How deregulating real estate markets can solve America’s shortage of affordable housing

In the early twentieth century, known as the “progressive era,” the United States embarked on a spree of regulatory projects. One such project was airline regulation, which led to the creation of the Civil Aeronautics Board (CAB). The CAB controlled entry into the market, air routes, and air fares. Fortunately, realizing the harmful consequences of CAB’s control over the market, President Jimmy Carter signed the Airline Deregulation Act, opening up market entry, air routes, and prices to competition rather than managing them by decree. Airline deregulation was an enormous success. Today, air travel is affordable enough to be accessible to the middle class and even the relatively poor.

Article by Dustin Romney from FEE.

Another regulatory project of the progressive era was to regulate telecommunications. But once again, it became clear that too much regulation was a bad thing. The Telecommunications Act of 1996 deregulated the industry. Once again, the effects were palpable and positive. Most of the poorest among us can now afford a smart phone and internet access.

Land Use Regulation

Unfortunately, many progressive era regulatory regimes remain, and are in far more labyrinthine form than originally crafted. Among them, land use regulation calls out for attention. Originally sold as a mechanism for nuisance prevention, zoning laws were quickly adapted to tackle a host of perceived ills. Today, the dominant theme of land use regulation has little to do with nuisance prevention and focuses almost exclusively on the “character” of the neighborhood – sometimes to preserve it and other times to change it.

Take, for example, the 230-page zoning ordinance in the Town of Queen Creek, Arizona where I am currently navigating the permitting process to build a home. It includes no less than 30 different zoning designations, including such arcane distinctions as residential zones where the minimum lot size may be 7,000 square feet or 9,000 square feet. If many people bothered to peruse their local zoning ordinance, they might be surprised to learn that 7,000 square foot lots were such a threat to 9,000 square foot lots.

Setting aside the arbitrariness of most zoning distinctions, the fundamental pathology of land use regulation is the belief that a sufficiently intelligent group of regulators can effectively plan real estate markets. This of course is the fundamental pathology of socialism itself. In his much-needed book, “Order Without Design,” long-time urban planner Alain Bertaud documents, and laments, the mindset held by the vast majority of urban planners: given enough control, planners can successfully create a “livable” and “sustainable” city. But Bertaud documents for real estate markets what reformers learned long ago in airline and telecommunications markets, and what most of the world learned about socialism: central planning doesn’t work. Bertaud writes:

Planners believe in norms. They happily regulate minimum lot sizes, minimum dwelling floor sizes, maximum heights of buildings, minimum street widths and so forth. However, when trying to enforce these regulations, they often run into the harsh reality of land prices. What should be done when many households cannot afford the minimum regulatory lot size because of high land prices? Planners see land prices as the main obstacle to affordability. If a government were to replace land markets with design based on norms, the major obstacle to housing affordability – and to good planning in general – would be solved. Additionally, land could be allocated in sufficient quantity to low, middle, and high-income housing on a map. To this day, this is the essence of most master plans. This, [is the] urban planner’s dream.

Bertaud goes on to recount the disastrous Chinese and Soviet experiments with socializing land. Those two nations lived the urban planners’ dream of being able to allocate and control land based solely on their designs without the pesky interference of prices. We all know the result.

An Economic Imperative

Land use regulation in the United States is not the same as it was in the Soviet Union. But the basic assumptions underlying planners’ work are the same: prices are, at best, a necessary evil that must be worked around, and planners are capable of designing a city that functions better than what would otherwise be created through the cumulative result of voluntary cooperation. The ever-present and vexatious fixture on prices as an evil, rather than an invaluable coordinator, is manifested by the correspondingly vexatious fixation on subsidies as the solution.

With worsening traffic, longer commutes, and skyrocketing prices, our 100-year experiment in zoning has, at best, revealed gaping fissures in its execution, and, at worst, been an abject failure. It has been well-documented in recent years that the United States is suffering from a chronic shortage of affordable housing. There could be few starker monuments to the failure of urban planning.

We cannot subsidize our way out of this problem because it does not address the underlying cause: artificial restriction of supply through onerous regulation and permitting processes. Deregulation will unleash private subsidies on a scale that could dwarf even politicians’ lofty campaign promises. For example, private investment in telecommunications in the two decades following deregulation totaled $1.4 trillion. The amount of private investment and innovation that can be called upon to alleviate the affordable housing problem vastly outweighs what the government can do through subsidization. One such innovation is the humble tiny house. You can actually purchase a house on Amazon for less than $20,000. But with local zoning laws, there are few places where it is legal to put these houses.

A Moral Imperative

The deregulation of real estate markets doesn’t just make economic sense. It is also a moral imperative. Think of it. It is illegal for me to build a small additional home on my four-acre lot for my aging mother. If I defied the government in this respect for long enough, they would eventually send armed policeman to arrest me for building a house on my own property. Aside from such weighty restrictions, land use regulation is replete with arbitrary rules governing harmless activity, from “light commercial” to aesthetics.

If the economic pathology of land use regulation is a misguided belief in urban planners’ ability to coordinate real estate markets, the moral pathology is the troubling belief – both because of its substance and breathless acceptance – that urban planners have a right to prohibit land uses that have no meaningful effect on others’ enjoyment of their property. It may be said that the essence of living a moral life is to have the courage to stand up to the unwarranted use of force and the restraint to resist using it when others are doing something we don’t like. By that standard, modern land use regulation is a moral catastrophe.

When the constitutionality of zoning laws was still being debated (those were the days!) the Texas Supreme Court, in striking down an early zoning ordinance, wrote:

It would be tyranny to say to a poor man who happens to own a lot within a residence district of palatial structures and his title subject to no servitude, that he could not erect an humble home upon it suited to his means, or that any residence he might erect must equal in grandeur those about it. Under his constitutional rights he could erect such a structure as he pleased, so long as it was not hazardous to others.

For the sake of economics, and the moral right to property, the Zoning Deregulation Act of 20__ is waiting.