Land-use policy needs to rely on markets
Michael Hamilton is a libertarian writer living in Washington, D.C. His main interests are economics, drug legalization, immigration, and land-use policy.
“The plans differ; the planners are all alike.” — Frédéric Bastiat
It’s common to hear libertarians pejoratively referred to as “Republicans who smoke pot,” the idea being that libertarians don’t really favor freedom in areas where it would lead to outcomes they do not like. For the most part this is false. There is one policy area, however, where this is an accurate criticism: land-use policy. On this issue, the dominant libertarian narrative does not live up to its name.
The narrative, to put it briefly, is that most Americans prefer detached, single-family homes, and zoning laws reflect this for the most part. Save for eliminating certain regulations aimed at curbing sprawl that make homes expensive such as open space rules or growth boundaries, it says policymakers should avoid making major changes to traditional zoning laws lest we fall into the hands of the “planners” and have to live under “smart growth” policies. The narrative associates suburbs, homeownership, and cars with mobility and better living. Libertarians main goals, so it goes, should be relatively inexpensive (or at least not “artificially expensive”) single-family homes and decent traffic. Note that libertarians who support traditional zoning do not consider themselves planners
This narrative is not only wrong, but distinctly unlibertarian. Before I attack it, two small concessions:
First, smart growth is something that libertarians should oppose for both philosophical and utilitarian reasons.
Second, a lot of Americans do choose to live in single-family, detached homes. For the past seventy years, most residential buildings have been single-family, detached homes, and this is unlikely to change in the future. While I think the location and number of single-family homes was altered by government interventions, I don’t think that everyone will live in dense neighborhoods absent these interventions.
However, demonstrating that smart growth is not a libertarian urban development strategy, or that suburbs are vibrant, is insufficient to demonstrate that traditional zoning is a free-market or libertarian policy. In addition, this narrative conflicts with the most common conceptual frameworks libertarians use for understanding policy—public choice theory, spontaneous order, and rule of law.
The first problem with the ‘libertarian’ work on land use is the way it is framed. According to them, there is a struggle between people who support traditional zoning and single-family homes, and smart growth advocates imposing urbanism on others.
A libertarian shouldn’t care one way or another about how people choose to live so long as they do not victimize others. Whether American cities take the form of Gotham or Mayberry, libertarians should instead care about the process through which this is accomplished. One of the most basic tenets of libertarianism is that market processes—which involve voluntary interactions between millions of individuals—should direct economic action.
Writers like Wendell Cox, who has written for libertarian organizations Reason Foundation and Foundation for Economic Education, constantly critique smart growth for causing home prices to rise and say these are the “predictable” outcomes of government intervention. Somehow, it escapes their attention that traditional zoning is likewise a government intervention with predictable, similar, outcomes.
For libertarians, the basic unit of social analysis is the individual. Zoning, with its attendant restraints on voluntary action and market processes, pits the individual against the state. This is true whether or not the state actors who control zoning prefer suburbs (traditional zoning) or dense cities (smart growth). Both approaches determine lot sizes, parking policies, height limits, and setback requirements through the political process. Both require developers who wish for an exception to the rules to go through a costly entitlement process
The preferred policies of most ‘libertarian’ land use writers suffer from what F.A. Hayek called the knowledge problem. Support for traditional zoning because it delivers the type of city that one prefers might sound plausible to conservatives, but it should sound like an out-of-tune piano to a libertarian ear. As Hayek wrote,
“The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. The economic problem of society is thus not merely a problem of how to allocate “given” resources—if “given” is taken to mean given to a single mind which deliberately solves the problem set by these “data.” It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality.”
Cities—like economies, languages, and law—function best when they result from Hayek called spontaneous order. Rather than affirm the kind of development people want, land-use regulation has instead supplanted the only mechanism that could possibly tell homebuilders what people want: the price system. Zoning has distorted the price signals that owners of capital would employ to determine how to put their land and existing buildings to use because zoning has designated almost all desirable land as off-limits to any kind of development other than what it is currently used for. At the same time, people choosing where to live face different prices and types of housing than would have been offered by the free market. The result is an inefficient, man-made mess.
Central planning, i.e. zoning, causes resources—land, building materials, money, and time—to be spent inefficiently. Not only would a market have allocated all of these resources more efficiently than city planners could have (i.e in a spontaneous order), but our cities would have taken a largely different shape over the last 86 years. It is impossible to estimate the scope and magnitude of the losses incurred throughout the economy, but these are the unseen costs that libertarians routinely warn of in other policy areas. So too should it be with land use policy.
A Hayekian approach should also make a libertarian wonder how traditional zoning advocates were able to determine what people want, and whether traditional zoning has delivered it. As economic information is dispersed across millions of people all over the country, and their preferences for housing to purchase or build is weighed against every other option and also against every other good they desire, I suspect that no single person could ever determine such a thing. That preferences and populations are constantly changing makes such a determination even less likely.
Land use regulation, as carried out in most cities, is also incompatible with the libertarian concept of rule of law. As Hayek outlined in his greatest work, Law, Legislation, and Liberty, Volume One, a free society should be “restrained only by rules of just conduct of universal application” and is most likely to achieve the ends valued by individuals under such an arrangement. Or, as David Boaz put it, the law should “not aim at any particular result or outcome.”
Zoning codes, and the permitting process that accompanies construction, are the antithesis of this concept of law: anyone who wishes to build or remodel a building has to go through a process that will, at some stage, require a bureaucrat or commission to approve or deny a plan based on his subjective judgement or tastes, with the goal being to ensure a particular outcome or type of city.
Land use regulation can seem, at first glance, to be primarily based on general rules. This is the case in places like cities like Washington or Houston (often falsely cited as having ”minimal land use restrictions”). However, these cities usually create such restrictive rules that many desirable, standard land uses fall outside the “as of right” development allowed by law, and force developers to seek a variance. Depending on how far outside of the code individuals wish to build, they are subject to different levels of discretion by local bureaucrats. In some cases, when developers wish to build far outside of what is allowed, they have to go through the nightmarish “planned unit development” process, as they call it here in D.C. As libertarians have pointed out in regard to criminal justice, discretion invariably leads to corruption. Even if it were the case that city planners usually approve buildings that exceed zoning codes, public choice theory suggests it would be foolish going forward to rely on the benevolence of the state instead of creating rule-based laws that respect individual’s rights to develop their property.
One reason zoning laws are so popular is that they give people within a political jurisdiction what amounts to a veto over any project that they do not like, or that they feel will change the character of their neighborhood. In the absence of this arrangement, these same people would either have to purchase the land in question or compensate developers to prevent them from building projects that don’t suit current residents’ tastes. Instead, zoning allows them to stop development for free, in what amounts to stealing through regulatory takings.
It is important to note here that the types of land use regulation preferred in the dominant libertarian narrative do not primarily address legitimate problems such as nuisance or other harms that libertarians rightfully seek to address in law. Nor does it deal primarily with ensuring that developers do not overwhelm public utilities or pass negative externalities onto third parties.
When viewed through these conceptual frameworks, the policy supported by the dominant libertarian narrative isn’t all that different from the authoritarian smart growth policy that it opposes. These ‘libertarians’ shouldn’t be surprised that the state apparatus they want to control land use is operated by people with differing goals at least half the time. An actual libertarian policy alternative would move towards a development process that is rule-based and focused on the rights of individuals, not particular outcomes such as single-family homes, density, sustainability, or walkability—whatever the merits of each.
Contrary to what is often written on land use policy, I see no reason why people who enjoy suburbs should necessarily oppose those who support density and urban living. Under free-market conditions there is room for both to live as they please. The only caveat is that the market will determine where skyscrapers and single-family homes are built, and that people would have to pay the full costs associated with living in either arrangement.
We need only to agree to let others live as they choose. Shouldn’t this be the default position for libertarians anyway?
Post-script: I am obviously not the first libertarian to write about this issue, and I have barely touched the economics behind it. For ongoing, in-depth coverage, I suggest following Emily Washington and Stephen Smith at www.marketurbanism.com. For academic work, I suggest papers by Ed Glaeser, and GMU’s Alex Tabarrok has a book on this issue. Matt Yglesias, full-time non-libertarian, is libertarian on housing policy.