Think Locally, Upzone Globally

September 29, 2023

Overly restrictive zoning is a major factor contributing to the housing shortage and affordability crisis. In a new paper, Jack Y Favilukis and Jaehee Song present a new theory to explain why some municipalities have more restrictive zoning than others: the metro area’s level of fragmentation.

The authors find empirical evidence that metros that are divided into more jurisdictions have more restrictive zoning. Where zoning decision-making is very decentralized, voters and policymakers often think very locally and support restrictive zoning in their own small community, but they fail to internalize the costs of restrictive zoning on the metro as a whole.

Key takeaways:

  1. Metro areas that are split into more administrative entities, i.e. are more fragmented, have more restrictive zoning. Administrative fragmentation alone explains 18 percent of the variation in residential zoning across US metros.
  2. If a moderately decentralized metro had a centralized planning authority, its zoning is 38 percent less stringent.
  3. This research has clear implications for public policy: make zoning decisions less hyper-local.

Favilukis and Song use a weighted average of minimum lot sizes to approximate each metro’s zoning restrictiveness. A larger average minimum lot size corresponds to more restrictive zoning. They estimate administrative fragmentation using a Herfindahl-Hirschman index, which are commonly used in economics to estimate the level of competition in a marketplace, though here it measures centralization of governance. 

More fragmentation is significantly associated with larger minimum lot sizes. It is also a strong predictor of a metro’s Density Restriction Index from the Wharton Land Use Survey, a commonly used measure of zoning stringency.

The authors theorize that homeowners benefit from more restrictive zoning in their neighborhood because it tends to raise house prices and reduce congestion externalities. But when every neighborhood has restrictive zoning, it increases housing prices across the metro which discourages in-migration. 

The decreased number of immigrants can, in turn, reduce the metro’s population and have a chilling effect on the metro’s economy – if every neighborhood wants to have restrictive zoning, it hurts the whole metro. (See also the entire state of California.)

If zoning decisions are made at the metro- or regional-level, you can expect that decision- makers will be thinking more globally and design zoning that is more socially optimal for the metro as a whole. 
California is home to several very fragmented metropolises. (Los Angeles County alone has 88 cities, not including special infrastructure districts or school districts.) Strengthening the authority of the State and regional bodies to set zoning and planning policies, as California has already begun to do, may help us solve many of our zoning problems.

Photo of Venice California by RDNE Stock project