Zoning and Its Discontents

Transcript

[00:00:05] Anthony Flint: Welcome to Episode 2 of Season 7 of the Land Matters Podcast. I’m your host, Anthony Flint. Of all the major Supreme Court decisions of the 20th century, there’s one that stands out for shaping the way we live and the physical contours of the American landscape: Village of Euclid v. Ambler Realty Company, which affirmed that cities and towns could institute zoning as a way to regulate all growth and development.

The case came out of a suburb just east of Cleveland in the 1920s when a real estate company sought to use their land for industrial development. The town said no, we want that area to be residential. Ambler Realty sued and the case made it all the way to the Supreme Court. The justices backed the Village of Euclid and in so doing provided constitutional blessing to the basic concept of zoning that we all see in color-coded maps to this day, homes in one part of town, commercial and retail in another, and manufacturing and industrial uses in yet another.

At the time, Justice George Sutherland made the comment that a factory shouldn’t be in a residential area any more than a pig in a parlor. He also said apartment buildings shouldn’t be mixed in with single-family homes, saying the presence of residential density was like welcoming in a parasite. Strong words from Justice Sutherland, to be sure, but from that point on, thousands of municipalities followed the template of separating uses and spreading them around. That was in 1926.

Understandably — not everybody might be aware of this –but scholars and policymakers and others are actually marking the 100th anniversary of the Euclid decision. It’s not so much a celebration but a reconsideration of the landmark ruling, looking at the effect that’s had 100 years later and essentially reassessing what has come to be known as Euclidean zoning itself.

Some 33 states have passed reforms to allow more density in zones once reserved for single-family homes only, and to promote the concept of mixed use, blending housing with shops, restaurants, and workplaces all within walking distance — basically the kind of neighborhoods that Euclid made illegal. The critique suggests that American zoning is outdated and hasn’t kept up with the times, and perhaps, most important, has made housing unaffordable and racially segregated.

With us today to unpack all of this is William Fischel, a professor emeritus at Dartmouth College and author of the book, Zoning Rules, published in 2015 by the Lincoln Institute. That volume is cited in the early pages of Abundance by Ezra Klein and Derek Thompson, who blame excessive regulation for blocking housing and infrastructure projects. Fischel is also the author of The Homevoter Hypothesis, an explanation of how mostly single-family homeowners tend to resist any changes because they’re worried about property values. We’ll discuss that in just a bit.

I should add that Fischel was the keynote speaker at a symposium at George Mason University earlier this year, co-sponsored by the Mercatus Center, the Pacific Legal Foundation, and the Journal of Law, Economics, and Policy, which was featured in Bloomberg City Lab and Land Lines Magazine. He’s a great friend of the Lincoln Institute and served with distinction for many years on the board of the organization. Bill Fischel, welcome to the Land Matters Podcast.

[00:03:31] William Fischel: Thank you, Anthony. Good to be here.

[00:03:33] Anthony Flint: Let’s start toward the beginning of all this, the advent of zoning in the US. One of the fun facts I discovered while researching some of this is that zoning was imported — along with the delicatessen — from Germany after the turn of the last century. Why and how did zoning come to be the go-to policy for guiding growth and development in this country?

[00:03:55] William: Edward Bassett, considered to be the father of zoning: he and other people went to Germany. Germany was the place you went for advanced civilization. In the twenties before World War I, Germany was the high point of culture and science and social science as well. Bassett and some other people went to Germany and studied zoning. He came back with the idea that you could have comprehensive zoning.

Now, comprehensive zoning in Germany turned out was different from comprehensive zoning in the United States. That is, the United States massaged it quite a bit. In Germany, the idea was to split the city into something like thirds, like a pie wedge, so many pie wedges or pizza wedges, where businesses would be in the center, a logical place for them, and along each pie wedge would live the people who worked in that particular industry.

This was to save transportation costs, so you could go back and forth, so all the workers going to the same place could go to the same place at home, regular commuting instead of going in circles and so forth. If you were in the metal industry and there was a metal factory, the metal workers and their bosses would live outside. Now, the bosses lived in nicer homes, maybe a little farther out. It wasn’t like there was great intermixing, but there was this segregation by occupation. That didn’t go anywhere in the United States. We had company towns and things like this where people lived around the factory and so forth.

The zoning that occurred in the United States was really separating residential from commercial from industrial. I grew up in Bethlehem, Pennsylvania, where they had a great big steel mill. Workers clustered around the plant. A lot of people walked to work because they couldn’t afford a car, or it was just more convenient. The clustering was natural there. The separation of uses, commercial from industrial and so forth, was a feature of American zoning from the get-go. I think that was what made it fairly attractive.

[00:05:51] Anthony Flint: Now, there was also some thinking in the progressive era at the time about the health impacts. Can you talk a little bit about that, this idea that congestion and tenement houses and housing of any kind being close to a smelter or a tannery and all of that?

[00:06:08] William Fischel: There was certainly that. The big progressive move actually had occurred in the late 19th century that made cities much more livable. They got decent drinking water, and they dug sewers, got the waste out of the neighborhoods, at least. Those were great advances in public health.

Once that was fixed, people, as people do, want to go to the next best thing, and that is, “Let’s not have these noxious fumes from our factory.” If you’re a steelworker, you endure it during the day, you’d rather not endure it at night. You’d like to be a little farther away from the blast furnaces. That was part of the story. This was an issue that could be fixed by distance.

The plant operators in Pittsburgh got together and said, “It’s so damn polluted, people don’t want to live here. We can’t recruit executives to come from other cities because it’s so polluted.” They actually collectively, along with the state of Pennsylvania, restricted the plants themselves, reducing pollution, relocating them so they weren’t so close to the residents, and more or less cleaned up Pittsburgh by the standards of the time. That was a big accomplishment.

The thing that brought on zoning was the desire for single-family homes. That was usually not a problem when there was simply distance involved. What upset that equilibrium was the invention of the automobile. The automobile, and most importantly, the derivatives of the automobile, something called the motor truck and a jitney bus — a jitney bus was a small bus almost always privately operated that just cruised around neighborhoods, picked up people, and took them to work or took them shopping or whatever. It’s like an airport bus now today in its capacity, not in its comfort. The cheap car and the cheap truck and cheap motor bus made industry and apartment dwellers footloose. They didn’t have to walk to work anymore. The industry could put parts of their business, maybe all of their business, out in much cheaper land in the suburbs.

The industry was suffering from congestion by the docks or by the railhead, competing with other businesses. They say, “Let’s move the warehouse out in the suburbs here. We’ve got this tract of land.” Put up a warehouse or put up some storage place or put up a back office operation. They could do that now that they could truck things from one place to another pretty easily. They didn’t have to be stuck to rail lines or trolley lines. That’s what made the single-family house vulnerable. It couldn’t be cured by distance anymore. It had to be cured by something else.

Eventually, developers in California led the charge here. Everybody was moving to California in the early 20th century, emptying out the Midwest. Developers wanted single-family homes. They wanted that single-family house in the suburbs, out in Pasadena and outside central Los Angeles.

The developers in Southern California faced up to this problem and said, “We need to adopt some collective action.” They got the city of Los Angeles to let them establish their own residential districts. It was really the first zoning laws. The problem that came up in Los Angeles was that industry was having a problem finding a place to locate.

The classic case, Sebastian v. Hadacheck … Mr. Hadacheck had a brick factory. He had it downtown Los Angeles. Residential development occurred around his brick factory. You’d think they would have smelled it first, but there they went. They established one of these residential districts and said, “You’ve got to get out of here. Sorry, Hadacheck. You can’t stay here anymore. You’re in the wrong zone.”

Hadacheck moves away, a couple of miles away, and it’s open land. He builds up his brick factory. He has a brick truck. He’s got that Henry Ford derivative invention of a truck. He can move his bricks. He’s happy as a clam until somebody develops a residential area right next to him. Same thing, deja vu all over again, as Yogi Berra would say. He gets zoned out. He takes this case to the California Supreme Court. The California Supreme Court says, “Too bad. First in time is not first in right.” If you’re making something like a nuisance or a brick factory, they’re not pleasant to be next to. He takes it to the US Supreme Court. The US Supreme Court says, “Too bad. Sorry, Hadacheck. You have to move.”

Los Angeles turns around and says, “We have a problem here. Our problem is we got lots of residential land, but we have no place for them to work. We have no place for them to put brick factory. We can’t do anything if we can’t have our business.” They invent the exclusive industrial zone.

On the other side of the river, no houses allowed, at least no new houses allowed. Industry is free to locate there. Once they do that, they have something that looks comprehensive. Just before they do that, New York comes up with it’s comprehensive zoning. My friend, Edward Bassett, writes the zoning law, pretty much, and separates commercial and apartments and so forth in all five boroughs. New York City is a big place, even bigger than Los Angeles back then. Those two events are the birth of zoning.

[00:11:36] Anthony Flint: Now, there’s another theme underpinning some of this in zoning, and that is racial segregation. How did zoning end up becoming a tool to set down the rules for who lived where?

[00:11:49] William: Modern zoning and zoning stemming from Euclid was not who lived where, but what you could do where. It wasn’t a matter of Jones and Smith have to live on this said street and Brown and White have to live on the other side. It was about residential versus commercial versus industrial, and always the size of that house and so forth.

The mix-up, the mash-up here, and I think people are understandably both confused and concerned by this, is that there’s a case before Euclid called Buchanan v. Warley. In Buchanan v. Warley, it started in the border states of the South: Maryland, Kentucky, Tennessee, and Missouri, and so forth. Prior to World War II, a lot of industry is starting to develop, partly generated by demand for US products from the outbreak of the war.

Lots of Black people are coming to these cities. They’re sick of being sharecroppers and being discriminated against, and so they move north to cities. The cities of the border south are quite unwelcoming to Black residents. They’re okay with them in their factories, but they want them to live in their own place. There’s no law that says that Black people have to live in this section and white people live in that section, so they make a law that says exactly that. The law says, “In this area, wherever there are majority whites located in a block, then Black people cannot live there, either rent or buy, except as servants.” This is really virtually an apartheid ordinance.

This law is taken to the US Supreme Court, Buchanan v. Warley, nine years before Euclid, hears the case. It takes a look at the 14th Amendment of the United States, which says life, liberty, and property shall not be denied them anyway. It says, “No, this violates the Constitution and strikes down the law unanimously.” Conservative, liberal, everybody in between says, “No, that will not fly.”

Some of the cities go and try and tweak it a little bit. They see this thing called zoning. Zoning comes in after this and doesn’t mention race or anything about the characteristics of people who might occupy. It just says use. It divides things up. There were residential zones. There were residential zones that allowed apartments. There were commercial zones. There were industrial zones. These zones, in ways that you’d look back at it and say, “It looks sensible.” The residential zones are along these loopy streets that you see in suburbs that were popular back then. The main drag is zoned for apartments.

What Euclid does mainly is says, “It’s okay to separate these uses. We’re not giving you standards as to how to separate them. We’re not telling you what the property is. You’re not telling us you can separate by race. We already struck that down.” Cities kept attempting it, and the courts, even the state courts in the South, were striking it down. It never got any real traction. Zoning, on the other hand, blasted out the gate once the Supreme Court said, “Okay.” The irony here is that developers now complain about the zoning regulations and so forth. Zoning was a developer idea.

[00:14:54] Anthony Flint: All of these threads continue to intertwine through the Great Depression and World War II, through the well- documented practice of redlining certain areas to be eligible for mortgages, the prevalence of racial covenants, on through with the development of places like Levittown and increasingly larger lots that only certain people can afford.

What’s so remarkable is that these rules got so locked in, as you point out, with the owners of primarily single-family homes buttressed by environmental laws and the growth management movement, at least since about 1970. Can you talk a little bit about why it was effectively defended for so long and, of course, continues to be, and that is this idea of nimbyism or not in my backyard?

[00:15:39] William Fischel: I’ve been studying zoning for 50 years. I looked at zoning and I thought it looked too restrictive from an economics point of view, but I said, “Why is this?” I needed to understand not just how zoning operated, but who was behind zoning. I looked around and was on the Hanover (New Hampshire) zoning board. I’m looking at who’s showing up at my meetings. They’re homeowners.

Asking myself, “Why are they going on about these proposed developments near their homes that look perfectly benign to me, better than most, and going on like the earth will end if this project gets done?” It hits me in a financial sense that these people, homeowners like myself, maybe like you, have a very large asset in their financial portfolio.

I’m thinking like an economist. This asset, unlike stocks that you might own, is not diversified. My pension fund is diversified. If General Motors goes south, Tesla will take up the slack, big deal, diversified portfolio. Most of my other assets, about half of my assets, I would estimate, are in my home. If that goes south, there’s no diversification. I can’t pick up my home and move it to another neighborhood. I can’t put my home up in parts and sell it to other parties to make a mutual fund out of it. I’m stuck with a very undiversified asset.

I developed the idea that homeowners are acute, overly, acutely aware of the risk, not just the value, the risk that their home endures because it’s in one place, in one industry, in one location, and they’ve got to defend it. They have to defend it more than you would think would be rational because they’re not just thinking about the expected outcome, they’re thinking about the risk. They show up at the zoning board and behave like they’re irrationally concerned when they’re not irrationally concerned. They’re NIMBYs. They’re not in my backyard.

Now, these people are not terribly effective until 1970. The environmental movement gives them a tool to run around me on the zoning board, to go to court and have the courts decide this. Now, the courts might be sensible places to do, but they take time. For developers, time is money. They’ve bought the land on a loan and they’ve got to pay interest. The bank is not waiting for them. They make compromises. “Oh, we wanted to have quarter-acre lots here. How about I make them half-acre lots or 2-acre lots or something like that?” Low density zoning because I can’t wait for you to decide.

Then lots of the environmental laws become really fussy about things like wetlands. Doubles the amount of land that is taken off the market where developers can’t go or they can’t go without conditions from the zoning board or the planning board to do it. Again, taking time, taking money to do it. This gets multiplied. The environmental movement is at the root of this. It’s not a crazy movement, but it’s taken to extremes by people who are not so much concerned about the environment as the value of their homes.

[00:18:34] Anthony Flint: Now that’s changing.

[00:18:35] William Fischel: I think eventually excessive success generates sometimes a collapse. I think that’s what we’re seeing now. I hope it’s a gentle collapse. I don’t want them to throw out all environmental laws. I don’t want them to fill in all the wetlands or disregard the important environmental issues. They’ve been taken to extremes and they’ve been abused by local groups.

What I’m seeing here is not simply state laws that say, “Towns, you have to pay attention to housing,” but also courts that are saying, “Hey, guys, this endless environmental invocations to stop development have to have an end.” It does have what economists would call an opportunity cost. That opportunity cost is housing and a stratified society and a stultified economy. That’s what the authors of Abundance have pointed out and saying, “We don’t have to be that way.”

One of the things that occasionally makes me happy to be in a diverse democracy is people occasionally say, “Yes, we have to change our ways.” I’m seeing people change their ways and changing their attitudes towards this. I don’t want to run back to 1916 and just get rid of zoning. I think the idea that we can just abolish zoning is very wishful thinking.

[00:19:48] Anthony Flint: A process where zoning is continually tweaked and revisited and an acknowledgement that times have changed, especially with affordability being so front and center.

[00:20:01] William Fischel: I don’t think if we abolished zoning, we would get rid of our racial problems by any stretch of the imagination. I think once you get the town manager or the city manager saying, “I’m sorry. We can’t fill out the ranks of the fire department because we can’t get people to move here,” that gets people’s attention after a while. The private sector has been complaining about that for a while.

Now I think there’s real traction of people feeling the consequences of this excessive fussiness about who your neighbors are that it’s starting to be at least chipped away at by state and even local legislation. I’ve been critical of my own town, but I’ll give my town a bit of credit. We have an infill development in process that allows single-family homes to be converted to two-family, even four-family homes in the neighborhoods. There is resistance, but it was generated entirely by the town council.

You present people with the facts and enough evidence, real-time evidence, sometimes they come around and say, “Yes, we do have to change our ways.” I’m encouraged. I’ve been retired from teaching for six years, but I’m happy to spread some of the hopefully good news of land use regulations that accommodate more people, outsiders, and a larger spectrum of the social and, of course, the racial spectrum that makes the United States an interesting place.

[00:21:17] Anthony Flint: What’s so interesting to me is just how these rules that most people don’t spend a lot of time thinking about really shape our society and how we live.

[00:21:28] William Fischel: One of the things I discovered on the zoning board is how naive, at least from our point of view, people are about zoning. Until something happens in the neighborhood, then they get well-informed. Then they understand what the rules are. I think enough things are happening from enough different points of view that some change is likely to happen. I don’t think it will be without rough spots, but I see the general trend as positive here.

[00:21:49] Anthony Flint: Bill Fischel, thank you so much for joining the conversation at Land Matters.

[00:21:54] William Fischel: You’re welcome.

[00:21:54] Anthony Flint: You can find more background on the Euclid case and Bill Fischel’s book, Zoning Rules, at the Lincoln Institute website, lincolninst.edu. Zoning has a special place in the history of the Lincoln Institute.

We actually had our own symposium on Euclid, if you can believe it, in 1986 on the occasion of the 60th anniversary of the decision, co-organized by Charles Haar and Jerold Kayden from Harvard, and led to the publication of Zoning and the American Dream: Promises Still to Keep, published in 1989. That book, in turn, was reviewed in Cite Journal, a publication of Rice University, under a headline that has to be one of the most clever in scholarly writing about land use: “Here’s Looking at Euclid.”

There’s an additional wonderful Henry George thread here as well. The lawyer for Ambler Realty, Newton Baker, succeeded Tom Johnson as mayor of Cleveland and was similarly a dedicated Georgist, alongside none other than John C. Lincoln, the founder of the Lincoln Institute, who was active as an inventor and entrepreneur in the Cleveland area around the turn of the last century.

One way or the other, we look at zoning and land use regulation, especially as it pertains to housing construction today, pretty much on a continual basis. After all, zoning is about land and we’re the Lincoln Institute of Land Policy. On social media, our handle is @landpolicy. Please go ahead and rate, share, and subscribe to Land Matters, the podcast of the Lincoln Institute of Land Policy. For now, I’m Anthony Flint signing off until next time.