Land Use Planning Tools Lecture 3: Economics of Zoning

Zoning andZoning and

Land use Land use ControlControl

Zoning andZoning and

Land use Land use ControlControl

Land use controls correct for:

Negative externalities External benefits Public goods Services with big scale

economies (natural monopoly) Merit goods Equity and distribution

Four cornerstones of regulationFour cornerstones of regulation

1.1. Comprehensive plans Comprehensive plans

2.2. Subdivision ordinancesSubdivision ordinances

3.3. Capital improvement Capital improvement planningplanning

4.4. ZoningZoning

History of ZoningHistory of Zoning

Earliest zoning laws were segregationist New York (1916) zoning law—5th avenue

retail businesses wanted to limit garment workers; law limited growth of office buildings and garment factories; ostensibly to reduce negative effects of tall buildings

San Francisco- zoned out laundries from certain neighborhoods, which happened mostly to be owned by Chinese.

Later zoning became a means for growth management: to keep new development in line with available facilities

What exactly is zoning?What exactly is zoning?

Zoning purposes: limit overcrowding/overbuilding relative to

public services and facilities ‘stabilization’ of neighborhoods segregating incompatible land uses

Zoning types: nuisance zoning fiscal zoning, and design zoning

Tools: ordinance and map Players: Elected officials, planning commission,

development review board, Zoning staff

What does zoning regulate?What does zoning regulate?

UseUse: activities permitted within zone BulkBulk: envelope in which building must fit—

specified through setbacks, building coverage, building heights, floor area ratio (ratio of building to lot square footage)

Performance/impactPerformance/impact: performance standards, or impacts a building is allowed to produce; biggest example is parking spaces

Nuisance ZoningNuisance Zoning

Classic example: used to separate heavy industry and residential zones to protect against externalities (noise, smell, pollution)

Separation is most simplistic way of dealing with external effects of industry

Problems:Doesn’t reduce these effects—just

moves them aroundSpillover: an industrial zone may be

far from residents in the municipality to which it belongs, but close to residents over the border

Fiscal/exclusionary zoningFiscal/exclusionary zoning

Used to exclude households that impose financial burden on city, i.e. tax burden less than services consumed.

This is often the case for high density households, households on the fringe and new commercial/industrial development

Dense housing contributes less in property tax because housing is worth less

Exclusionary tools: setbacks, min lot size

Design zoningDesign zoning

Planners design a city arranging activities to promote the efficient use of the city’s infrastructure

Mechanisms: Direct Development (TD) Transferable Development Rights (TDR)

Zoning Tools: Zoning Tools: designationdesignation

Zone designation/changes: geographic designation of what places are in what zoneGenerally requires legislative approval and

public hearing at local level Spot zoning: grants one parcel of land a

zoning different from rest of a neighborhood

Strengthening of general plans in many states makes it harder to manipulate zones because change must be consistent with GP

Zoning tools: Zoning tools: variancesvariances

Variances: gives landowner an exception to break some zoning rules in a zone. Use variances: permits otherwise

unacceptable use without change of zoneVariance from standards: allows use that

doesn’t meet standards that others must meet

Ostensibly for “hardship” exemption: if some feature of land makes it impossible to make use of it under existing zoning (e.g. big boulder)

Courts are divided as to what is “hardship”

Variances and PlanningVariances and Planning

Variances are often used as a development tool, to get around established policies

Variances circumvent government decision making process and vests quasi-judicial powers in planning body because it is construed as administrative and not policy

Insidious way of shielding policy decision from public input and debate; it is really a disguised zoning change without the legislative approval

Zoning tools: Zoning tools: discretionary discretionary reviewreview

Attaches conditions to certain uses to make sure uses in a zone are compatible

Based on conditional use permitting: triggers planning or design commission review of project

Generally requires some public input Used to get more leverage over

developers

Other zoning termsOther zoning terms

Non-conforming uses Inclusionary zoning

Density bonuses Planned Unit Developments

Separate zoning ordinance written for one specific development; standards appropriate to that particular project

Often used interchangeably with “specific plan,” which is both a planning and implementation tool

Later zoning Later zoning developmentsdevelopments

Citizen participation requirements for planning

Performance zoning Inclusionary zoning Transfer of development rights Adequate facilities ordinances Impact fees Effluent Fees

Performance zoningPerformance zoning

Intermediate approach; it gives lower impact firms more options in location

This is often used for retailers or large apartment buildings to reduce their impacts on mixed-used residential neighborhoods

E.g. requiring parking spaces to reduce off-street parking, noise control, landscaping, street improvements to offset congestion

Inclusionary zoningInclusionary zoning

Developers get a density or parking bonus, or fast tracking in return for setting aside a certain portion of units in a development as “affordable” or below-market price

Affordability defined often as less than 1/3 of income of someone earning somewhere between 50 and 80% of median income

Usually the affordability clause gets passed on with the title to the house, or included as a deed restriction

Adequate facilities ordinancesAdequate facilities ordinances

Existence of adequate facilities (e.g. sewer, fire, water, roads, schools) becomes pre-condition for development approval

Often requires complex modeling to determine capacities and impacts

Report details where facilities are ready and where development must wait

ProblemProblem: what is adequate? Hard to monitor and assess consumer demand; hard to assess capacities and marginal impacts; always changing

Transfer of Development RightsTransfer of Development Rights

“Macro-architecture” Example: 50 acres vacant land, 25 N and

25 S City wants to have 500 new households Initially, both areas are zoned for 10 units/acre Policy alternative:

zone south for 20 units per acre= 500 unitszone north for open space

Southern landowners gain at the expense of northern, because N land is nearly worthless

Transfer of Development RightsTransfer of Development Rights

Instead city could establish a development zone (south) and preservation zone (north)

The south owner can develop 10/acre in the south. The north owner cannot develop on their land but has development coupons worth 250 units, which can be used to override zoning restrictions in north

Then south owner can buy the coupons at market rate to put in denser development

This helps compensate north owner for reduction of market value of land

Impact feesImpact fees

In fringe land, property tax revenue of new housing may be less than cost of services

This puts a burden on non-fringe residents Policy options:

Zone vacant land agricultural Impose a tax surcharge for new

developmentLevy a one-time impact fee

Impact feesImpact fees

Developer compensates local governments for fiscal burden of new development in terms of increased service use

If market is competitive and developer makes zero profit, cost is passed on to homebuyers, through higher housing prices, and to landowners, through lower land price

Often imposed for water, sewer, roads, parks, fire

Pricing of fees regulates type and magnitude of development

A market alternative to zoningA market alternative to zoning::Effluent FeesEffluent Fees

An approach that deal with those problems is to “internalize” the costs of externalities—that hidden costs to society—using effluent fees

Fee should equal marginal social cost; if it does, then have efficient pollution level; firms reduce their pollution output based on fee, until optimal

Effluent FeesEffluent Fees

A spatial system of fees should also generate optimum spatial distribution of external effects

As move closer to houses, marginal external cost increases, and so fees do too

Therefore firm chooses location that minimizes their pollution impact relative to the added transportation costs for workers

Effluent fee exampleEffluent fee example

The example assumes: residents live in west side, commute to

east to polluting mill The longer the commute distance, the

higher the wage, because of compensation for commuting cost

The farther from the mill, the lower the effluent fee for the factory

Initial state: zoning policy where mill is 10 miles from residential area

Optimum location for millOptimum location for mill

Distance from residential area

costs

Total Total costcost

Labor Labor costcost

Pollution costPollution cost

$53

4.2

Cost minimizing location;

Pollution cost= effluent fee

The Firm will locate

here

Effects of effluent feeEffects of effluent fee

Mill moves from 10 miles to 4.2 miles It moves there because their labor costs

are too high if they are farther away than 4.2 miles and their effluent fee gets too high if they move any closer

So under zoning, they were inefficiently far from the residential area

Firm will stay far out if pollution cost curve is steeper than the labor cost curve

Why effluent fees are rarely Why effluent fees are rarely used?used?

Setting effluent fees is complex because must estimate marginal social cost for different locations in city and must monitor pollution/externalities

Effluent fees may result in increased pollution in some neighborhoods

Zoning is simpler