Why are American housing prices so high? How have zoning laws impacted the supply of housing? Is urban sprawl the answer to American housing and environmental problems? Judge Glock joins EconTalk host Russ Roberts to discuss the case for zoning laws and property taxes, the importance of competition among local governments, and the under-reported success in housing policy of cities like Houston. Judge Glock is the director of research and a senior fellow at the Manhattan Institute and a contributing editor at City Journal.

Glock says two Cheers for zoning! He believes that poor housing affordability is not simply caused by over-restrictive zoning regulations. Those who disagree with Glock will say that unaffordable housing tends to concentrate in states like California, New York, and Massachusetts, but Glock wants people to look at where zoning has been successful as well:

…from a lot of measures, American housing is pretty good and pretty affordable. And, that also makes one think about it and look at the places in America that are very affordable. And, there happen to be a lot of places that do have actually extensive single family zoning, extensive powerful local governments. If you look at places like Nashville or Atlanta or Oklahoma City, these places, for growing cities, have some of the most affordable housing on earth.

However, California, New York, and Massachusetts didn’t always have such high housing prices.  So, what happened? Glock says that the equalization of property taxes for school districts in the Serrano vs. Priest case in California started a trend. The problem is that with the redistributive effects of property taxes, property owners received less direct benefit from their taxes, and consequently vote to keep property taxes as low as possible, leading to underfunded schools and a disincentive to build new property developments.

This is an example of the free-rider problem- those who use public goods such as public transportation don’t pay their full cost. This leads to a decline in the availability and quality of these resources as there’s a low incentive for individuals to contribute to them. To Glock, zoning policy is a good way to increase this incentive to pay for public goods and to help offset the free rider problem.

…some economists like Bruce Hamilton and others realized, well, zoning solves that problem. That, if you have zoning that determines how much property people could afford or should afford in these kind of competitive local suburban environments, and you had property taxes that were commensurate with the amount of zoning and amount of property that was allowed in these local governments, you basically had something that looked–kind of, if you really squint–a little bit, maybe like a business. That you have these owners who have a lot of equity invested in this area…And, they would have kind of a goal to maximize the value of their housing wealth, which can have both good and bad effects, but they would also have a lot of incentive to pay for good public goods.

Glock advocates for zoning policy because it encourages housing competition among local governments, as seen in areas where housing is relatively affordable, such as Nashville, Oklahoma City, and Houston. Glock believes this is because these municipalities emphasize single family housing with less restrictions, whereas California and New York emphasize multi-family housing developments, which don’t seem to affect housing affordability in a positive way.

…in those areas we know that have a lot of this single-family zoning, housing seems to be pretty affordable. You seem to have these very successful local governments. We know these local governments tend to be more competitive and more efficient by many measures than more distant, centralized governments. So, if you care about that kind of local competition in public goods and you want some sort of mechanism to encourage that, zoning is one means to do that.

This limitation of competition is another reason California’s housing prices have skyrocketed. Glock explains how in the 1960’s, LAFCOs (Local Agency Formation Commissions) exploded in California’s counties. These agencies are able to decide when new municipalities can be created. This of course led to rent seeking existing municipalities denying the creation of new ones. Glock believes that loosening these restrictions would make it much easier for people to grow new communities outside of those already established, hence increasing competition, and decreasing housing prices.

To counter Glock’s argument in favor of suburbanization, Roberts plays devil’s advocate and highlights urban sprawl; Glock pushes this aside with his view that urban sprawl can be a positive. Glock thinks that many of the arguments against urban sprawl are solutions searching for problems that sprawl can help ameliorate in the first place. He declares that there are in fact significant problems with urbanization, especially regarding the environmental issues typically attributed to suburbanization. Furthermore, Glock states that Americans have a preference for single family housing, so why not focus on how to make the suburbs more sustainable as opposed to seeking to eliminate sprawl?

So, why does Glock only propose two cheers? A large downside of zoning policy is the reduction in housing supply, especially if it’s too strict, as Glock believes it is in America. Glock doesn’t advocate for more zoning, he wants policymakers to examine the cases of successful zoning, and explore how those tactics can be applied to their respective constituencies.

Another drawback of modern American zoning policy is propagation of a form of bootleggers and Baptists problem. In the context of zoning, the Baptists are NIMBYs (not in my backyard), who favor zoning laws because they genuinely want to preserve the historical, aesthetic, or environmental aspects of the area they live in, whereas the bootleggers are those who could care less about the state of the neighborhood, but simply care about increasing the value of their property through decreasing local competition.

This problem relates to the question of why municipalities aren’t maximizing the value of their land. Glock’s answer is the flypaper effect, which is when municipalities receive additional funding, they don’t tend to spend it on improving public services, they tend to spend this money on special interest groups.

…there’s some studies on what’s known as the flypaper effect. That, if a government gets a ton of free money from usually a higher level of government or a boost in property taxes, do you keep it? If you were an efficient city manager, you should pretty much just return it down in tax cuts to people because you already had the right proportion of public services that you all wanted. And, what you find is small governments do that, by and large. If you have a small suburb that gets a boost in property taxes, they keep their total public service spending flat and they just cut taxes. The larger cities are much less likely to do that. They’re much more likely to have what’s called the flypaper effect: it sticks to that city and they use it for interest groups and log-rolling and all of the rest of it.

What are Glock’s solutions to the ubiquitous rent seeking and inefficient public spending, and poor incentives? More competition and subdivision to strengthen local governments, and restoring property taxes to internalize their benefits.

…when we’re talking about how we can force governments to do something which we agree they should do, which is build more, to me, instead of focusing on how we can create more state mandates, well, we should look at how we encourage them to build more. If we think there are gains from trade, if we think there are net benefits to be gained from development, which there are, how can we make sure that local governments, those areas have that incentive? And, one thing would be restoring property taxes.

After listening to this episode, I was left with some questions in addition to that takes outlined above. We hope you’ll take a moment both to consider them, and to leave a comment sharing your thoughts.

 

1- How might Glock’s proposed housing solutions affect the massive racial disparities in home ownership? A topic little discussed in this podcast was the impetus for zoning laws in the first place. What impact have these laws had on de facto segregation, and economic immobility for black Americans?

 

2- How might increasing competition among public schools through school choice result in fixing the poor incentives that an increase in the funding of schools and local services through state dollars?

 

3- Another policy that Houston has had success in addressing is homelessness, a topic not discussed in the podcast. What role can homeless policy play in alleviating the housing crisis?

 

4- One of Glock’s reasons for why urban sprawl isn’t as bad as people tend to think is due to the American preference for living in single-family homes. As one commenter pointed out, can Glock hold this perspective along with the reality of city-living being highly expensive, partly due to a large demand for condensed living? Furthermore, Americans are increasingly choosing not to have children, making suburban housing less reasonable. How will this shift in preferences change the impacts of urban sprawl in the near future?

 

Kevin Lavery is a student at Western Carolina University studying economic analysis and political science and was a 2023 Summer Scholar at Liberty Fund.