The Zoning Theory of Everything

When 17 million Americans tuned in to watch the first night of the 2020 Republican National Convention (RNC), they were greeted by the newly famous faces of Mark and Patricia McCloskey.

A few months prior, the McCloskeys had been obscure Missouri lawyers. Then footage of the married couple brandishing firearms at Black Lives Matter demonstrators outside their St. Louis home rocketed them to national notoriety.

Roundly condemned by liberal America and charged with felonious use of their weapons by local prosecutors, the McCloskeys used their brief RNC remarks to defend their names. Rather than the menacing bigots they’d been portrayed as, the two argued they had been lawfully defending their home from a mob of marauding leftists. The violence they faced down would soon descend upon your home too, they warned, thanks to Democrats’ radical plot—to tweak local zoning codes.

Democrats “want to abolish the suburbs altogether by ending single-family home zoning,” Patricia McCloskey told the camera. “This forced rezoning would bring crime, lawlessness, and low-quality apartments into now thriving suburban neighborhoods. President Trump smartly ended this government overreach, but Joe Biden wants to bring it back. These are the policies that are coming to a neighborhood near you.”

These remarks reflected a newly adopted theme of President Donald Trump’s reelection campaign: that he had saved the “American suburban lifestyle dream” by axing housing policies adopted under President Barack Obama. Then-candidate Joe Biden’s promise to revive those rules was presented as proof positive of his plans to destroy all that was good about America.

The words zoning policy probably conjure thoughts of dull board meetings and interminable debates about setbacks, parking requirements, and seemingly small architectural details. Most Americans probably consider zoning about as dry as an unlicked envelope. Yet somehow, during a presidential election unfolding amid a deadly pandemic, divisive lockdowns, raucous protests and riots, mass unemployment, and spiking crime, zoning politics managed to show up center stage.

Looked at one way, it was another strange turn in an already bizarre election year. Looked at another way, it was yet another demonstration that zoning rules have become central to American life and politics, almost entirely to deleterious effect.

Zoning regulations control what kinds of buildings can be constructed where, and then what activity can happen inside them. They effectively socialize private property while controlling even the most mundane features of our physical environment and daily routines. Zoning rules flip property rights on their head, curtailing the owners’ ability to do what they wish on their land. In exchange, they sometimes give people near–veto power over what happens on their neighbors’ property.

Whether a disused shed stays cluttered with rusty lawn care equipment, is turned into a home business, or is converted into an in-law suite might not seem like a major decision. But the existence of a whole body of laws dedicated to controlling that decision tells you how far zoning reaches into American lives. The consequences of these laws are as far-reaching as they are devastating.

The immediate costs of zoning are straightforward: By limiting new housing construction, zoning drives home prices up in—and drives people out of—the most in-demand neighborhoods. By micromanaging commercial activity, zoning prevents entrepreneurs from trying new things, making everyone poorer in the process.

On a macroeconomic level, zoning slows economywide growth and dynamism by wrapping the most productive urban centers in red tape. The distortions it causes in the wider economy have helped fuel large-scale economic and political instability over the past two decades, playing a part in everything from the Great Recession to the election of Trump to COVID-19 craziness.

Zoning also makes America a less welcoming, less interesting place. Whether someone is trying out a new life, a new business, or just a new look, chances are there’s a provision of the zoning code waiting to stop them.

Zoning not only gives busybody politicians the ability to affect everything; it gives them power to stop everything, making it the go-to tool for those trying to restrict everything from abortion to chain stores to goat yoga. It’s only a little bit of a stretch to say that American political debates always come back to zoning—and that zoning makes everything worse.

How Zoning Led to the Great Recession

When the 2010s began, America was in the nationwide economic rut that followed the housing price collapses of the Great Recession. By the end of the decade, most urban areas were experiencing a housing affordability crisis widely blamed on too little housing.

How did we go from one to the other so quickly? Zoning, of course.

That might sound counterintuitive. The conventional view of the Great Recession is that excess demand for housing—caused by some combination of loose monetary policy, government-subsidized credit, and unscrupulous lenders—inflated a bubble that inevitably had to pop. Leftists, liberals, libertarians, and conservatives can all find something to agree with in this theory.

But it’s wrong, according to Kevin Erdmann, a senior affiliated scholar at George Mason University’s Mercatus Center. Erdmann has advanced a heterodox theory that this century’s most serious economic contraction before the pandemic can be traced back to zoning laws in the most in-demand cities.

In a 2020 paper on the origins of the recession, Erdmann and economist Scott Sumner argue that monetary policy was not exceptionally loose in the lead-up to the financial crisis and that new residential investment was not high by historic standards. Most of the toxic assets and bad mortgages originated after housing prices had already started to decline.

Erdmann and Sumner also point out that prices were increasing fastest in coastal “closed access” cities like New York and San Francisco, where the economy was booming but restrictive zoning regulations prevented much new housing from being built. The result was an out-migration of lower-income people to “contagion cities” in Nevada, Florida, Arizona, and other places where home building was less regulated. Erdmann and Sumner lay the housing crisis directly at the feet of NIMBYs—”not in my backyard” activists who opposed the construction of new housing.

“The NIMBY phenomenon that led to housing scarcity in closed-access cities induced households to migrate from large multi-unit buildings in dense coastal cities to single-family homes in cheaper cities,” write Erdmann and Sumner. “The primary source of demand was households looking to economize on housing consumption by moving out of the expensive coastal cities.”

Think of Mark and Patricia McCloskey as a class of activist. The McCloskeys of San Francisco, Los Angeles, and New York City tried to protect their views, their property values, and their relatively low-traffic streets with zoning laws that banned apartments across whole swaths of the city. Lack of supply met huge demand, hiking prices in the process. Middle-class people were effectively priced out of urban apartments because those apartments were simply never built.

So instead of living in Los Angeles and New York City, middle- and lower-income people moved to Las Vegas and Phoenix. That influx of demand saw prices spike and builders respond by throwing up lots of new homes. The glut of new homes in inexpensive Sun Belt cities wasn’t just the result of an overinflated financial system. It was a response to real demand from cost-burdened coastal emigrants.

All this had massive macroeconomic consequences. Erdmann and Sumner argue the Great Recession was ultimately caused by federal officials misinterpreting rising home prices as a bubble rather than the result of a real shortage. So they tightened monetary and lending policy, and that tipped a rational building boom into an artificially induced recession.

It’s an out-of-the-box theory that deemphasizes or disputes many common libertarian diagnoses of the Great Recession that center on an overly profligate Federal Reserve or on reckless financial institutions banking on an inevitable federal bailout. But it does explain how the country was able to go from a supposed glut of housing oversupply to a shortage of somewhere between 4 million and 20 million homes. The glut was overinterpreted—and the shortage never went away.

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