Land Use Regulation

Econ Buff Podcast #9 with Trey Dronyk-Trosper

Dr. Trey Dronyk-Trosper talks with me about how land is regulated in the United States. We discuss how local governments regulate land, how land regulation works, and what types of policies local governments use. How policies come to be and how they are designed is examined. We talk about the consequences of various policies and recent trends in policy formation. We consider a wide variety of policy types and ideas related to land use regulation including, zoning, NIMBYs, YIMBYs, tax increment financing, Tiebout sorting, impact fees, urban growth boundaries, greenbelts, building permit caps, setbacks and height limits for buildings. We explore the current political environment specifically pertaining to land use and how Dr. Dronyk-Trosper views the future of land use regulation.

Transcript

Stitzel: Hello and Welcome to the EconBuff podcast. I'm your host, Lee Stitzel. With me today is Dr. Trey Dronyk-Trsoper. He's an economist associated with Tulane University. Trey, welcome.

Dronyk-Trosper: Thanks for having me. Looking forward to it.

Stitzel: So, Trey and I are gonna talk about land use and regulations -- a lot of interesting topics thereof. So, Trey studies urban and regional economics, broadly with an emphasis on public policy and public finance. So, Trey you've had a lot of success, and academic circles publishing papers talking about these sort of regional topics. That's also what I do! So this is a topic close to my heart! So let's start off with just kind of a straightforward question for the audience. How do you view the broadly, how do you view the state, of the way that local governments regulate land?

Dronyk-Trosper: I would probably -- if I were define it in one word I would -- say maybe complex or just kind of unknown in a lot of respects. There's no standardization for the most part --even things like zoning, very remarkably from one city [or] even one state to another. And there's been a lot of discussions about, you know, changing this and working around what we're seeing. But, you know some cities don't do a whole lot of regulation. Houston is kind of a famous example. It doesn't have zoning, but it does have regulations. It does have land use regulations even there. And you can go all the way to kind of the infamous, if you will, other end of San Francisco, Boston, Seattle to some extent where land use is very heavily regulated. And if you want to build, or build a new home, or add on to your home you're gonna have a lot of red tape to go through. You're gonna have to make sure it meets a lot of different requirements. And it just it varies quite a bit from location to location. But just to give you an example of what I mean by complexity -- Canyon Cities’ ordinances for land use run to about 240 pages -- and it's it tackles everything that you could think of. [It tackles everything] all the way down to the fact that a bowling alley has to have at least one parking space for every six lanes. Or if you build a library or museum, you have to have at least 10 parking spaces plus one for every 300 square feet. I mean this this stuff gets in the weeds. It's…there are some regulations that I've seen that say you have to have one tree in the front yard of houses. Things like that. It's kind of remarkable.

Stitzel: That's really wild to me. What is it that's driving that kind of minutiae? Because when I think of these type of regulations, right, I'm thinking about broad zoning things; where it's literally, I don't want a factory built right next to my elementary school. Which, you know, seems like a reasonable thing and we'd kind of all agree on that. So, how do you get to a place, where I assume this would be like a city council, these the examples that you're talking? About how does the City Council. or a county, or whoever is making these kind of [decisions], how do they get to a point where they're like: oh we need more trees, so let's legislate that the number of bowling alleys determines the number of trees in your lawn there?

Dronyk-Trosper: So some of it just stems from the fact that, in general, once these ordinances go up [that] they don't go down. So it's a lot easier to add new ones than to remove them. So they…just things get built. You have, I mean, one of the biggest problems that I see, is that you have very low participation rates in local government. You can go to planning committees in your local city and, you know, you may be one of five or six people that are there. And so it's very, very easy for even a small number of individuals to have outsized influence on what the City Council does; because they're only going to hear from those people there.

Stitzel: So you think those kind of people have a big impact? So if I'm sitting there on a on the committee that's deciding these kind of things, or at least what to decide --- so let me set this up actually. So are these kind of rules decided bureaucratically or in committees? Or are they decided by councils? Or are they put to vote? We get kind of a variety? They get put on ballots for referendum? How's that work?

Dronyk-Trosper: It's very much a variety. It depends upon where you're at, and the construction of the city, right? So some cities are run by just a city manager. Some have city councils. Some just have a mayor. Some have weak mayors [or] strong mayors. So part of it just depends upon the political governance of the city.

Stitzel: So when you say weak mayor [or] strong mayor, [meaning] how strong or weak their powers are based on the city charter?

Dronyk-Trosper: Yes. Yeah, yeah. So the, you know, what they can and can't do by themselves or so. Some mayors, for example, will also have a City Council. They have to/they may want something passed, but they have to go to the City Council. So that might be a form of like a weak mayor, where the mayor has some capabilities to do things on their own, but there's still more or less differential to a City Council. In other cities the mayor has a lot more power. But in any of these cases, [and] because there's a lot of variety (and how this stuff works it's how the stuff gets passed) is heavily dependent upon where you're at. So yeah, it's [that] there are certainly issues particularly where you have committees that have public hearings. There's been some research recently about just how non-diverse people are that go to these meetings. So, you know, there was a was a study, I think, on San Francisco (if I remember right) that was looking at all the different variety of people that were showing up to these planning meetings, in particular, and they were all white older males essentially.

Stitzel: Wow.

Dronyk-Trosper: And of course, that's a voting bloc that's gonna be very different than what the rest of the city may look like. And so you have, you know --- they and people that are there that are making these decisions -- the city councilors, or mayor, [or] whoever's there, you know, they're gonna respond to those people [that] are talking to them.

Stitzel: So you really do think that there is some responsiveness to the public though in a lot of these settings?

Dronyk-Trosper: Absolutely. And to some extent, I think that's basically what gets a lot of these things going on, right? So you have somebody that goes there and decides that: I don't think that the city is very green, so why don't we just plant a tree in front of everybody's yard? Like make new housing do that? And it's a somewhat innocuous thing. It gets passed, and now it stays there for the next 40 years. I mean, you just see this stuff over and over and over again.

Stitzel: And then we end up in sort of a different environment and political era. And all of a sudden we look back on those kind of choices and they looked really strange, right?

Dronyk-Trosper: Yeah, yeah. I mean, so like, so some really good examples are some of the earliest forms of like land use regulation, so if you're going back to (of course I like to say) [the] turn of the century. But now we have to be a little bit more specific. So if we're talking about turn of the 19th century, you know, in the 1900s you had a lot of the people that had power were again, you know, white individuals and so they tended to put a lot of emphasis on certain things that they wouldn't want. So in the 1900s that was a lot of racial segregation.

Stitzel: Right.

Dronyk-Trosper: So you would have, in fact, that's in a lot of respects, that's the start of zoning in the United States; even though you have people like [Ronald] Coase that have discussed other potential problems of zoning. And why it might make sense, as you alluded to before, about [the] fact that I may not want a new industrial plant that pollutes popping up right next to me without me being able to do something about it. But despite the fact there are those, some of those reasons/a lot of the reasons behind zoning was putting in place things that said: if you are of African descent, you cannot buy a house here. I mean, these are absolutely straight-up racially motivated. There is/there's a [well] Minnesota had these deed covenants. They're actually private. So this isn't even the public government making decisions, but deed covenants for people whenever you buy and sell [in certain] neighborhoods; [whereas] these deed covenants stick with the land. And so if you buy or sell, you have to meet the deed covenants. And these are very similar to land use regulations. But they're just drawn privately, right, then through the government. And this is actually how Houston does a lot of its zoning, for lack of a better word is through these deed covenants. And they would, [you] know, there was a famous deed covenant that said if you are African descent, if you are Chinese, if you are Mongol, [if you are] Vietnamese -- like it had this long list of all these different groups -- said you cannot buy a house here. We don't care how wealthy you are. We don't care anything. You cannot buy here. And in 1917, the Supreme Court struck that down. And that's actually what led to some of the changes, in what we've seen as far as land use regulation, kind of the more intricate versions. Because now you can't legislate out, you can't zone out, people that you don't want to live there. You can't segregate as easily. But if you know that those people, for example on average, have lower incomes, or they can't buy as big of a house, you put in minimum lot sizes.

Stitzel: Right.

Dronyk-Trosper: So they don't have a house that they could actually buy. So you start zoning as a way to get around the racial the racial segregation that you're trying to get.

Stitzel: So are your/so in your estimation, the zoning rules start with this kind of motivation, right? Because what I think/when I think about these kind of things now, like I was mentioning earlier, I think of them sort of for a certain reason (and I'm definitely not going to attribute all those things as pure reasons). It's really distasteful to think about people making those kind of choices, but I mean we know humanity. That's definitely kind of [the] behavior that that we could believe people could engage in.

Dronyk-Trosper: Hmm. (Agrees).

Stitzel: So would you ascribe that as the main, or the only, like how much of the motivation would you put on zoning laws in particular?

Dronyk-Trosper: That was a lot of the origination. Nowadays it's definitely different. I mean, you still see some of it occasionally. But zoning is really kind of expanded out to much more of a what we call a NIMBY system. [Meaning a] Not In My Backyard sort of view point, where a lot of the rules (and latest regulations are going into place) are based around city concerns/or individual concerns [and] less about avoiding people coming in or anything like that. That's a much less important part of what's going on. But now you have people wanting to put in place height restrictions so that they can keep their views and things like that. They aren't nearly as racially motivated. So it certainly started off as, on average, more racially motivated; but over time, it's definitely trended away from that. Particularly once you get into the 50s and the 60s and 70s there's been a strong movement away from that, and more toward kind of a city focused, and an individual focused system.

Stitzel: So as we move away from them sort of being racially motivated (and like it or not, you know, different people have different preferences) -- but as we get away from some of those more distasteful type of preferences --- and now we get to the preferences where I just don't want to live that close to, you know, a manufacturing plant. I don't want houses around me that build up and block my view. I don't want to live in a crowded lot where my house is right next to my neighbor. Just on and on and on we can think of all these things. In your estimation then, how much are these kind of rules, you know, in a good way reflecting the preferences of the people that are there, --for I mean maybe I want really low housing prices, and I don't mind so much the house is being crowded together, and maybe somebody else really values their space – [so] how do you see that playing out?

Dronyk-Trosper: And that's one of the biggest tensions I think we see nowadays. So there's - the recent trend has been a move away from being concerned about these NIMBYs and being concerned about these individual preferences. But that is the central point is tension, [and] is that whenever you move away from these people's preferences, [then] you are moving away from people's preferences, right? Here you're moving away from what somebody wants. And, you know, if you think about the fact that, you know, I bought a how to say about a house 20 years ago with the expectation that the area is going to be based upon the zoning, based upon land use regulations, it's gonna look a certain way. And then 15 years later all of a sudden somebody comes in and says: well we're gonna change stuff because we have our own objectives [and] our own preferences. [Well] you can see why people would fight back and not be happy about this; because, you know, this person made a decision [years ago]. And you're coming in and basically saying: I don't care about your decision [and] my preferences override yours essentially. And that's what creates this this tension between the Not In My Backyard people NIMBYs and the YIMBYs Yes In My Backyard.

Stitzel: Is that a real thing? YIMBYs?

Dronyk-Trosper: It really is. Yes, there's all sorts of groups that call themselves YIMBYs nowadays.

Stitzel: And so what are those what kind of policies are those groups focused on?

Dronyk-Trosper: Those are your affordable housing advocates largely. They're the people that are all about up zoning, increasing density, [and] moving away from our standard transportation (so moving away from cars essentially). They're looking for smaller, physical cities but [also] taller, physical cities. So [they’re looking for] a lot more people [to be] packed in a much smaller space with the idea that that should help reduce home prices if you up zone. It should -- kind of the objective is to help out as many people as you can at the expense of those that are essentially already there.

Stitzel: So I want to turn here in a second, [but] before we do --so I had the fortune of visiting New York City (Manhattan in particular) a couple of summers in a row (not this past summer but the two summers before that), right? And so I'm a Texas guy, raised in Texas on here in the Panhandle, out on the plains, right? And I'm used to being able to being able to see for as far as the eye can see. You know and raised in this environment of: highways and roads and everybody owns a car and, you know, houses are spread out and your grocery store is across town. And all this. And I go and visit New York. And of course my bias starting out, you know, was just this is how people live. And like everybody owns a vehicle. [And then] I go visit Manhattan, right? And I just see how exciting; just this constant buzz that you have there. And I get exposed to things like both subways, like within, you know, the New York metro area and going to Manhattan (different places in Manhattan) and seeing how that changes the way that you would live. But also trains, right? So I took a train down to, what I figured was cities I was going to there, but you know, I took a train from DC to Boston or something like that, right? And it's like yeah, it made a whatever 5-hour trip into a 10-hour trip. But I also took a nap for half of that. I didn't have the stress of trying to drive, you know. If I want to go somewhere, and you know, I'm here in Amarillo, Texas and [if] I want to visit Dallas [then] that’s six hours of driving. That's no small tour. And so, really [I have] highlighted some of what you've already talked about which is: we could have preferences for certain things, you know; but then we get exposed to other things, and that other way to live. And that has, you know, costs and benefits both; and there's all this kind of trade-off. And I'm not really sure I would want to live in New York City. You're an economist too. So you'd point out revealed preferences. And I probably don't want to live in New York City, since I don't live in New York City. You know, but those kind of things are really interesting to me, you know? And that's something that I'd like to see more of. And so the two things that I want to turn -- unless you had a comment on that.

Dronyk-Trosper No. I -- it does kind of remind me of the fact that, you know, there are some interesting kind of experiments going on with regard to (maybe kind of like a bad word) causing these big, big, big changes. So back in 2001, Oregon passed HB2001, (if I remember was 2001) which essentially eliminated single-family zoning in the state. Virginia is looking at a House bill to remove or essentially remove single-family zoning. I mean these are state-level bills that would force it upon all the cities. You have Minneapolis, just recently, voted (a citywide vote) to remove single-family zoning across the city. And so presumably you'll start to, you know, (if there's the desire and the interest) you'll start to see these places kind of up zoning. And you'll get to actually see, you know, people make decisions. Do they still want to stick around in a denser location, or are they gonna look to move out? So you might get to see some of this in the action/in action over the next 10-20 years.

Stitzel: That would be something interesting to watch. I'd actually kind of like to talk a little bit about maybe decentralization, sort of local policy versus, you know, county, state etc. (by calling county different than local silly, but state and local policy). Before we do that, you and I have mostly talked about zoning. And I think that makes sense, because that's probably what comes to people's mind the most. And that's the most may be heavy-handed of the types of policies. But just kind of give the rest of us (who are not experts in this field like you are) -- give us -- an idea what some of the different types of policies that local governments will use in addition to zoning. And give us like a real brief description about what some of those are.

Dronyk-Trosper: Sure. So, like you said, zoning is by far the biggest one. Almost every city has it -- like so except for Houston and it's the one that's most apparent -- but there are other ones that come in as well. Besides finance specific things, some of the big ones would be urban growth boundaries (also sometimes also called green belts). And these are essentially areas that are defined as undevelopable, for lack of a better word that is. So Portland's probably the most famous. It has a very large urban growth boundary, and you cannot build essentially inside there. So if you want to build in Portland, you have to be within that boundary. So it forces a natural size of the city. And as long as the demand is there, it essentially forces build up. So it's like up is up zoning, without having to actually changing zoning necessarily. The urban growth boundaries are a big fad in the 70s and 80s, and you still see them even in some places. In kind of a similar fashion, there are other methods. So you could go with like a building permit cap. That's probably one of the most heavy-handed mechanisms for really affecting what's going on. So just say: we are only going to build a certain number of buildings each year, you know, maybe a certain number of residential structures, certain number of apartments, [and] things like that. So those are those are pretty significant. Other than that, some of the most commonly used would be things like setbacks and height limits for buildings. So setbacks are essentially how far back the building is from the actual end of the parcel that's splattered on. New York has/there's some interesting architects since you were there. Some architecture. [So] if you go around New York and you see these buildings that look like they're kind of stepped up -- so they have a big base and they go up a few stories they kind of shrink and then they shrink the shrink as you go further up -- that's because of setback limits. So to kind of get around some of that, you would essentially setback as you go higher up. So they had to build smaller and smaller.

Stitzel: What is that targeting? Is that is that for safety reasons for the building? Or what's going on there?

Dronyk-Trosper: It's not really safety. It's much more of an appearance. And then also concerned over whether you're going to essentially block people's view, things like that.

Stitzel: Right.

Dronyk-Trosper: In big cities a lot of it is sunlight. So you don't want -- if buildings go straight up from the edges of a parcel they'll block sunlight to all the small buildings around them. And so if you do setbacks, it'll ensure that essentially the street gets some sun. So that's actually one of the biggest reasons behind setbacks in big cities. Smaller cities have adopted it more for appearance purposes than anything, because you know the city might want lots of green space with lawns and things like that. So you kind of force/you force lawns by having setbacks.

Stitzel: And that's one of the funny experiences of being somebody that that comes from Texas and goes to Manhattan. You spend the first day just looking up. You're just not accustomed to that. They get your neck craned back the whole time. I'm sure you stand out like a sore thumb. As a tourist, people are like: oh yeah that here's this guy looking around at all the 10, 20, 30 story buildings all right next to each other. Yeah, oh so you have you mentioned a couple. Did you have any others that you wanted to talk about?

Dronyk-Trosper: The height restriction one I think is kind of interesting. It's gotten a lot of play recently. DC is actually very famous for there being a lot of arguments about removing that cap. Because D.C. is/ Washington D.C. is one of the most expensive places to live in the United States, largely because there's a citywide cap on building height. That's why there are essentially no tall buildings in the area. And that has a serious limit on how much housing you can have. And one of the side effects of that is you have massive home prices in that area. And also kind of results a lot of the gentrification that D.C. is now seeing is because people don't have any place to go. So you can really only redevelop what's already there. And a lot of that is less than it was zoning and more to do with the fact you just can't build high.

Stitzel: So, you know, one of the things that has been a bit of a theme in this podcast is (most of the issues that were interested in from a policy perspective for sure -- but many just economics or just daily conversation in general), you know, there are these areas where we face these difficult trade-offs, and we wonder how some of these things are going to be solved. So as economists (people like you and I) anywhere we could use a market we want to do that right? Because that allows for this coordination and this this collective action -- a mutually beneficial exchange. So can you give us a sense -- like what's your view -- of how some of these (you called a couple of them heavy-handed [and] I think I called zoning heavy-handed -- so maybe you know don't agree with calling that heavy-handed where you say you can or cannot do this here or there) versus, you know, maybe different types of policies that would be closer to market behavior, right? Because you've described what these are. I don't know that you've weighed in on whether you view them as good or bad or subpar policies. So can you talk a little bit about that? Because almost everything you've mentioned so far doesn't have much of a market component to it -- saying you can build this high or this far from the edge or in this area or not in this area.

Dronyk-Trosper: So that's a good question. There aren't a tremendous number of what we might think of as market-based options. Most of it is policies that maybe try and fix what you already see. So from my own personal research, I of course have to bring it up, the impact fees are a good example. So these are fees levied/one-time fees levied on new construction. And with the idea being that these fees can only be used for capital projects - so building new schools, building new fire stations, [and for] building new roads. Things like that. They can't be used for maintenance of services already in place. And these impact fees go into effect, and they get collected, [and] they get put into a essentially a bank account to be pulled out as needed. And the idea behind this is, is that currently, we don't really, we don’t essentially have a properly functioning housing market. What I mean by that is presumably everybody should get the same level of service across a city. But we know that's not really accurate. And that's part of the reason why behind, why for example, somebody might locate in a suburban area. You might get better services, but still have access to the central city -- any kind of benefits that those that derive from having access to that – [such as] nightlife [and] things like that. Whatever…

Stitzel: When you're saying services what is it you're referring to in that good?

Dronyk-Trosper: Services kind of encompasses a large variety of things. Education is a big one, but fire, police, parks, and recreation. It can even be trash pickup. You know, some cities have just trash pickup; some [cities] have also recycling added in. Things like that. It's essentially anything that the city provides, but it can also be amenities that are provided through the private industry. So again [amenities] like nightlife [and] things like that. That is, it's not a service that the government provides, but it's still a valuable amenity to a location. It's valuable to somebody, presumably. And so whenever you want to have access to these sorts of things, it may be better for you to locate, for example, in a suburban area because it's essentially a lot cheaper. But you get the same service and same amenities as somebody who locates in a much more expensive area of town. And so there's kind of this this disconnect. And so some have argued that you could put in place impact fees, to essentially demonstrate, that whenever you have somebody that moves in they use the same services as everybody else. By using services, you reduce the services that are available to everybody else. So if I move into a city, and I have kids, [then] they take up spots in the nearby school. I didn't have to pay for that school to be built. I essentially am not really paying for those spots. I pay some property taxes, so say I pay some for maintenance of the school. But I'm certainly not helping to offset the fact that with enough development gonna have to build a new school. And so these impact fees are all about trying to offset that new development. By doing that, the hope is that you actually equilibrate housing prices across the city. So that if you're a new development and you're/and you're gonna get a lot of good services that will actually/you'll actually have to pay a lot more because you'll have to pay into these impact fees. And so that's an attempt to essentially make a more competitive market out of what we already see.

Stitzel: So let me set the stage a little bit, jumping off from that point. So the way that I kind of view the problems in housing and the problems that that stem from housing, is you kind of have a couple of problems. Many things I can consume. You know, I'm sitting here sipping on a Coke and for the most part, the costs of drinking a sugary drink are on me, and they don't affect you Trey. Housing is a real weird thing where relatively innocuous things begin to potentially affect your neighbors, right? And you've mentioned, you know -- I want to have more trees in the neighborhood, or the height, or you know blocking the view there's all these things that can happen -- where what's going on in there with your neighbor's house (not so much in your neighbor's house although sometimes that too), you know, are external costs to me. And then the other thing that I think, maybe they play off each other maybe they don't, is that these things are so slow-moving, right? So I build a development in this area and then that development is gonna be there for a hundred years, right? Building next to my shop and that thing's never going away. So how do you view that in terms of complicating the type of things that you just talked about? And does the type of things that you talked about with impact fees potentially help some of those problems?

Dronyk-Trosper: Yes that's a big issue. And that's what kind of, I would say, a lot of economists focus on as far as the issues with regard to city development, and planning, and things like that -- and that is the externality. So ignoring the racial overtones from where it started, most economists particularly nowadays would view zoning as essentially a mechanism and attempt to remove those externalities. To reduce them so that you don't have this uncertainty, so you don't have these potential problems. And again, Ronald Coase wrote a very famous paper where he talked about/he gave examples of essentially situations for zoning [that] would have fixed an externality, whereas zoning would have fixed a problem. But because there wasn't zoning, people had to sue each other, and [then] go to the government and deal with all that. And you may not know who's going to win, because there's no overriding kind of standardization feature or anything like that. And that is from an economists perspective -- the idea behind having zoning -- so that I know that I don't have to worry about these things. I know what's going to happen in the future, because we would like to think that zoning doesn't change much. And given the long time horizons, as you mentioned for these developments, you would hope that things kind of maintain. And so if you buy a house, you kind of hope that basically the neighborhood's gonna be more or less the same. And so you can you can reveal your preferences more easily without weird shocks to your system (and to your house). Because given that housing is the average person's biggest source of wealth, it's a big deal if somebody decides to bring in a located prison next to your house.

Stitzel: So it you kind of said there that you think the zoning helps with preventing some of those externalities. And I think there's a there's probably a really good case for that; and I really wouldn't spend any time arguing with you about that. What I'm curious about though, is one of the topics that has been a real common theme. You know, that I think the thrust of this podcast is to find applications of economic thought, and to say what are things that we think about and tools that we have in economics that other fields don't? And one of those things is thinking on the margin. And so I'm going to set you up with a little personal anecdote and the audience can have a laugh at me is -- so I built a deck out back in my house. And I wanted to build 18’ by 12’ or something like this. And so because I'm a good citizen, I called the city and I say: okay what do I need for permits, and this, that, and the other thing? And they told me: well if total area of your deck is gonna be more than 200 square feet [then] you end up having to have a permit, right? And so in some ways if we think of zoning as: you can't build a prison next to my daycare, [then] that seems like one of those externality things that maybe you and I can agree [to be] a good thing to solve. So do you have comments related to sort of which margin we're on with many of these policies? Or maybe just sort of, you know, my begging the question in an unfair way when I say: is this really a thing we want to be doing where my 206 square-foot deck has to have a has to have a permit? But if I'd have made it 199 feet square feet, [then] I wouldn't have to have one?

Dronyk-Trosper: Mmm-hmm. Do they require you to build any railing as well, or is it just…?

Stitzel: They had railing specifications. Thankfully mine was very low to the ground. So that wasn’t a problem.

Dronyk-Trosper: Okay, got you.

Stitzel: There were specifications related to like if I was gonna put a roof on it, then the pillars had to be certain depth in the ground, with concrete covering a certain portion of that. And, you know, I'm sitting here thinking: like, I love Amarillo to death; the weather isn't the nicest here, but one of the things we don't get a lot of is snow. And so I don't know why we have such strict regulations related to how sturdy the beams that I put my roof on, you know? Because I could read some of what they ended up pointing me to. Where it's like, you know, they're literally doing the calculation in the form of: like, the square footage versus, you know, the amount of snow that can sit on it before it collapses. And I'm like, gosh we're in Texas. I'm really not worried about my deck falling on my head. So you know, they're really, I mean, they just had it down to every little detail, right? And the size of the, you know, pillars that had to be in the ground supporting the posts, and what thickness and measurements of all the component wood is really, you know (in my estimation), gone way too far at the at the risk of tipping my hand. And so I just, you know, not asking you to comment specifically on my case.

Dronyk-Trosper: Yeah

Stitzel: I'm just using that to motivate a broader question of: where do you think the zoning versus these like weird housing [and] I don't know what you'd call that, but these weird regulations are?

Dronyk-Trosper: I honestly think this is something that economists broadly could really help cities deal with. Because cities particularly, you know, from what I've seen -- not just your urban planners they know to some extent, but the people who run cities [i.e.] City Council's and people who make a lot of these decisions are engineers and people like that -- they're not trained to think on the margin necessarily. And it's not that they can't; it's just that, you know, different people have different kinds of training and different skills. And because economists are trained to think on the margin, you could you could easily make a case that an economist could be extremely valuable to cities just by going through the code and finding areas where you have things like discontinuities. Like, you know, why is it so different between 199 square feet and 200? Well we know there's not a difference; that's just an artifact that somebody put in place. But fixing things like that, [and] making things, you know, removing discontinuities, or identifying things where the value of a regulation is a lot lower than any kind of benefit you're going to get out of it -- those are the kinds of things that economists are good at. That's what we're trained to do. And that's where a lot of value could be put in and brought in. I, you know, I'm a big fan of having cities and talking to cities and saying, you know, you should bring in economists just to poke around. And I think you'll start to see their value pretty soon -- once you realize the way they think, and what they can do at identifying these quirks, and pointing out and giving actual numerical reasons behind why they don't make sense. Because sure on a broad scale, zoning can make some sense for removing externalities for dealing with some of these things. But then you get in these nitty-gritty details and you start to ask: well, what/where exactly is the actual benefit from having people step through all these hoops? I mean, is there really any benefit? You know, I could see why you might say: oh sure, you know, we don't want snow collapsing on you; but how frequently does that happen; what is the likelihood of that? I mean is that regulation only there because one time 50 years ago it happened? You know, do we really want that regulation to stick around if it's a 1 in a 50 year or 100 year event? I mean, it's something to think about.

Stitzel: Well and I point out, you know, that does incur real cost in several different dimensions, right? One is that took 2 hours out of my afternoon, right? And then I'm out measuring things on my calling people, and looking at forms that really didn't do anything. And I'm wasting some city officials time too, you know. And she didn't want to be on the phone, because she doesn't want to talk about these things either, even though that's her job, you know. And I end up potentially making a decision that doesn't fit my preferences, right? So I didn't randomly choose. I built the deck away at you to expect an economist to build a deck -- which is I'm sitting here calculating costs – and, you know, if we spend this much more [then] we get this much more deck. And then, you know, and I'm sitting here and, you know, my wife is a carpenter, so we have sort of the double whammy thereof. She's calculating like, okay if we want a table and six chairs, like this is how much space we need, right? So we had it dialed down. I didn't pick a number out of the air. And so, you know, so I have a 206 square foot deck; whereas I wouldn't need to fight with the city if I just, you know, cut seven square feet out of it somewhere. You know, but those were all literally (all of those things are) real costs. And I probably don't need to be encouraged. So, you know, I do think you raise a good point in saying going through some of these regulations, I think, would be a really good idea. So before we jump away from this topic, you let off/you kicked us off with the meat. You said the City of Canyon has 240 pages of land regulations? Is that what you said?

Dronyk-Trosper: Roughly, yeah.

Stitzel: So tomorrow you get hired [and] paid lots of money; because you're a very/you’re an expert on the topic. You get paid lots of money to come here and work for the city of Canyon and rewrite or work through these kind of things. Do you throw it all out and start from really simple principles? Do you try to prune through it page by page? Like what's your mindset? What's your process there?

Dronyk-Trosper: My mindset, honestly, would probably be to throw it out and then add back in. So take everything out. Start thinking about the broad principles. Take it from a, you know, the bird's eye view approach and say: okay what are our objectives? Because, I mean, something that sometimes get pushed by the wayside (and this is, I think, the economist side) is that sometimes, you know, we think about optimizing; we think about maximizing preferences and things like that. But a lot of that depends upon what your objective is. And cities and might not be aiming for an objective of everybody's utilities maximized or the total utilities maximized. Their objective might be something a little bit different.

Stitzel: Right.

Dronyk-Trosper: And so contingent upon that, right, did that mean/that means that you may not be targeting what you think? So we one of the most basic things to do is to identify (what do you actually) what's the city want to do with its land use regulation? Is like/what is the objective? Are we trying to make just everything as safe as possible? Then that's a very different set of regulations than saying: well we want to bring people in [and] we want to grow the city. Asking those kinds of questions basically tells you where to go. But either way, most likely the city's latest regulations don't actually satisfy any single objective. They're amalgamations of a lot of different ordinances, optimizing a lot of different ways, and with no overriding objective function that we're trying to get to. And so my first thing -- we're gonna throw it out the side okay -- what's our guiding principle? Let's start adding back in the stuff that already makes sense, that was in there, and then move from there. And then say: okay what can we add [and] what can we modify to bring it up to what we're trying to do?

Stitzel: So how do you balance that with, you know, throwing that out versus keeping not the things that you just mentioned (which I think of very good things to think about for the idiosyncrasies of Canyon itself)? You know, maybe Canyon is/has some unusual-looking regulations, because it's so windy here for example, right? So like, Amarillo, it's the windiest city in the United States, right? You think that's its Chicago, but no it's us here. Like, you know, so maybe/that may be the amount of support my roof gets from as protection from snow isn't so important. But how securely its fastened down here in the Texas Panhandle -- maybe that's really important. Any comments on that how you balance that?

Dronyk-Trosper: Yeah, I mean, a lot of that would come from -- yeah my objective I would throw it out, find out what the objective is, and then like I said, I would start adding back in. So I would go through and I would find the regulations that are obviously targeting something specific. And [I would] say: okay well, this makes sense, or go ask somebody so why is this/why was this ordinance passed, you know. Like, were they trying to deal with something that is/it is a common problem with the area? I mean honestly to some extent, this is why hiring and talking to locals is so important. Because they're, you know, they're the ones [that] have the institutional knowledge about what's going on. They know that, okay you know, we face a lot of wind. So if we're going to design stuff, we need to make sure that we're designing it with that kind of wind in mind. Or we're dealing with rain, or hurricanes, or tornadoes, or whatever. I mean not an insubstantial number of these regulations often come about because you're trying to meet natural disaster guidelines. Particularly earthquakes, I mean earthquake [are] the big one that requires a lot of building structure and design that are different than what you would normally have.

Stitzel: Even more than flooding?

Dronyk-Trosper: To some extent even more than flooding. Because honestly, you know, having lived in Louisiana, unless you've got a big house, you can always just put it on stilts.

Stitzel: Okay so I want to turn the conversation a little bit now because we've mentioned this, I think in passing, more than once. So one of the things that always puzzles me, and this is actually probably from just a policy perspective in general, is how many policies get passed at levels higher than they ought to be passed at? Federal laws being put in where every state ends up needing to follow it. State laws where every city ends up needing to follow it, and so on. Where it seems like you'd really, like okay, like an environment (and when I say environment I mean sort of climate) why do things aside? It doesn't strike me that I think that many policies that come down and have these wide affects. You mentioned things like Virginia, or again those may not actually be good examples, because I think you're talking about undoing certain types of policies. But one of the things that I think would be really interesting is to allow people to sort of vote with their feet if you will. We've talked about labor mobility [and] that's a previous episode of this podcast that I'd highly recommend. And some you know falling labor mobility obviously just works so well with my idea. You know, but I have this idea in my head where we would have a system that sets a policy more locally. And allowing people to be like: well I don't want to live in an area where there can be, you know, prisons built right next to daycares. But maybe there are people that want to live in the Wild West, and we're likely to get lower house prices because of it. So can you talk a little bit about that? [Talk about] like the level of policy that's being made? And then [talk about] sort of -- what are the consequences that would allow consumers to make trade-offs based on their own preferences?

Dronyk-Trosper: Mmm-hmm. So you actually bring up a good example in the Oregon and the Virginia bills. Because, while by eliminating single-family zoning, one of the side effects is that should increase density. But that also means that -- if you're in, you know, if you bought a house in a an excerpt of a city with the intention that you wanted a small quiet place, [and] you don't want a lot of traffic on the roads, [and] you don't want a lot of people around you hey -- the state just said: eh tough luck, you know, you're gonna have to deal with that if somebody wants to build that there. Now maybe you'll luck out and nobody's gonna want to build apartments in your area. But you don't have a whole lot of choice now. You know the state decided that, you know. It's not like you could even go to your City Council and plead a case and say: you know I don't think you should do this. As well, I mean I think there are there some of these. And of the big issues/one of the big argument[s] [is]-- so California was also talking about this recently -- where they wanted to pass a bill that would force cities to up zone around transportation hubs (so right in the neighborhood of trains and things like that -- train stations). But it's the same idea, right? So you could already have people that are living there [and] that are happy with their situation. And the state has now decided that you don't have any say over it. And, I mean, an individual's power and deciding what a state will do is a lot lower than your individual power [at the] local government [level]. I mean, this is where the one advantage of low participation actually helps (if you really care about something). You can really have your voice heard at the local level, but you're not going to at the state [level].

Stitzel: It's even more than that, right? Because it's much harder to escape a state level policy, which --states versus, you know, if you have one policy, and then the next city over has a slightly different policy, [then] isn't that difficult for me to move one city over and -- that's kind of part of my argument there.

Dronyk-Trosper: Yeah. Yeah. So and of course I and you know this, but this is the Tiebout [methodology] sorting idea that is contingent on a handful of basic assumptions. We would like to think that in a city with a lot of options [and] a lot of places, [then] people will sort into what they most prefer. And as soon as you start putting in place state policies, some people may be happy. You may even make some people even more happy. But there gonna be some people that are not gonna be happy about it, and you are eliminating their option to move to someplace else. And this is particularly problematic as we're seeing movement rights amongst younger generations decline. And as we're seeing moving costs increase -- its you're not just implementing a policy that may have negative impacts on people -- those negative impacts are gonna be harder for them to get away from. And that's again, that's a costly, costly decision. Now, you know, maybe it's a good thing on average. But, you know, one of the things that whenever I've taught courses/economics courses (I mean one of the first things always talk about) is that economics is really all about identifying winners and losers. There's almost no public policy that you can define that will have all winners or all losers. There's always gonna be somebody on both sides, and you have to decide who you're willing to make happy and who you're not willing to make happy. And these state level policies are designed to make certain segments happy, and they're gonna hurt other people. And that does kind of bring into the question of: if you were to make those same decisions at a more local level, [then] can you reduce the negative impact while keeping the positive impact the same? And I think that's some of the argument behind why you have some of these YIMBYs that are really pushing for changes, in like San Francisco where sure the local populace might be happy with the zoning schemes and the way the system works right now; but it may be more beneficial, on average for everybody, if you actually have a change in zoning. But that way if you change it in San Francisco, [then] it doesn't impact the people there in the suburbs as well. So, you know, there's definitely something to consider on these sorts of things. And there's concerns that come up. At the end of the day it's all about, you know, how many people are becoming winners and is that outweigh the losers essentially. And that's presumably what the objective is. I think one of the biggest problems with these sorts of things is you don't/none of these bills have economists that are coming in and saying: hey, you know, you're creating a lot more negative effect (like a negative impact) that you are positive. Nobody's coming in analyzing this stuff. One of the biggest problems is -- that any almost any policy made at the state or particularly the local level [that] you don't have economists coming in and being able (to say at least, at the very least, even if the city still wants to do it at least) -- having some sort of cost-benefit analysis. And if they do, it's very simplified. And I’ll be honest/honestly, most the time that's limited to the big cities. Smaller cities don't have the funds to do that.

Stitzel: So I didn't bring you here obviously to talk about the political process or, you know, sort of public choice type stuff. But I am gonna, I am gonna go ahead. I'm fortunate enough to know some of your educational background. So I know you and I have had these kind of discussions before. Even when you do have these kind of studies, you know, I publish in literature that estimates, you know, impacts of these kind of public investments. People like you and I that make it our work to get accurate estimates of these things that don't really come at it from a biased perspective, you know, [because] we're doing it for the sake of science. We're not the people whose reports get read in your city council meetings. They don't get sent to your city managers they don't end up in state level Senate or Congress hearings. They hire people that are essentially selling their side of these kind of things, you know. So I didn’t know if you had comments on that? Because I don't want to put you right on the spot. But I, you know, I'm almost even more hopeless than you saying: well not only are those things not happening, I think even if they were to happen in name, they probably wouldn’t be good things anyway.

Dronyk-Trosper: Yeah. I mean (I maybe) that is just my hopeful bias that if the reports were out there somebody would read them. But I mean it is questionable. And I mean this goes into a lot of, like (one of my big issues that I've been about recently has been a lot of these things like) tax increment financing and other mechanisms at the local level; [whereas they] are all about trying to spur development either through giving away tax breaks, or reducing future taxes, or just outright providing extra services to an area. The literature, and the academics, and most economists seem to be pretty much on the same side -- which is the vast majority these are bad ideas. And a lot of it isn't even necessarily the fact that giving money to somebody to move to a place [or] giving money to a business is essentially a bad thing. A lot of it's just design. So I'll give you an example. Washington State very famously gave $8.7 billion dollars to Boeing back in 2013. Big, big, big, big tax break. It's given out over like 20 years, so it's not as big as it might seem at first. But, you know, it's still saving them hundreds of million dollars (hundreds of millions of dollars essentially every year). And the idea was they would do this and stay. Well Boeing technically stayed, but they also laid off 15 percent of their workforce.

Stitzel: Hmm.

Dronyk-Trosper: Well to be more precise, they actually moved them. So Boeing stayed, but they moved the jobs to other states (South Carolina and Kansas if I recall). The reason why they could do that and still get these tax breaks, is because whenever they designed the tax break that they were going to give (that Washington's gonna give) to them, they didn't actually put in a thing that said: you must maintain a certain number of jobs, or you must maintain anything. They basically just said: here's a tax break; please stay. And of course, companies aren't dumb. You know, you give them a bunch of money and you don't could make it contingent on anything, [then] they'll do what they need to do. And so the funny part about this is -- those jobs that move to Kansas and South Carolina moved there because they both those states gave Boeing money tax breaks as well. But those states made it conditioned on number of jobs, so they transferred jobs away from here to take advantage of tax breaks elsewhere.

Stitzel: So you've mentioned a couple of important things. And what you're describing, right, is what we might call something like a race to the bottom. We just cut our tax rates [and] cut our tax rates, right? And so we end up in this bad situation where there's only so many Boeing -- whatever -- plants or headquarters to go around. And so we get cities to compete against each other. And because they want those jobs, they're gonna end up doing that. And you end up in this bad political equilibrium where you end up feeling like you need to compete for them, when economists would point out like this is not a good scenario. You know Kansas cities’ going to steal your jobs away here shortly by just given a better tax break, right?

Dronyk-Trosper: Mmm-hmm. Oh.

Stitzel: I'm sorry do you have a comment about that?

Dronyk-Trosper: No. I was just basically gonna agree. I mean there's actually read something recently that was analyzing a system in Texas. I don't remember what it was called unfortunately. But it was a system that was essentially -- a either you get it or you don't. And they kind of exploited that to study the effect of development and tax incentives on development. And they found that something like eighty percent of the firms that got the tax break (that Texas was giving out) were gonna move to Texas anyway. So it only so it might seem like on paper [that] oh you have all these jobs they're coming in because this tax break (because all these companies are taking advantage of it), but in reality only about 20 percent were actually moving because of that. And that's what you care about. You don't care about what they were going to do. You care about the behavior change.

Stitzel: And that's exactly an example of the type of analysis that I was talking about earlier where economists are gonna try to estimate things in comparison to a counterfactual (which is an extremely difficult thing to do). That's part of why you and I end up going through the training that we end up going through [in order] to try to be equipped to do that kind of thing. Whereas, if you just look at numbers and just say: okay well, we started the policy here, and then we had, you know, 80 more jobs (well that's 80 jobs came to by that), you know, maybe you'd have 40 of them anyways. Before I turn on to sort of our last topic here, you did mention tax increment finance. Can you lay out for the audience kind of what that is? Because I think we've done a good job so far making sure we nailed all our definitions. So lay out what tax increment finance is since you mentioned that earlier.

Dronyk-Trosper: Yeah, it's a good point. So tax increment financing are districts that are set up normally by the city. Sometimes they're a little bit more kind of privatized to some extent, but most of the time they're set up by the city government. And the idea is in this: within this area (so it's a physical geography) you will get, over the course of some time period, tax breaks. So the most common is: if the sales tax is 8 percent in the area, [then] maybe you only pay 4 percent, but you'll still collect the full 8 percent. But the other 4 percent (so 4 percent) essentially goes to the city, and then the other 4 percent would be put back into the area. So it would go back into building infrastructure or providing services (extra services) for the area. Maybe it goes back into like a development fund that can be used to find more businesses to come in. And the basic idea is [that] you reduce taxes in this area through some mechanism in order to encourage development of the area. These tax increment financing districts TIFs are supposed to mainly only be used for blighted areas -- so areas that are not developed or they are in in rough shape and the city feels like they need to be redeveloped. And so it's just essentially another form of what we call of the broad scheme of what we call place-based initiatives. Things are designed around getting around/essentially trying to attract on the margin companies, or businesses, or people --whatever you can do [or] whatever your objective is. But the idea is: you're selecting a geography that you want people or businesses to move into, and [then] you provide benefits and incentives to have them do that.

Stitzel: So let me ask you two questions here -- not to get too down in the nitty-gritty there. But it's also really common to do tax increment financing district and then have it be [centered] around your property taxes, right? Because they can kind of take the area of the values like that, then you've freeze it to a certain amount (just like you said). And you still collect the whole thing, but only a certain portion of that goes to the city. And the idea is: well they build here, so the property tax goes up of course. That works just as well as sales tax.

Dronyk-Trosper: Mmm-hmm.

Stitzel: But you see, I think you said [that] sales is more common. Is that the impression that you get -- that's more common for people to do that based on property taxes or sales taxes?

Dronyk-Trosper: I believe it's most commonly on property taxes, but don't quite quote me on that. I actually haven't seen anybody really do a good, like, broad statistics on just the basics [of] what these look like. But my impression has been [that] they tend to be used more for property taxes, because there's a little bit more of a connection between the value and what you're paying for in the area. But I've seen more and more sales taxes being used. I think largely because as a nation broadly speaking, cities and states are moving toward collecting more in sales taxes and less through other means. There are so many property tax limitations now put in place across the entire country that moving away from property tax collections has been a significant deal for cities.

Stitzel: So yeah that was my impression too (when I -- it's been a minute since I've done any reading about that), but I was thinking that it was property taxes through the large part as well. And then the one, again at the risk of being too far down in the weeds, you mentioned (and I think all those things my reading of the literature fits exactly what you're saying) which used that sort of 2nd 4% [sales tax rate]. Are there cases where the cities put up, like, a bond in order to do some of the things to attract businesses (or sometimes it's housing into those areas), and then use the increment to pay down their bond? Or that's something I'm misremembering?

Dronyk-Trosper: No. They can they could do that as well. There's a lot of different ways they can do that. So that's essentially just a debt financed version of a TIF. So you go into debt and then pay it back. Yeah.

Stitzel: Okay.

Dronyk-Trosper: In turn…

Stitzel: Sorry, go ahead.

Dronyk-Trosper No, go ahead.

Stitzel: I wanted to turn to one last topic here. We've mentioned this, [and] we've implied this several times in passing, right? And I think it's worth [that] we'd be remiss as economists if we didn't about this fairly directly -- which is to say [that] all these things that we think are solving externalities, [in actuality] they potentially have good reasons (it may be depending on which margin we are) they, you know, maybe not worth the cost. Let's talk about what some of those costs are for having these kind of regulations in place -- all the things that you've mentioned -- all the zoning and the height and distance restrictions that you've been talking about. And of course we've implied several times throughout here that that has been an issue with housing prices. And so I want you to talk about that mechanism a little bit. And then we've mentioned, I think, San Francisco multiple times (which of course is the most prominent example [and] what I think Seattle is another good example of that). Can you talk about the connection between the regulation and the prices -- maybe even giving us a little econ 101 in there -- and then talk/and maybe even talk about specifically in the context of Seattle and San Francisco?

Dronyk-Trosper: Sure. So as economists we kind of have this theory that you could/that the price of a home/what you buy in a home is: essentially everything that the home gives you. A straight forward response that most people think of is the size of the home -- besides the lawn, and the quality how old it is, bathrooms, bedrooms, [and] that sort of thing -- those are the most straightforward things that a house gives you. But there's a reason why they always say you know what's the most valuable thing -- it's location, location, location, right? And that's because the other big thing that you get out of a house is where it's at. So that means do you have access to a good school? Do you have access to transportation services? Do you have access to nightlife or businesses that you like? Do you have access to your work? Can you walk there versus having to drive an hour? Do you/what kind of services do you get from the city? All these things are all amenities and they all determine what essentially the value of a house is. The more of these things you have, [then] the more valuable a house is broadly. So the value of a home isn't just based upon what it physically gives you, but what it gives you access to. And so what this means is that cities (and to some extent kind of the collection of decisions that people make) have an impact on housing prices in the area. So whenever you're talking about home prices, [then] if you change services -- so for example if I am in an area, and all of a sudden they put in a new school (and it's extremely good school), then what's going to happen is people are going to want access to that school. So essentially you start to see people wanting that. You start to see demand rising. But homes, particularly if they're zoned as single-family homes, the supply is relatively fixed. Just because you have a new school doesn't mean you can now add housing. So what you have is a situation where demand starts to increase but supply is perfectly inelastic. And if you just throw that up on any econ 101 chart, you'll see exactly what happens -- and that is prices start to skyrocket. And that's basically what we broadly see in in San Francisco, Seattle, Boston, [or] any of these places. You have large segments of the land area (in San Francisco I think it's something like 70% of the land area) is zoned single-family. You can't build more housing in those areas. You're essentially maxed out. So anytime you have an increase in the quality of services -- so you have something that causes demand to increase whatever it may be --then you're going to have housing prices go up. And there's not really a mechanism to relieve that. There's not a mechanism to relieve that without increasing the supply. And that's actually one of the biggest reasons behind all the YIMBY movements (is affordable housing is what they refer to it as). But we're not talking about affordable housing, like, oh you know, Section 8 house or things like that. We're just talking about middle-class housing. I mean, you know, if you're earning middle-class income anywhere else in the country, [then] it's not going to get you anything in San Francisco. And so the idea for this is just we want more homes. The idea is if we can increase that supply. So if we imagine an inelastic supply, you start increasing that somehow through building new homes. Then guess what? Housing prices fall as long as demand isn't also increasing faster than your supply. And that's essentially what's kind of going on. You look at housing construction rates, and any of these big metro areas, [you can see] they're extremely low. But they're valuable as far as what people want. People are streaming into these cities. You have Silicon Valley and all these places that are moving in and creating jobs. And people want to locate near those jobs, [so] that pushes demand for those homes higher. And that causes prices to go higher because they're not building enough to respond. And that's why the idea. And that's a lot of the reason behind these movements -- to remove single family zoning. So you remove that. And you remove one of the biggest barriers to developing more dense structures -- which means developing more housing.

Stitzel: So when you say housing, in this case, when we remove single-family housing, and you get more building in that area, [then] are you talking about, like, apartment complexes? This the kind of thing that's gonna help increase the density? Or do you have something else in mind there too?

Dronyk-Trosper: So there's a lot of pressure on two points -- one is minimum lot zoning/minimum lot requirements. So in a lot of places that have zoning, you can't have a plot of land smaller than some square footage. And so that means that you can't subdivide housing. One way you can increase density without removing single-family homes is by just allowing smaller homes. And so you can do that by allowing, you know, that 3,000 square foot house to be divided into four different smaller houses. I mean all of a sudden you've, you know, added three new housing units. If you do that enough, [then] that could potentially have a significant impact on housing prices, just in and of itself, without even moving to apartments or anything else that's even higher density.

Stitzel: So forgive my ignorance here, but what/which of the externalities that we were talking about earlier do you think the minimum lot sizes are trying to solve? Is that just the density itself or..

Dronyk-Trosper: That's actually really good question, and I don't have, I don't have one answer. I have several potential answers. One of which goes back to the origin of zoning, which is that a lot of minimum lot sizes were all about keeping out low-income individuals. So whether it's racial or income segregation -- its segregation. And the idea is: that if, you know, if you have a big 3,000 square foot lot, and you don't allow it to be subdivided, [then] the only people that can move in are people that can afford that. If you allow it to be subdivided, you now allow lower-income people to move in. So that's one potential reason behind why that may exist.

Stitzel: It's a sneaky way to sort of attack the income of potential people moving in.

Dronyk-Trosper: Yes. But if you look at some from an economic perspective, there's been some arguments that you actually may want minimum lot sizes. Because according to the Tiebout [sorting methodology], you know, I'm gonna vote with my feet sort of thing, [then] one of the key problems that will upset this balance (of oh I have lots of options and lots of places I could move to) is if you have really low, low cost location that you can buy in a high cost area.

Stitzel: Right.

Dronyk-Trosper: So it's, so I'll go ahead and get into this. So whenever you think about property taxes, there's two ways that you can think of it. One is how much in total you pay, but also what the rate is that you pay on the house. So you could, for example, be in an area that has relatively low property tax rates, but very high property tax collections. And that would essentially be represented by very wealthy big homes/big expensive homes. Or you could be in an area where you have very, very small homes, and your property tax rates are very, very high. But because the value of every individual home is low, your total property tax collections may be low. Now the problem is: let's say you're in a wealthy area where you have lots of income, people are buying homes, [and] there's a lot of services provided because of all this income that's being generated. Because the value of these homes are so high, property tax rates can be low. If you don't allow/if you don't force minimum lot sizes, there's the potential for a person [that] could come in [and] buy a really, really tiny house (like a 300 square foot house or something) and live there. And they would pay extremely low amounts of money, and get access to high, high-quality services -- essentially being able to (it's not true free riding, but it's kind of on the way) to free riding off of everybody else. And so one of the things that the Tiebout kind of sorting (Tiebout methodology) argument goes about is saying that you have to have a way to ensure that people can't exploit these differences between rates and how much is being brought in. And so economists some/economists might argue that minimum lot sizes are actually ensuring that the Tiebout sorting works -- that people reveal their preferences by actually going to some place. Because otherwise, that low income person that can move into that wealthy neighborhood is kind of (they're kind of like a bad word) cheating the system [and] they're getting something out of it they're not actually paying into. And so if you have these minimum lot sizes, [then] you ensure that that doesn't happen.

Stitzel: So let's do a little thought experiment. So I got three cities. And I have City A [with] high services, you know, expensive homes [and] minimum lot sizes. And I have City B and it's the same as City A, [but] doesn't have these minimum lot sizes -- they're all these people that are borderline free-riding in their, you know, little cardboard box houses that are right next to the mansions. And then there’s City C, which is sort of, the low services and then probably therefore lower house prices, right? What's that equilibrium gonna be when I click run on this simulator? Are the wealthy people in City B all gonna be trying to move to City A? All simultaneously City C people are trying to move to City B? What do I end up with?

Dronyk-Trosper: Yeah, so essentially you run into a problem where in B, as more and more low-income people try and move into the area, (assuming they're able to) [then] they're requiring the same level of service as the high income individuals. Because you're bringing more people into the city, you now have to increase the amount of services that you're providing. But at the same time, your revenues are actually falling. And so you start to run/you start to lose/you start to go into disequilibrium. You start to lose what you've kind of had. Those high income individuals are gonna see their services start to fall and they're gonna say: this is not worth it staying here; I can just go to A. So they'll move out to A. As they move out, revenues fall further. And now the people that moved into B are now stuck in an area where they may actually have, they may actually have to be paying more and getting essentially the same level services as you would in C because of this. Because you have this this problem. Particularly because services have fixed costs -- they have capital expenditures and things like that. So it's not like you can just reduce services in a city to match the needs of the public.

Stitzel: Right.

Dronyk-Trosper: I mean it's one of problems with Detroit is that it has a huge expansive infrastructure, but not the/but no longer has the tax base to work with it. And so that…

Stitzel: Sorry, go ahead.

Dronyk-Trosper: So I'm presumably -- I would think that you would essentially see City B then start to empty out as people moved back into C. And then so the community shouldn't exist in the equilibrium -- would be the argument.

Stitzel: So I was actually about to bring up Detroit, because in our labor mobility episode we brought that up explicitly, right? And what we call housing lock -- which is that sort of infrastructure problem -- are precisely two things that we discuss a little bit in that episode. And it is really fascinating, you know. Because then you have this weird problem where ---you know, if you and I are sitting there in our mansions and you move to City A and I'm going to look around and go: wait a minute the housing stock is about to --- you know, the housing that's available is about to be really high. And then I'm gonna end up selling my house and take a big loss. And so you can actually induce people to leave a city, right? Because I don't be caught holding the bag. If I'm the hundredth person that tries to leave City B, [where] yeah I'm gonna lose ten percent on my house (or something like that). So it's a really fascinating kind of problem. But you're fundamentally arguing that's gonna end up being like a government budget type problem?

Dronyk-Trosper: Yeah. Essentially what runs in/what creates that is the limitations on the budget. If there's no limitations on the budget, then City B could maintain services regardless of who's moving in. And so long as there's no other kind of preferences that are problematic, City B could still keep operating. But eventually, yeah and in the real world, you eventually run into problems.

Stitzel: So we're over an hour here. So I want to bring this in for a landing. And to do that, I wanna/I want to have you weigh in on one last topic here which is: where do you see these kind of land use regulations and policy going in the future? What should we expect -- good trends, bad trends, things that you're worried about, or [things you’re] maybe even excited about?

Dronyk-Trosper: So as an economist that particularly, you know, whenever we do research often times bad trends are the most exciting trends, because we get to see what's going on. So to some extent, I think the bills going out at the state level removing single-family housing is really exciting. I'm not/I don't know if it's initially good or a bad thing. I think one of the valuable parts about it is that we haven't really seen a whole lot of that effort going on. I mean cities -- once cities implement zoning, [then] they pretty much keep it around. And so we haven't really seen these kinds of strong changes. And honestly, that's probably the biggest change that we're seeing is [that] for the longest time [and] for many decades NIMBYs ruled the nest. They were the ones that decided everything. And more and more we're seeing these YIMBY groups show up. And they’re willing to push for change and pushing for affordable housing. In fact, several of the candidates for President have put out/specifically put out housing policy discussions. And that's because, you know, I think it's becoming a bigger and bigger deal. The HUD (the U.S. Office for Housing and Urban Development) -- they're pushing for changes as well on this kind of front and looking for affordable housing. It's become a big deal because of just how extraordinary the expensive housing is in places like Seattle [and] in places like San Francisco. And I think one of the neat things that we do get to see some of this effect. So Seattle is actually a really good example of a city that has extremely high home values. But you're actually seeing home values not rise as rapidly as a lot of other places, because they've actually been stamping a lot of high-density. Downtown Seattle's getting very, very dense. So seeing all these apartments come online. And you're actually seeing in real-time the impact that this has on home prices -- that it's not necessarily reducing them, but they're certainly not growing as fast as they have in the past. And so I think a lot of these things are kind of interesting. A lot of the movement toward changes at the state level, and seeing how broad-based land use regulations are gonna change things, I think, is interesting. Because for the most part, we just haven't seen that. Land use regulation has broadly always been the purview of local governments. And states are getting fed up with these housing problems [and] homeless problems (kind of coming off of that). And, you know, if the states can't get cities to deal with it, [then] this is one method that states are thinking they can deal with it. So yeah, well we'll see what the effects are. I think it'll be interesting.

Stitzel: My guest today has been Trey Dronyk-Trosper. Trey, thanks for joining us on the EconBuff.

Dronyk-Trosper: Thanks! Great to get to see you and talk about this stuff.