ECONOMICS OF THE
METROPOLITAN AREA
212G, SPRING 2013
Professor: Keren Mertens Horn
Office: Wheatley 5-78B
Office Hours: TR 2:30-4:00 pm
E-mail: Keren.horn@umb.edu
RECAP: SUBURBANIZATION OR
SPRAWL?
 People who call it suburbanization believe:
 That low density development outside the central city is a form of
urban growth, not a cause for alarm.
 That people have made optimal decisions about their residential
preferences, their employment and their commutes.
 Call this theory of suburbanization “natural evolution”
 People who call it sprawl believe:
 That poorly planned cities are expanding at unprecedented rates.
 That Americans would be better off if they lived closer together,
worked closer together, and used more mass transit.
 Call this theory of suburbanization “flight from blight”
 Today we will talk about how government regulates land uses
REGULATING LAND USE
Zoning!
WHAT IS ZONING?
 Zoning is “the division of a community into districts or zones
in which certain activities are prohibited and others are
permitted.” (Fischel, 1985)
 In each district, zoning codes define what types of buildings
are permitted or prohibited —ex/single family homes only,
permitted commercial uses like a laundromat
 Zoning codes also set limits on the size, bulk and location of
buildings—ex/how high they can be, how far from the curb and
from other property lines they must be set back, and how
much total floor area they can encompass
ZONING EXAMPLE
WHY ZONING?
 Zoning is a way of regulating land uses
 Economists usually suspicious of regulations
 “Blunt Instrument” – unlikely we will set level of regulation
appropriately to get to socially efficient output level
 Usually prefer prices, which can be adjusted towards the true
marginal cost of an activity (including external costs)
 Mechanisms such as taxes
 Ex/Pollution – tradable permits more efficient than regulations
 Under what circumstances may economists support
regulations?
 When health and safety are involved – costs of producing too much
are very high (ex/too many people on a ship)
 When its too difficult/troubling to place a dollar value on external
costs (ex/when changes are durable/irreversible, like destruction of
wetlands)
USE ZONING
 Classic reason for zoning, to separate land uses.
 What is the underlying problem that separating industrial
sites attempts to address?
 Use externalities
 Ex/Zoning out factories
 What are the specifics of this approach?
 Designates a list of allowable uses for particular spaces
 What are the expected market outcomes?
 Depends on whether externalities do in fact exist
USE ZONING –
WITH EXTERNALITIES
Rent
Zoning
Boundary
DWL no zoning
Dr
MSB
No Boundary
Dm
Distance from
Commercial Area
USE ZONING –
NO EXTERNALITIES
Rent
Zoning
Boundary
DWL
Dm
Dm2
Dr
Distance from
Commercial Area
USE ZONING
 If externalities are present than it could be ef ficient for the
government to set a zoning boundary.
 If they get the boundary right!
 Problem with using zoning to handle pollution?
 Doesn’t reduce pollution, just moves it around
 Alternatives: Performance Zoning
 City sets performance standards for each zone, polluting firms must
locate in industrial zones, cleaner firms can locate closer to
residential areas
 Encourages abatement because it gives cleaner firms more location
options
APARTMENT BUILDING?
USE ZONING FOR APARTMENTS?
 What is the justification for zoning out apartments?
 Traffic and noise
 Light and air
 Character of area?
 Other motivations usually highlighted
 Fiscal Zoning – since local jurisdictions are funded mostly by
property taxes, they have motivation to zone in uses that will
contribute to the tax base
 Want to attract households who are “fiscally neutral”
 Exclusionary Zoning – existing residents want to keep out different
types of residents from their neighborhood
 May be ways to internalize these external cost rather than
prohibiting them all together
 In practice communities sometime allow larger developments into
their neighborhood, and charge them a fee – exactions
ZONING AND SPRAWL
 How does zoning af fect the way our cities develop?
 Two sides of the argument:
 Large-lot zoning often blamed as contributing to sprawl
 Zoning in the form of tougher land-use regulations often seen as
saving us from sprawl
 Ex/Growth Controls
GROWTH CONTROLS
NO EXTERNAL COSTS
Rent
Growth
Control
S
DWL
D
100
permits
120
permits
Number New Homes
GROWTH CONTROLS
EXTERNAL COSTS
Rent
Growth
Control
S
DWL
MSB
100
120
permits permits
D
Number New Homes
ZONING AND POVERT Y
 Does zoning make low -income households worse of f?
 If zoning is not affecting the location decisions of low -income
households then it is possible that it has no affect on low -income
households.
 In cases where zoning prevents the construction of housing that could
be affordable to low -income households (exclusionary zoning), then
yes it does make low -income households worse off.
 Could zoning make low -income households better of f?
 Inclusionary Zoning?
 Smart Growth?
INCLUSIONARY ZONING
 Basic premise of most attempts to change zoning to help poor
people has been that exclusion is not a legitimate goal of zoning
 New Jersey Supreme Court Case – Southern Burlington NAACP v. Township
of Mount Laurel, 1983
Exclusionary Zoning unconstitutional
Response has been to mandate inclusionary zoning
 Under inclusionary zoning developers are required to set aside a
fraction of the units—often 15 or 20 percent—for sale or rent to
low -income people at below -market prices. In exchange they are
often given density bonuses so that they can build more housing.
 Like development tax – example
 Developer required to build 5 dwellings for lower income households and
loses $10,000 per unit
 This $50,000 cost will be spread across 50 houses, or tax will be $1,000
per unit.
 Cost will be passed onto consumers (housing prices increase) and
landowners (price of vacant land decreases)
SMART GROWTH?
 “Building urban, suburban and rural communities with housing
and transportation choices near jobs, shops and schools. This
approach supports local economies and protects the
environment.”
 Smart growth initiatives often include both growth controls and
mechanisms to ensure the development of affordable housing
 Example
 Massachusetts governor Deval Patrick announced a new policy initiative
designed to encourage diverse, walkable neighborhoods that use land
efficiently
 If towns meet certain criteria will get preferential treatment in
applications for state assistance funds
 Municipality must adopt an “as-of-right” zoning district that provides:
 Minimum density of 8 homes per developable acre for multifamily housing; 4
units per acre for single-family homes
 At least 10 percent of homes must meet affordability criteria (unless a project
includes fewer than 12 homes in total)
 A policy of inclusion that does not restrict occupancy due to “age or any other
form of occupancy restrictions”
DISCUSSION QUESTIONS FOR
THURSDAY
 Do you agree with Yglesias (Economist article) that perhaps
giving low income households a check may be a better use of the
same limited resources than creating affordable housing through
inclusionary zoning programs? Please support your argument.
 Why do you think Governor Patrick would support an initiative to
“encourage diverse, walkable neighborhoods that use land
efficiently” in Massachusetts?
 Do you think that Dublin, Ohio’s land use initiatives (specifically
creating a walkable, lively, mixed -use district with a master plan
and appropriate rezoning to support this district) could be
successful in attracting members of the Millennial generation?
Why or why not?