Zoning:

Adapted from Arthur OSullivan,

Urban Economics, chapters 10 (5th
edition) and from Bill Fultons
Guide to California Planning
Notes by Austin Troy

Land Use Planning Tools

Lecture 3: Economics of Zoning

Land Use Controls

Are designed to address market failures
Frequently conditions for perfect market
are not met
Many buyers and sellers, ability to exclude,
homogeneous products, costless entry and exit
in markets, perfect information, inputs and
outputs fully divisible, full internalization of
consequences of production and consumption,
constant returns to scale

Land use controls correct for

Negative externalities
External benefits
Public goods
Services with big scale economies (natural
monopoly)
Merit goods
Equity and distribution
Well talk about these next week

Four cornerstones of regulation

1. Comprehensive plans (see
Burlington MDP)
2. Subdivision ordinances
3. Capital improvement planning
4. Zoning
Well focus on the last mainly

History of Zoning
Earliest zoning laws were segregationist
New York (1916) zoning law5th 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: keep new development in line with
available facilities

Major Federal Zoning Laws

Standard State Zoning Enabling Act of 1922
Sanctioned dividing of land into zones by local
governments, with uniform codes for each

City Planning Enabling Act of 1928.

Created model ordinance of the general plan
process, including recommended powers of
planning commissions

These laid out model ordinances, but did not

make any requirements

State Response to Federal Laws

In response, many states passed their own
enabling legislation confirming local police
powers
Many states also passed comprehensive
planning laws, requiring local
comprehensive plans
Problem in early years: planning and zoning
were often not coordinated, with different
people doing each

Euclid v. Ambler 1926

Supreme Court case on validity of local police
power for zoning
Euclid was a small commuter suburb that wanted
to forestall encroachment of Clevelands industry
Ambler owned real estate, mostly zoned
industrial/commercial, but some was zoned
residential .
Ambler claimed a taking without due process.
Court upheld citys right to zone based on two
criteria: legitimate public interest and due process

What exactly is zoning?

Purposes: 1) limit overcrowding/ overbuilding
relative to public services and facilities, 2)
stabilization of neighborhoods, 3)segregating
incompatible land uses
Types: nuisance zoning, fiscal zoning, design
zoning
Tools: ordinance and map (see Burlingtons map)
Players: Elected officials, planning commission,
development review board, Zoning staff

Burlington example
Staff
Review
projects

DPZ Staff

Comments on
and approves
ordinance

Planning
Comm.

Writes
ordinance

Dev. Review
Board
Review
Major projects
and appeals
to small projects

Environmental
Court
City Council

major
appeals

What does zoning regulate?

Use: activities permitted within zone
Bulk: envelope in which building must fit
specified through setbacks, building
coverage, building heights, floor area ratio
(ratio of building to lot square footage)
Performance/impact: performance standards,
or impacts a building is allowed to produce;
biggest example is parking spaces

Nuisance 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:
Doesnt reduce these effectsjust moves them around
Spillover: an industrial zone may be far from residents
in the municipality to which it belongs, but close to
residents over the border

Zoning Tools:designation
Zone designation/changes: geographic
designation of what places are in what zone
Generally 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:variances
Variances: gives landowner an exception to break
some zoning rules in a zone.
Use variances: permits otherwise unacceptable use
without change of zone
Variance from standards: allows use that doesnt 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 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: discretionary

review
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
Sometimes conditions of use are really
more like exactions

Other 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

Two big problem with zoning

1. Takings
2. Exclusionary or fiscal zoning

Takings question
There were many complaints and lawsuits in
the initial period
Argument was that zoning favored some
landowners over others, hence not equal
protection under the law
Also, just compensation argument, claimed
that zoning violated Fifth Amendment,
which prohibits taking by the government
without just compensation

Takings question: three cases

Nollan vs. California Coastal Commission, 1987:
Supreme Court ruled that Commission did not
establish link between restriction and public interest
in beach access case
Lucas vs. South Carolina 1992: Supreme Court
said taking occurred, damages due to plaintiff
because beachfront development regs denied owner
of ALL value on property; hence must leave some
value.
First English Evangelical Lutheran Church vs.
County of Los Angeles 1987:Property owner whose
land was taken by regulation is entitled to just
compensation

Fiscal/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

Backlash against exclusionary

zoning
South Burlington County NAACP vs. Mount
Laurel (1975 and 1983) court rulings were
two landmark cases in exclusionary zoning
The first case contended that the large lot
zoning policy of Mt. Laurel zoned out poor
Court agreed and said towns had presumtive
obligation to zone and plan for housing
accommodating variety of income groups

Results of Mt. Laurel

Towns in NJ rewrote ordinances , but only
had appearance of complying with ruling
1983 ruling issued specific rules about how
towns should be providing affordable
housing; 20% of units must be for low and
moderate income peopleempowered a
body to oversee
Has not been repeated in many other states

Later zoning developments

Citizen participation requirements for
planning (prop 20, CEQA)
Performance zoning
Inclusionary zoning
Transfer of development rights
Adequate facilities ordinances
Impact fees

Performance 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 offstreet parking, noise control, landscaping,
street improvements to offset congestion.

Inclusionary 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 belowmarket 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 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
Problem: what is adequate? Hard to monitor and
assess consumer demand; hard to assess capacities
and marginal impacts; always changing;
See Montgomery County, MD

Transfer 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 units; zone north for open space
Southern landowners gain at the expense of
northern, because N land is nearly worthless

Transfer 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 south.
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 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 development
Levy a one-time impact fee

Impact fees
Developer compensates local govt 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 zoning:

effluent fees
An approach that deal with those problems
is to internalize the costs of externalities
that hidden costs to societyusing
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 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 example

Assume
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 further 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 mill

Cost minimizing location;
Pollution cost= effluent fee

Total
cost
Labor
cost

cost
$53

Firm will
locate here
Pollution
cost

4.2

Distance from residential area

Effects 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 to 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 used

Setting effluent fees in 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