-productive reforms such as rent control.

The cognitive dissonance is quite apparent when the Australian housing market has no shortage of demand, yet “housing experts” best ideas for reform are housing subsidies[7], which a basic understanding of a supply and demand graph will clearly just serve to increase housing costs even further. It’s also somewhat ironic when a common crusade of younger NIMBYs is an anti-establishment effort to stick it to extortionist property developers by… restricting supply, inflating prices and thereby increasing the profit margins on their developments? 

Likewise, the commonly cited environmental argument against housing developments is that urban areas cause more pollution, but this fallacy is negated by the fact that, put simply, people live in cities. Increased urbanisation is undoubtedly a positive force for the environment once you consider that the alternative is suburban sprawl. Low-density suburban areas are far greater polluters per-capita than urban environments due to increased traffic[8], decentralised energy networks, and lower usage of public transport. Likewise, increasing housing stock is one sure-fire way to accommodate additional immigrant families without increasing urban sprawl and putting pressure on road and transport infrastructures.

The supposed benefits of NIMBYism, namely reduced local pollution and overcrowding, largely symbolise the narrow-minded nature of its proponents. Whilst low-density suburbs may produce some benefits to their residents, the reality is that we are just outsourcing the costs to somewhere else, typically a low-income area, whilst also increasing the burden on society as a whole.

Yet there is some hope. In the US, one of Joe Biden’s quieter campaign promises was to revitalise the housing market and encourage new developments through a “Housing Bill of Rights”. There has also been a tidal change in Californian attitudes. Sacramento has become the first city in America to abolish the practice of single-family zoning, and the college town of Berkeley (notorious for its NIMBYs) has introduced a bill to follow suit. 60% of American voters now support creating a universal public housing option for low-income families in contrast to 32% being opposed (but unfortunately only 27% support increasing density in their own neighbourhoods to do so).[9] Likewise, an inclusionary zoning policy in New Zealand had the effect of drastically improving access to housing for low-income families.[10]

The outlook is perhaps less hopeful in Australia, where staunch opposition to Bill Shorten’s negative gearing reform indicates home-owning families are unlikely to budge when house prices may be involved. In fact, the very vocal behaviour of NIMBYs leaves proponents of cheap housing in a tough position. Boston University researchers found that whilst public support is in favour of new housing, only 15% of comments at neighbourhood forums indicate a willingness to do so.

That’s not to say single-handedly eliminating all zoning laws solves society’s housing problems. Texas, the most prominent example of zoning reduction, certainly has its issues, but nevertheless provides cheap housing and has some of the lowest homelessness rates in the developed world. The Greater Houston metro area, despite being three times as large, has a smaller homeless population than Brisbane.

Indeed, the main detrimental effect of deregulated zoning is that many of our suburbs may become eye-sores:

Figure 5: A Houston, Texas Neighbourhood

But maybe living in a “pretty city” is a bit overrated when it fails to provide a decent quality of life to its citizens. As beautiful as San Francisco is, it’s not uncommon to see defecation lining the streets of its multi-million-dollar neighbourhoods. Australia is not immune to these problems and walking through our major cities on a weeknight is a major eye-opener if you think our homeless problem is less severe than America’s. In fact, on a per-capita basis Australia has one of the highest homelessness rates in the developed world, and with house prices skyrocketing and a fast-growing population, we are in dire need of finding solutions for affordable housing. 

So, my message is mainly directed to the well-meaning NIMBYs who are raising noble but mistaken concerns: if you want to tackle homelessness, make housing affordable for students, help the environment, and accommodate immigration and diversity, there is but one solution:

Build, Baby, Build!

UQES Publications welcomes reader correspondence on our articles. If you wish to reply to points raised, or believe a perspective has been missed, feel free to send respectful responses to publications@uqes.com.au. We will endeavour to publish correspondence in subsequent articles.

References
[1] The Economist. (2020). Segregation still blights the lives of African.
[2] Blankley, B. (2020). California continues to have the highest poverty level in the nation. The Center Square.
[3] Kendall R, Tulip P. (2018). The Effect of Zoning on Housing Prices. Reserve Bank of Australia. Research Discussion Paper.
[4] Glynn C, Casey A. (2018). Homelessness rises faster where Rent Exceeds a Third of Income. Zillow.
[5] Calder, V. (2018). Zoning, Land-Use Planning, and Housing Affordability. Cato Institute.
[6] PPIC. (2017). PPIC Statewide Survery.
[7] Raabus C. (2021). Experts say this is what Australia needs to do to solve national housing crisis. ABC News.
[8] Sanders R. (2014). Suburban Sprawl Cancels Carbon Footprint Savings of Urban Areas. Berkeley News.
[9] Dernsas J. (2021). 60 percent of likely voters say they’re in favor of public housing. So why isn’t there more of it? Vox News.
[10] Fernandez, Mario A, & Martin, Shane L. (2020). Staged implementation of inclusionary zoning as a mechanism to improve housing affordability in Auckland, New Zealand. International Journal of Housing Markets and Analysis, 13(4), 617–633.

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