Unintended Consequences of Land Use Regulation

Typical development pattern prescribed by zoning. Anything else is illegal. (photo via Brookings Institute)

Arguably, land use controls have a more widespread impact on the lives of ordinary Americans than any other regulation. These controls, typically imposed by localities, make housing more expensive and restrict the growth of America’s most successful metropolitan areas. These regulations have accreted over time with virtually no cost-benefit analysis. Restricting growth is often locally popular. Promoting affordability is hardly a financially attractive aim for someone who owns a home. Yet the maze of local land use controls imposes costs on outsiders, and on the American economy as a whole.

From The Brookings Institute comes an excellent description of the insidiousness of land use regulations. There’s a tremendous amount of negative that has trickled down from these regulations, and what benefit there has been accrues overwhelmingly to the large landholders and real estate development companies that either have the political clout to influence them or can sustain the overhead necessary to navigate them.

HT @jimmyardis

Regulation favors big business

Goliath would have avoided this fate if the Philistines had successfully pushed through sling licensing legislation; the prohibition against underage sling use; and sling design review, permitting, and inspections for sling construction.

Megan McArdle‘s Daily Beast article on the internet sales tax reminded me of the following opinion piece I wrote for Remodeling a couple years ago:

Are you an advocate for greater regulation of the remodeling industry? If so, add your name to the list of business owners duped into arguing for more competitive advantages for giant companies, more sprawl, continued erosion of quality and craftsmanship, less professionalism, less competition, and less innovation.

I’m always surprised to hear small business owners take up the torch for increasing barriers to entry, tightening licensing requirements, and adding to the bureaucratic burden associated with building, improving, and maintaining homes. While many are simply out to limit their competition (understandable, if perhaps a little underhanded), the great majority of entrepreneurs who advocate for a more stringent regulatory environment have noble intentions: they seek to encourage sustainable building practices and protect the interests of clients. But before you accept that the annoying hassles associated with more regulation are worth it, consider the following few arguments.

There are always horrible unintended consequences. Take the example of the Environmental Protection Agency’s Renovation, Repair and Painting rule: It encourages people to leave older, walkable, in-town neighborhoods in favor of newer, car-dependent, suburban homes. This not only accelerates the rate at which we consume undeveloped land, but it will likely end up killing more people in auto accidents than it will save from lead poisoning.

One’s ability to pass a test has no correlation with one’s ability to serve a customer. The top complaints of remodeling clients (in states both with and without licensing) are service-related, and not measured by a licensing test or a building inspector: things like miscommunication, failure to show up, failure to complete the project on time, messy job sites, and dishonesty. Even worse than being a useless measure, regulatory credentialing confuses customers by bequeathing a stamp of approval on someone who may have done nothing more than pass a test or follow a prescribed process. It elevates the unqualified contractor to the same level as the most qualified contractor.

Regulation is corporatism masquerading as consumer advocacy. This is why large companies — who almost always struggle to innovate — favor regulated markets. Case in point: I recently listened to an analyst present his thoughts on which regions hold the greatest opportunity for the nation’s largest construction and real estate companies. “Look for markets with especially stringent regulatory requirements,” he counseled, “because that’s where you’ll have the least amount of competition from small businesses and new businesses.”

And what’s going on in the least regulated segment of our economy? Not surprisingly, our technology sector attracts our brightest entrepreneurs and remains one of the few areas where we outperform the rest of the world in the quality of our services and our pace of innovation.

So the next time you hear someone say our industry needs more restrictive licensing or more prescriptive building regulations, remember that they might as well be saying that the nation’s largest homebuilders need more protections against nimble competitors, that future entrepreneurs should enter different industries, that small-businesses need more challenges, and that customers need to pay more for less.