The Role for State Preemption of Local Zoning

Urbanists have increasingly turned to state-level preemption as a tool for reducing the barriers to new housing supply, recognizing the improved incentives for land-use policy relative to the local level. In a piece for the Atlantic Cities, Nolan sums up the potential for preemption to address current inefficiencies in urban policy. In addition to being a pragmatic tool to increase the supply of housing where it’s needed most, state-level preemption of local land-use rules is grounded in the American system of federalism that relies on higher levels of government setting limits on the extent to which lower levels of government can legislate or regulate away individuals’ rights.

As legal scholar Michael Greve explains in The Upside-Down Constitution, American government is designed to rely on the threat of residents (and their tax base) leaving jurisdictions that enforce exploitative policies. When residents are free to enter and exit jurisdictions, the places that provide the policy environment, business opportunities, and quality of life can expect to gain residents at the expense of those that don’t.

The opportunity for residents to “vote with their feet” by choosing to live and work in the places where they can best pursue their own version of the good life is essential to the American system of competitive federalism. When jurisdictions must compete with each other for residents and wealth, they tend to enact policies that support broad-based prosperity. Absent this competitive pressure, policymakers are more likely to implement policies that privilege special interests because they face a diminished threat of their tax base leaving the jurisdiction.

Preemption can play an important role in supporting competitive federalism as opposed what Greve calls cartel federalism — when special interests and policymakers benefit at others’ expense. For example, with the 14th Amendment, the federal government restricted the potential for state governments to pass laws that would violate the Bill of Rights for any citizens. In the case of land-use regulations, preemption can limit the ability of local governments to privilege homeowners at the expense of their jurisdictions’ renters and, perhaps even more importantly, prospective residents.

As William Fischel writes in Zoning Rules!, “Zoning and related land use regulations are the most jealously guarded local prerogatives.” Because homeowners are more likely to vote and less likely to change jurisdictions, their preferences are a salient force in shaping policymakers’ behavior. Fischel describes homeowners as “homevoters” because of their outsize influence on shaping how much housing will be built near their investments. Incumbent policymakers face little incentive to create opportunities for new people to move into their jurisdictions because the new residents may depose politicians, and the marginal increase of new voters that will come with land-use liberalization will do little to keep these politicians in office.

The collusion between local politicians and their homevoters causes the most harm in the most productive places in the country. The “spatial misallocation” that stems from land-use allocation means that rather than living in the places that offer the best jobs, people are living where it’s possible to build housing. As Ryan Avent writes in The Gated City, “America has made its most productive locations ever less accessible. The best opportunities are found in one place, and for some reason most Americans are opting to live in another.”

Americans in unproductive parts of the country are free to leave their current cities, but developers are not free to build housing for them in the places where they might want to move. A 1998 estimate found that several US cities had land-use regulations that accounted for at least 10 percent of housing costs. In San Francisco, land-use regulations accounted for more than half of home values. Zoning and other land-use reduce the benefits of relocation. Chang Tai-Hsieh and Enrico Moretti estimate that the GDP lost to due to housing supply constraints is $1.4 trillion annually.

Policymakers’ incentives for blocking development are greater the smaller the region they represent. At the state-level policymakers have improved incentives to promote the general interest rather than special interests in the housing market. NIMBYs cannot organize as effectively at the state level as they can in their own neighborhoods. While there are some local politicians who are unconcerned with population or economic growth in their jurisdictions, ambivalence to growth is less common at the state level.

California’s SB 35, which includes a requirement for housing-constrained jurisdictions to streamline their permitting process, is an example of federalism that places limits on the regulatory burden localities can enforce. SB 35 follows California’s restriction’s on local barriers to accessory dwelling units and its failed effort at state level preemption of parking requirements. State-level preemption may help the Golden State keep up the relatively high levels of construction that it allowed in 2016, providing supply in some of the country’s most constrained housing markets.

By privileging homeowners, local policymakers help ensure their continued stay in office. But the costs of land-use regulations are borne by people who are unable to move to opportunity and ultimately by everyone who suffers from lower innovation and economic growth relative to what would be possible in a freer housing market. Because land-use regulations interfere with the American system of competitive federalism that is designed to discipline policymakers, state governments have a strong case for preempting rules that lower level governments would use to block housing.