Wednesday, August 16, 2006

McKinsey on zoning

Since we're already off the usual posting schedule this week, I'm going to do another short pass-along tonight and a normal post tomorrow. This is a short McKinsey Quarterly note on improving citizen welfare that references the deleterious effects of zoning. For those who aren't familiar with McKinsey, they are a prestigous management consulting firm that works with top companies all over the world. They also have an institute that studies government policy globally.

Putting consumers first

The most effective way for countries to improve the economic welfare of their citizens, a McKinsey study shows, is to increase the productivity of their companies, primarily by encouraging competition. Consumers benefit because when more productive companies gain market share, less productive ones must close their doors or become more efficient. Either way, consumers get better goods at lower prices. India's government, for instance, abandoned many limits on foreign investment in the country's automotive industry during the early 1990s. Prices fell, demand for cars exploded, and output nearly quadrupled.

(The graph doesn't seem to import into Blogger well. See it here.)

Yet in many poor nations, government policies—such as zoning laws, investment regulations, tariffs, and tax codes—continue to limit competition. For more on how policy makers can remove barriers to economic progress, read "The power of productivity."
As I've said before (here, here, and here), Houston is lucky to have avoided the zoning tax.

9 Comments:

At 6:00 AM, August 17, 2006, Anonymous Anonymous said...

in my view, deed restrictions are even more deleterious than zoning, and that's what we've had to rely upon due to the lack of zoning. With deed restrictions, unless the expire, there is almost no opportunity to develop the land in the future other than what some developer decided it should be at the time he/she originally developed it. There is actually MORE future flexibility with zoning, because zoning can and does change over time. And also, zoning does a much better job of protecting the owners investment than land that is neither zoned nor deed restricted.

 
At 6:34 AM, August 17, 2006, Blogger Tory Gattis said...

There are methods for amending deed restrictions. And they can be a much more local neighborhood decisions instead of a big city zoning board.

Deed restrictions can work well because they help protect the residential neighborhood the way it wants to be protected, and people know what they're getting before they buy. But the real advantage of deed restrictions vs. zoning is that deed restrictions don't usually cover commercial areas, so those areas have much more flexibility to adapt to market conditions. Zoning is usually very tight about exactly what kinds of businesses can go in what areas.

 
At 10:56 AM, August 17, 2006, Anonymous Steve said...

Actually Tory, there are significant commercial areas covered by deed restrictions. Most "masterplanned" commercial areas - Greenway Plaza and portions of Westchase are examples - have deed restrictions on land use and aesthetics, governed by a POA. The land use restrictions can be relatively loose (allowing retail or office or other things) compared to zoning, or they might not be - remember the difficulties with the reuse of Compaq Center for Lakewood Church?

Of course, your more "random" commercial / apartment strips -the bulk of commercial properties - are probably not covered.

 
At 11:39 AM, August 17, 2006, Anonymous awp said...

anon says

"And also, zoning does a much better job of protecting the owners investment than land that is neither zoned nor deed restricted. "


We dont need zoning to protect peoples investments. We already have a nuisance doctrine in our common law system.

 
At 12:53 PM, August 17, 2006, Anonymous Brian Shelley said...

My understanding of deed restrictions is that they are based on a contract between the members of a community. They can be more flexible than zoning because the people belonging to the contract more directly suffer loss of property value if the deed restrictions no longer serve to achieve positive economic value. However, they can and will be economically inefficient at some point if they don't change over time to meet with market demand. Deed restrictions usually cover smaller amounts of land (ignore the Woodlands) and so competition can still drive them to change their rules if land use preferences change. It is more obvious whether restrictions are a hinderance or a help if a neighborhood just around the corner is appreciating faster. With zoning I could easily see someone in Kingwood reacting negatively to zoning rules to accomodate apartment complexes that are planned miles away, and thus voting to limit the economic value in geographic areas that have little to no impact on them.

 
At 2:04 PM, August 17, 2006, Blogger Tory Gattis said...

The nuisance laws are a good point. They are a much better way to protect investments - they leave much more flexibility in land use decisions.

 
At 8:27 PM, August 17, 2006, Anonymous Anonymous said...

Deed Restrictions are fine if they are enforced. Rarely, if ever, does the City enforce them. If the neighborhood doesn't raise a stink in time and a foundation is poured for yet another townhome on a subdivided lot (when the deed restriction prevents subdividing) the neighborhood is out of luck. Our neighborhood in Montrose has had this issue in the past before we organized. Now we are usually able to catch offendors even though the city rubber stamps everything.

 
At 7:07 PM, August 21, 2006, Anonymous Anonymous said...

Zoning is terrible. That is why Sugar Land is ranked the #3 best place to live in the US and the most affluent and dynamic suburb in Houston...

 
At 7:37 PM, August 21, 2006, Blogger Tory Gattis said...

Cause-effect failure there. Sugar Land is a greenfield suburb close to the job centers of Houston with a mega-freeway connection. It would be doing well with or without zoning.

 

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