22 Pages Posted: 11 Dec 2013
Date Written: December 10, 2013
A paradigmatic developing suburb, Acton, Massachusetts, was zoned in 1955 to produce a community of 45,000 people. In 2010, Acton had about 23,000 people and is unlikely to grow much more. I develop a simple model in the Tiebout (1956) tradition to explain why Boston's suburbs, and by extension, most suburbs, have adopted land-use regulations that are arguably too restrictive. The baseline model is that of a single developer who owns all the land in a community and commits herself to a master plan. Private covenants assure that the community will be fully developed, and competition among community developers creates at least locally optimal densities. This outcome is contrasted with a model in which undeveloped land is owned by many developers, who must coordinate their land-use decisions by way of public zoning. Their initial zoning plan is disciplined by the wariness of prospective homebuyers, who decline to buy homes in towns without zoning. New homeowners, however, realize that developer control of zoning could lead to changes that will result in excessive density. As enough of them arrive, they take over the reins of zoning to avoid overdevelopment.
In a stable housing market, I show that a system by which all homeowners pay for community services by property taxes plus exactions or impact fees for later, higher-cost development leads to the same optimal outcome as a private developer. Finally, I argue that an exogenous shift in housing demand, such as that caused by unexpected inflation in the 1970s, and the (perhaps endogenous) adoption of extra-municipal regulations, is apt to cause all zoned communities to adopt additional restrictions. These can be modeled as if the town acquired a monopoly on development rights because other towns simultaneously limit growth. Acton and all of Boston's suburbs and those of other high-productivity metropolitan areas end up with populations that are arguably too small and housing prices that are too high.
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