Local zoning regulations are in desperate need of reform

I wouldn’t usually share a Reddit post, but an Australian Reddit user posted a tragicomic takedown of his/her local zoning regulations that are over 1,100 pages in length (see below). The 1,100 pages are a litany of prescriptive use rules detailing every aspect of what can be built where with little economic or social reasoning.

According to the Reserve Bank of Australia, zoning costs are $355,000 out of the average $870,000 property price in Sydney and even worse in other cities. And the user estimates an impressive 8% of their property taxes are used to fund the review of building permits.

Inefficient local zoning laws are known to be some of the most economically destructive. According to economists Enrico Moretti and Chang-Tai Hsieh, the U.S. economy has lost out on nearly $1 trillion in economic growth as the result of zoning laws. The vast costs and convoluted process reduce investment and supply of housing, making the whole economy much less efficient and less mobile because new buildings take too long and suffer from too much red tape.

Unfortunately, the political economy of zoning laws is not in favour of encouraging more development. Incumbent property owners have an incentive to block new high-density construction by zealously applying zoning laws. On top of that, owners vote in local elections far more regularly, so renters and students who are less likely to vote are forced to pay higher prices.

Japan might be the only developed country with zoning law standards set at the national level. As a result, Japan’s zoning laws are much more liberal. The 12 possible zones for construction are set nationally, and local councils have little room to develop complicated and exclusionary rules.

Councillors try to appease renters with price controls that often only serve to depress the supply of new housing units further. Rent controls simply don’t work with costs that always far outweigh their benefits.

Any conversation about housing affordably must include a discussion about how to streamline and improve local zoning laws.