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Houston remains unzoned.

On November 2, 1993 the good citizens of Houston, Texas once again voted to reject a proposal to have zoning in the only major city in the U.S. that remains unzoned. Houston voters decisively defeated zoning in 1948 and 1962, but this time the vote was close - 52 percent voted to reject zoning. The referendum on zoning was taken because the opponents of zoning gathered the 25,000 signatures needed to place the issue before the voters. The purpose of this short article is to speculate on the nature of the economic and political forces at work behind this vote. No hypotheses can be tested formally, but the reader will recognize the use of the Fischel (1985) model of zoning to structure some of the discussion.

Who favored zoning and who opposed it? A tabulation of the votes by precinct published in the Houston Chronicle (Nov. 3, 1993) shows that zoning was decisively opposed in low-income Black and Anglo precincts and favored in middle-income Black and Anglo areas. Hispanic voters also voted against zoning, as did higher-income Anglos. The votes went as follows:
Area                             Turnout         For Zoning


Low-income Black                  11.1%             27.9%
Low-income Anglo                  17.6              31.8
Middle-income Black               23.1              62.6
Middle-income Anglo               28.1              55.6
Predominantly Hispanic            13.1              42.0
Upper-income Anglo                34.5              43.8


The low turnout in the low-income areas suggests that, if voter turnout had been higher in these areas, the zoning proposal might have been defeated more decisively. Nevertheless, the voting pattern suggests strongly that the demand for zoning comes largely from middle-income people. Murray and Thomas (1991) showed that the voting pattern was similar in 1962, except that zoning was approved by 65 percent of the voters in upper-income Anglo areas on that occasion. Siegen (1970, 74) noted a similar voting pattern when zoning was defeated in Baytown, Texas in 1969.

What was the nature of the zoning proposal that was defeated? The proposed zoning ordinance, which is 275 pages in length and is accompanied by detailed maps, had been developed by the Houston Department of Planning and Development (1993) over a two-year period with the advice and participation of a wide spectrum of Houston residents. The proposed ordinance would have set up five types of districts; two are standard zoning categories and three are not. The standard zoning districts are exclusive residential areas (with four different density categories) and industrial districts in which residential use is prohibited. In addition, Urban Neighborhood districts would have been created in which commercial uses are permitted in residential areas in accordance with current land use. Permitted commercial uses would have been prohibited from expanding or changing. Open districts would have been created to permit any land use except for heavy industry, and Major Activity Center districts would have been designated for specific areas of high-intensity development with a mix of uses (but excluding heavy industry and single-family residences). Open districts were designated for the large areas of Houston that are currently undeveloped. About 30 percent of the city would have been zoned for exclusive residential use, 40 percent for Open districts, and 30 percent for industrial use, Urban Neighborhood districts, Major Activity Centers, and other uses. With the use of the Urban Neighborhood and Open districts, apparently the idea was to set up a comprehensive zoning ordinance that is in fact only "partial" zoning, and thereby mollify some of the opponents of zoning such as land developers and others who favor relatively unrestricted opportunities for development. Fischel (1985) argued that zoning probably has its greatest effect on undeveloped land, but the proposed ordinance largely eliminated this motivation for zoning.

It is reasonably clear that zoning is a service that is undersupplied in the Houston metropolitan area. Unlike most major cities in the U.S., Houston is not ringed by suburban municipalities. Under Texas law Houston has extraterritorial rights over areas within five miles of its city limits. In this area new municipalities cannot be created and existing municipalities cannot annex territory without the approval of Houston. Houston has taken advantage of this system to prevent the creation of separate suburban municipalities. Only a few small municipalities in the metropolitan area have zoning ordinances. These include Bellaire and West University Place, two small municipalities that are completely surrounded by the city of Houston. As Siegen (1970) discussed at length, residents of Houston use deed restrictions (and a variety of specific ordinances) instead of zoning to control the use of land in residential areas. A careful study of single-family house prices for 1978 in Bellaire, West University Place, and Houston by Speyrer (1989) showed that buyers paid 7.0 percent more for houses in areas with zoning compared to areas without zoning or effective deed restrictions. Houses in areas with effective deed restrictions sold for 8.7 percent more than houses in areas without zoning or deed restrictions, but the difference between the 7.0 percent and the 8.7 percent premiums was not statistically significant. Speyrer's (1989) results thus suggest that there is an undersupply of housing in areas with effective deed restrictions as well. However, these conclusions must be hedged because Speyrer (1989) did not include an extensive set of neighborhood quality control variables in her regression model.

The possible undersupply of zoning and areas with effective deed restrictions is easy to understand. The Houston metropolitan area lacks the small suburban municipalities that are dominated by middle-income homeowners and where it is normal to expect that zoning will exist. And it is difficult to set up a system of deed restrictions in developed areas without them. Such areas either have never had deed restrictions or earlier restrictions have expired. In Coasian terms, the "transactions costs" of setting up a system of deed restrictions in developed areas is high. Consequently, the middle-income homeowners turned once again to the creation of a zoning ordinance for Houston. Given the closeness of the vote, it is likely that the issue will surface again.

If the proposed zoning ordinance was designed to mollify its opponents, why did it fail to win approval? In a nutshell, the proponents of zoning made the conventional argument that zoning is needed to control negative externalities and protect property values, but the opponents of zoning pointed out that the real purpose of zoning is to "keep out the riffraff." Rarely are the pros and cons of zoning discussed so widely and openly.

Zoning advocates argued that trashy commercial uses can invade residential areas of any income level where effective deed restrictions do not exist. They argued that uncertainty caused by the lack of zoning means that inner-city residential development is inhibited. All residents of Houston will benefit from an increase in the supply of residential land that is protected from incompatible land uses. The proposed ordinance (Houston Department of Planning and Development 1993, A-1) itself says that the City Council has found that zoning is designed to promote any or all of a lengthy list of laudable goals. These include promoting the general health and welfare, preventing overcrowding of land and undue concentration of population, facilitating adequate provision of public services, providing a guide for the physical development of the city, maintaining property values by stabilizing expectations, encouraging redevelopment of areas of the city, enhancing the supply of affordable housing, lessening street congestion, and (last, but not least) providing safety from fire, panic, and other dangers. Obviously many people in Houston failed to see how zoning was necessary to achieve these goals.

The opponents of zoning said that zoning has many drawbacks. It was alleged that zoning will inflate housing costs by limiting the density of housing development, cause urban sprawl and waste energy, create a new bureaucracy that is susceptible to graft and corruption, and promote economic and racial segregation. It was also pointed out that using zoning to restrict churches will undermine freedom of religion!

The more careful critics argued that the evidence for the positive effect of zoning on property values is rather inconclusive. Some studies found that the presence of "incompatible" land uses lowers residential property values, but other studies did not. Fischel (1985, 250) reviewed the studies up to the early 1980s and found that studies of housing prices in central cities generally found little or no evidence of external effects, but that studies of suburban housing markets found such evidence. However, Fischel (1985, 237) has also pointed out that, if zoning is truly effective, it will be difficult to find evidence in cities with zoning in favor of the hypothesis that negative external effects lower property values. This observation suggests that an empirical study for Houston is needed. No such study has been done; the study by Speyrer (1989) did not include measures of proximity to incompatible land uses. One recent study by McMillen and McDonald (1993) examined residential land values in Chicago in 1921, two years prior to the introduction of the first Chicago zoning ordinance. This study showed that the presence of commercial or light manufacturing activity on the same block had no negative effect on residential land values. Indeed, the results showed that access to shopping and/or employment on the same block may have been a benefit, at least in the early 1920s. Of course, it must be remembered that very few people owned automobiles in 1921. Most opponents of zoning acknowledge that there are instances in which incompatible land uses create problems that cannot be resolved by private negotiations or deed restrictions, but they argue that it is not necessary to zone every square foot of a city to address those problems. For example, Houston uses a variety of specific ordinances to set up performance standards for certain types of land uses.

Given that the value of a zoning ordinance to control negative externalities was in doubt, the opponents of zoning argued with effect that the real purpose of large-lot, low-density residential zoning is to exclude poor people from certain areas. The referendum gave low-income people the opportunity to vote "no." Middle-income people view at least some low-income people (and the social problems that they bring along) as negative externalities. Indeed, discussions of incompatible land uses and negative neighborhood effects sometimes can be interpreted as thinly disguised references to low-income people rather than gas stations, commercial traffic, etc. Incidentally, one motivation for using zoning to exclude low-income people does not exist in Houston. The lack of small, suburban municipalities means that zoning cannot be used as a device to make the local property tax an efficient tax for the provision of local public goods, as envisioned by Hamilton (1975) and many others. In the Tiebout/Hamilton world of many small local governments, zoning can be used to force households to pay a minimum amount in property taxes. By keeping out free riders, this promotes the efficiency of the "vote-with-the-feet" model of local public goods. The middle-income households of Houston (and other large central cities) lack this mechanism for providing local public goods.

There may be a general lesson in all of this for research in the fields of land and urban economics. In the textbooks a distinction is made between "nuisance" zoning and "fiscal" zoning. Nuisances of various types can lower residential property values, and land uses that take more than they contribute to the local fisc can also lower residential property values. What are all of the factors external to the residential site that can have an impact on the value of the property? There seems to be no comprehensive list of such factors and no general theory to guide the creation of such a list. No standards exist to guide empirical researchers in the selection of variables. The usual approach (e.g., as in Speyrer 1989) is to use several variables to control for the physical features of the residential property, to add a few miscellaneous "neighborhood" variables, and then to add the variables of direct interest to the study. This approach has meant that research in the field is unsystematic and settles few issues.

It is obvious that there is a strong demand for zoning, at least by middle-income and upper-income people. It is not clear that studies of residential property values have been able to determine why this is so. Fischel (1985) portrays zoning as a method for the taking of property rights by the community without compensation, but just why are the property rights taken? Is it because a zoning ordinance makes it easy to do, and therefore the benefits to the community can remain vague? The motivation is to preserve and enhance property values, but just how does zoning further this objective? Middle-income people in Houston clearly demand zoning, but the proponents of zoning have been unable to convince a majority of the voters to favor zoning. Through the use of the Open districts, the proposed ordinance had been designed so as not to inhibit economic growth in Houston as a whole. The pattern of voting suggests that the demand for zoning stems from its use as a device for excluding lower-income people from certain areas.

References

Fischel, William A. 1985. The Economics of Zoning Laws. Baltimore: Johns Hopkins University Press.

Hamilton, Bruce W. 1975. "Zoning and Property Taxation in a System of Local Governments." Urban Studies 12 (June): 205-11.

Houston Department of Planning and Development. 1993. "Proposed Houston Zoning Ordinance." Houston: Department of Planning and Development.

McMillen, Daniel P., and John F. McDonald. 1993. "Could Zoning Have Increased Land Values in Chicago?" Journal of Urban Economics 33 (Mar.):167-88.

Murray, Richard W., and Robert D. Thomas. 1991. Progrowth Politics: Change and Governance in Houston. Berkeley: IGS Press.

Siegen, Bernard H. 1970. "Non-zoning in Houston." Journal of Law and Economics 13 (Apr.):71-147.

Speyrer, Janet Furman. 1989. "The Effect of Land-Use Restrictions on Market Values of Single-Family Homes in Houston." Journal of Real Estate Finance and Economics 2:117-30.

John F. McDonald, Professor of economics, University of Illinois at Chicago.
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Author:McDonald, John F.
Publication:Land Economics
Date:Feb 1, 1995
Words:2328
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