URBAN ECONOMICS

C. Zoning and Growth Control

1.  Land use zoning

• Designate appropriate uses for land in a city

• Not necessary in early days because transportation technology limited land use locations

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• Innovations in transportation technology allowed more options for businesses, high density housing

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a. Legal environment of zonina

• Standard State Zoning Enabling Act (1926) - U.S. Department of Commerce

• Police power - control private behavior to promote public health, safety, and welfare

• Criteria for constitutionality of zoning:

(1) Substantive due process

• Zoning must be for legitimate purpose using reasonable means

• Zoning legitimate if some benefits generated - monetary, physical, spiritual, aesthetic

• Key court case: Euclid v. Ambler (1924)

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(2) Equal protection

• Must be applied in non-discriminatory manner

• Zoning requiring diversity considered okay by courts

• Key court cases:

- Ybarra v. Town of Los Altos Hills - zoning that discriminates according to race is illegal, but income discrimination is legal

- Southern Burlington County NAACP v. Mount Laurel - exclusionary zoning hurt low-income outsiders, low and moderate price housing required

- Associated Home Builders Inc. v. City of Livermore - zoning judged on impact on both insiders and outsiders

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(3) Just compensation

• Taking clause - landowner must be compensated if land taken away by government

(a) Physical invasion

• Compensation required if government occupies land

(b) Diminution of value and reasonable beneficial use

• Compensation required if zoning reduces value by a large amount - uncertain about what is large amount

(c) Harm prevention

• Compensation not required if zoning is to prevent harm

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b.  Role of zoning

(1)  Zoning and externalities

• Land use generates negative externalities

• Separate land uses that are incompatible

(a) Industrial externalities - noise, glare, dust, odor, vibration, smoke

• Keep industrial uses in one area

• Doesn't reduce pollution

• Pollution taxes more effective

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(b) Retail externalities - congestion, pollution, noise, parking problems

• Keep retailers in one area

• Alternative is to set performance standards for parking, traffic, and noise

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(c) High density housing externalities - traffic, congestion, noise, shortage of parking, deprivation of views

• Keep high density housing in one area

• Alternative is to set performance standards for off-street parking, street improvements, and building design standards

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(2) Fiscal zoning

• Public services financed with the property tax - exclude uses that cost more in services than bring in in tax revenue

• Commercial and industrial typically generate large revenues, little cost

• High-density residential most likely to cause fiscal deficit or higher tax rates

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• Decrease likelihood of deficits by zoning for minimum lot size

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(3)  Zoning and density externalities

• Noise, congestion, parking, loss of green space, blocked views

• Negative externality => too much is density is consumed

• Impact on land markets:

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2. Growth control

• Put limits on residential development to limit population growth

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a. Limits on building permits

• Building permits required to develop land for housing

• Restrict number of building permits issued

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• Consequences:

- Equilibrium price of housing increases

- Cost of producing housing decreases - demand for land decreases, price of land decreases

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• Permits distributed by auction to highest bidders, point system to rank development proposals

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b.  Development taxes

• Builder must pay a development tax on new dwellings

• Try to cover cost of public services (roads, sewers, schools, parks) to new development

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c. Urban growth boundaries

• Control population growth by limiting land area of a city

• Urban growth boundary - no development beyond a boundary

Ex. - Portland

• Urban service boundary - refuse to extend urban services (sewers, roads, schools, parks) beyond a boundary

Ex. - Boulder

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(1)  Impact on housing market

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(2)  Impact on land market

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(3)  Winners and losers

• Price of land outside boundary decreases to agricultural level

• Price of land inside boundary increases

• Renters hurt by higher land and housing prices

• Existing homeowners benefit from higher land and housing prices

• Newcomers hurt by higher land and housing prices

• More public space, less private space (higher density)

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d.  General equilibrium impacts

(1)  Impact on labor market

• Growth boundary reduces labor supply =>  wages  increases => costs increase

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(2)  Impact on regional economy

• People migrate to city with higher utility => drives up price of land

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