When people hear “crony capitalism,” they usually envision corporatist policy at the higher levels of government. It might be the federal Export-Import bank subsidizing Boeing, or Nevada granting Tesla tax breaks. But perhaps the most common form is the kind occurring in your own backyard. In many U.S. municipalities, zoning codes have evolved from reasonable public protections into regulatory cobwebs that benefit the rich over the poor. If a crony system is, according to Investopedia, one where “instead of success being determined by a free market and the rule of law, the success of a business is dependent on the favoritism that is shown to it by the ruling government,” then zoning is cronyism’s localized version.
Most readers are likely familiar with zoning's practical purposes, such as separating incompatible uses or expelling nuisances. But they may not realize just how comprehensively it is now used to micromanage society, impose petty moralism and protect special interests. Are you a restaurant that doesn’t want competition from food carts? Just lobby for zoning that limits where they can open. Do you think fast food pollutes cities with unhealthy burgers and ugly signs? Pass an ordinance targeting them specifically in the language. Do you think big box stores are run by greedy corporations? Write laws that unfairly punish retail establishments above 75,000 square feet. These regulations are used most consequently, though, for housing—large developers desire complex zoning and building codes that create barriers to entry for smaller competitors, while homeowners aim to limit housing supply, inflating the price of their own property.
Of course, this isn’t the only reason why such interests—namely homeowners—want zoning, and it’s not the only reason the laws were formed. According to William Fischel, a Dartmouth College economist who specializes in land use, zoning’s initial purpose was to bring community stability at a time when this was being compromised by rising urbanization. Cities, still smack dab in the Industrial Era, had jumbled together residential and industrial uses, creating health hazards. And streetcars, followed by automobiles, made it easier to live in areas where these uses could be separated, causing the codification of this concept. The first zoning laws were written in the late 1800s, and New York City passed the first comprehensive code in 1916. In 1926, zoning was declared constitutional by the Supreme Court, and within a decade over 1,000 municipalities had it.
Over time, zoning laws were strengthened thanks to what Fischel calls the “homevoter” block—home owners who wanted to protect their most valuable asset by excluding everything, including people of different races, that might compromise those values. The environmental movement of the 1970s further strengthened zoning’s legal reach.
“Municipal autonomy in zoning was undermined in the 1970s by several trends that have grown out of the environmental movement. The more universal was the empowerment of neighbors who were dissatisfied with the pro-development decisions of their own local government and its bodies.”
It was around then that zoning began escalating metro area housing prices. Now this phenomenon has spiraled out of control, with regulations first meant for public protection being used to form de facto legalized walls around some cities, as residents mistake their neighborhoods for members-only country clubs. It is particularly bad in metros where the job and population growth is fast outpacing new housing starts. The Bay Area is an extreme example—in 2015 it added 64,000 jobs but only 5,000 homes, thanks to zoning that prohibits density, sprawl, and the “missing middle” for housing across numerous localities. This mismatch between supply and demand has caused Bay Area median home prices to skyrocket, with the prices in San Francisco, for example, increasing between 2012 and 2016 from $657,000 to $1.1 million. Ironically, just down the road, Palo Alto’s planning commissioner recently resigned from her post because her family could no longer afford to live in the city she was helping regulate.
The good thing is that people are starting to see this issue for what it is: cronyism. As a result, the dialogue about it has evolved from one rooted in economics to one rooted in social justice. Take a recent article written on MarketUrbanism.com by Jeff Fong, an economist who started the blog Tech For Housing to alert Silicon Valley types to the Bay Area's housing issues. While discussing Palo Alto, Fong critcized local leadership for using every straw man—including the bizarre claim from Mayor Patrick Burt that the Bay Area should solve the affordability problem by creating less jobs—to avoid addressing the real issue, which is minimal construction. At the root of this insincerity, suggests Fong, is the desire by Palo Alto’s political and homeowner constituencies to preserve their escalating land values.
The status quo isn’t defensible if you’re concerned with environmental degradation, inequality, poverty, slow growth, or even the decline of property rights. But, for tax protected homeowners, the status quo is exactly what they want and that’s reason enough for them to defend it. If Mayor Burt had simply called it like it is—that those in control of Palo Alto land use like the status quo, aren’t concerned with how it affects others, and will continue blocking incremental change—then we could have at least applauded his honesty.
A similar tone has been taken by Yimby (“yes in my backyard”) activists in San Francisco, Boulder, Austin, Los Angeles, New York City, Washington, DC and other over-regulated cities. For them, zoning isn’t necessarily bad because it prevents local housing markets from achieving some laissez faire ideal; a lot of these activists likely identify as liberal. Zoning is bad because, at street level, it has become a tool of exclusion and protectionism that benefits the rich over the poor, the old over the young, and landowners over renters. Indeed, it has become a leading factor in urban America's growing class conflict. Calling zoning what it is—cronyism—could be the beginning of reforming the problem.
[This article was originally published by Forbes.]