Anything Zoning can do, Covenants can do too

By Yevgeny Shrago

Slate economics blogger Matthew Yglesias recently released a new eBook single, titled The Rent is Too Damn High.  Yglesias’s book blames high rents on inefficient land use, caused largely by various governmental anti-density restrictions.  I’m highly sympathetic to Yglesias’s position.  Ideally, desirable land would be used as densely as the market would bear, lowering rents on each unit to make housing more affordable while increasing the effectiveness of government services and raising overall land values.  However, Yglesias’s focus on zoning and other governmental restrictions ignores the important private bars on density caused by restrictive covenants.

Although many communities enact zoning restrictions in order to maintain their neighborhood character, either in terms of architecture or income composition, communities subdivided from a larger plot of land have had the opportunity to restrict density without government intervention since the British case of Tulk v. Moxhay. By subdividing the land pursuant to a master plan, developers can and often do set restrictions similar to those that would be created politically. Private ordering can create minimum lot sizes, setback requirements and bans on guesthouses, all enemies of density that Yglesias correctly identifies.  Such covenants are not a small-scale phenomenon that collapses outside the subdivision scale. Houston’s famed (at least in urban planning circles) lack of zoning is largely a mirage, as deed restrictions and other mechanisms, like parking lot requirements, impose identical requirements.  Zoning requirements might be viewed as an agreement by property owners to avoid the hassles that come with trying to create a covenant, as well as the potential pitfalls of eliminating it if circumstances change, while reaping similar benefits.

What are those benefits? Although the obvious answer is protected land value, Yglesias points out that, upon reflection, this is logically impossible. The right to build as densely as the market will bear would make land more valuable than the current restrictions mandating large single family lots. If it didn’t, then that’s all developers would build, and the restrictions would be unnecessary.  Restrictions should be understood as an implied payment by the developer to the property owners, in the form of the houses costing less than they otherwise would, in exchange for their right to develop more densely than the master plan provides.  The developer then “destroys” the rights or somehow removes them from play.

When a city enacts zoning restrictions, it is essentially taking the development rights from current owners (although this does not constitute a taking for Fifth Amendment compensation purposes).  If zoning is politically popular, it might be viewed as an agreement by the majority to voluntarily give up their development rights in exchange for whatever gains they believe density restrictions grant, but this is cold comfort for those who would prefer to sell their property for more money when the restriction is enacted.

Aside from the potential harm to incumbent stakeholders though, covenant regimes can do everything zoning regimes can, except with less flexibility.  This is a two-edged sword, since they can’t be made more restrictive in response to social changes, but they can’t be made more flexible either.  Fighting hard against zoning may simply incentivize concerned landowners to take up an older religion.

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