Zoning laws preserve a city’s character and order, but are they also keeping out people and businesses?

Strict zoning laws stifle the creative and productive spirit of desirable urban areas. Places where zoning laws restrict growth see less construction and thus a less vibrant housing market. Instead of creating opportunities for new wealth, limiting real estate to its current housing stock effectively results in wealth transfer from new buyers to property owners.

This is the argument made in a new book, The Captured Economy. The authors argue our economy is rife with arrangements like restrictive zoning policies that merely transfer wealth rather than create it.

Wealth transfer slows down economic growth because it does not result in new goods or services.

California’s restrictive zoning policies

Across California, zoning restrictions have resulted in:

  • reduced construction;
  • failure to meet high demand for housing;
  • inflated prices of new and resale homes;
  • an unstable housing market as home prices rise faster than incomes can keep up; and
  • stunted homeownership and home sales volume.

These factors are keeping many would-be homebuyers out of the market entirely, forcing them to remain renters.

California is in desperate need of affordable multi-family residences, yet strict zoning laws prevent builders form meeting this demand because of vocal not-in-my-backyard (NIMBY) advocates maintaining the status quo. Low density, building height, and parking restrictions are the biggest offenders.

The Captured Economy’s claims echo first tuesday’s reporting on restrictive zoning laws. Historically, excessively rigid zoning has driven up home prices and caused a slowdown in new construction. In California, new housing has lagged behind population growth for several years because of outdated zoning policies.

There simply aren’t enough units to house our state’s residents — restrictive zoning limitations need to be lifted across California, especially in cities where the most job growth is happening.

Golden-gated community

For example, construction in San Francisco is especially hampered by restrictive zoning laws, particularly those controlling multi-family units. Only 193 new housing units were added for every 1,000 new arrivals in 2015, according to Zillow.

This example of insufficient new construction is partly thanks to the city’s long approval and permitting process. But the biggest problem lies with outdated zoning laws on building height and unit density. San Francisco’s preference for low-density zoning restricts builders from meeting demand, which impairs turnover and job growth in the process.

The biggest benefit loosening restrictive zoning laws will have is stability for the housing market.

Does more construction sound like a good idea to you? Real estate professionals can attend local council meetings and discuss the need for zoning changes with other professionals in the industry to reinvigorate the housing market in California’s most desirable areas.