A new book by Dartmouth College professor William A. Fischel highlights problems with land use restrictions and zoning laws. Unfortunately, Fischel’s proposed policy recommendations would cause more problems than they would solve.
The reach of zoning and land use restrictions expanded during the 1970s, when the growth control movement gained traction in much of the country. Existing homeowners, especially in the suburbs, began to limit growth in their towns through land use restrictions such as minimum lot size requirements or open-space preservation programs.
Limiting growth can create an artificial housing shortage that benefits existing homeowners, but it can also make relatively poor people worse off when they are priced out of their traditional neighborhoods or find housing unattainable where job opportunities are best. Restrictive zoning laws and land use restrictions, whatever their intent, lead to wealth inequality.
Fischel sees this problem, but instead of wanting to make everyone rich, he seems to want to make people poorer.
For example, he would tax the “imputed rent” a homeowner “pays to himself”—that is, the amount a homeowner would be earning if he rented his home out to someone else. This would lower home values, so prices would fall. Maybe so, but that’s a double-whammy: a higher tax bill and a reduction in the value of what for most families is their principal asset.
Public policy makers would be wiser to trust in the free market to allocate land to its best uses. Local land use restrictions are making housing unaffordable while infringing on property rights. They should simply be cut back or eliminated, with no need for elaborate schemes to further complicate the tax system.