Much hinges on the liberty to build. A man who can’t build a factory loses his liberty to run a manufacturing business. A man who can’t find a house in his hometown (because they’ve outlawed building houses) loses his liberty to live, work, and raise his family there. Law and liberty come to a head at the local planning commission.
Nevertheless, every time I write about land use, my family asks me, “Why do you always write about boring things?”
I was therefore delighted by Michael Munger’s vivid inaugural essay for this month’s Law & Liberty forum, which cleanly explains our system, its incentives, and their consequences. The stakes, he shows, are high indeed!
Our system requires almost anyone who wants to build almost anything to come before their local planning commission, as supplicants, in a public hearing.
Construction means change: more traffic, fewer trees, lower property values (or, in gentrification, higher values), a marred landscape, and different people. Indeed, in a contented neighborhood, nearly any change poses a threat to someone’s contentment. To a suburb at peace, every new apartment looks like the harbinger of a future slum. Over the past century, enough tony American neighborhoods collapsed into slums that this fear cannot be deemed entirely irrational. Residents’ incentives, then, are to oppose change, so they show up to planning meetings and demand the city use its veto.
City officials, torn between the city’s incentive to grow and their own incentive not to alienate their neighbors/constituents, often compromise by answering, “Yes, but.” The city makes builders jump through hoops, like traffic studies. Individually, these burdens seem light, but, together, they are heavy enough to suffocate many projects, downsize many more, and drive costs for others so high that builders must cater to the wealthy to recoup their investments. Cities that don’t do this expect to become the dumping ground for every other city’s worst projects, so no one can unilaterally disarm.
The consequence is a series of national shortages: in housing, in power generation, in business creation, and a budding shortage in what nerds have dubbed “compute.” In Munger’s telling, none of these actors are at fault; they’re just following their incentives. Shortages are the natural outcome of the “prisoner’s dilemma” we’ve built. This is all Econ 101. Alas, the shortages continue, so clear-eyed people like Munger must continue to explain it to the public.
Nevertheless, I fear that, in underlining the urgency of the problem, Munger has blurred a few lines, obscuring the problem’s intractability.
A Problem of Law, Not Democracy
Munger musters great rhetorical force against the traditional public hearing, with its motley cast of wealthy homeowners haranguing officials for three-hour stretches. This might give the reader the impression that abolishing public hearings would help solve the housing shortage. After all, if we can stop those harangues, the volunteer planning boards might feel free to make better decisions. “NIMBYs hate this one weird trick!”
However, I don’t think that’s what Munger is driving at. Moreover, it’s not true. Abolishing public hearings would not change the prisoner’s dilemma at all.
Consider: even without public hearings, builders would still need to ask cities for permission to build. Residents would still want their cities to block the builders. Cities would still be sensitive to the desires of their voters. The lack of a formal venting session would not change any of their incentives. “Neighborhood defenders” would still harangue officials by email, the neighborhood Facebook group, or in line at the grocery store. Public pressure, however expressed, would lead to the same denials, delays, and compromises. Indeed, depriving citizens of a formal, moderated setting to register objections might make their reactions worse. Public hearings themselves aren’t the problem; they’re a release valve for the problem!
The real problem Munger uncovers (building on K. L. Einstein’s conclusion) is the fact that builders need to ask cities for permission to build at all. Hence, the solution Munger proposes is not to eliminate the public hearing, but to eliminate the entire discretionary process. The prisoner’s dilemma only exists because cities have a choice, so Munger would take the choice away. (He calls this “circuit-breaking.”)
I agree. Most local construction decisions are not controlled by “law” in the usual sense of that word. City officials have planted their zoning codes thick with rules so dense and so minute that it is impossible for most large projects to follow them all. This is the “law”; it is unworkable, everyone knows it, and its unworkability is by design.
Builders may have more luck if they change the incentives instead. They could update some dilapidated playground equipment as part of any deal, or fund operations at the struggling municipal pool for a summer.
Having tied the hands of builders with “law,” city officials make them an offer they can hardly refuse: if you ask real nice, we might grant you an exception to the “law” so you can build. In city government jargon, these exceptions are variously called variances, conditional use permits, and other labels, but they are simply unprincipled exceptions city officials hand out to favored clients. If the local pet store wants to expand, terrific! Variance granted! If the local pro-life center or data center wants to do likewise, God help them, because the city council will not.
Because cities have discretion, builders must spend money lobbying cities. They must waste time (and carrying costs) jumping through bureaucratic hoops. Worst of all, they must accept uncertainty. They could sink hundreds of thousands of dollars into a project only to have it denied, with zero return on investment. For many projects, that’s fatal. Of course, there are some proposals that would be genuinely destructive to a city, and the city should have the power to refuse them. However, this refusal should come in the form of clearly-defined exclusions in the zoning code, not a bureaucratic game of Russian roulette. Then builders could immediately take their business elsewhere. Discretion is what fuels our construction shortages, not angry retirees filibustering on a Tuesday evening.
If states would prune their cities’ kudzu zoning codes and restrict variances, so large projects could just build without needing to beg for exceptions (the jargon for this is “approval as of right”), if states would hammer out universal zoning rules for certain undesirable buildings in order to break the prisoner’s dilemma, then the law would be set to rights, builders would regain their lost liberties, and America’s construction shortages would vanish in a puff of capitalism. After all, just look at Yucca Mountain!
Hang on a second. Look at Yucca Mountain.
A Circuit-Breaker Short-Circuits
In the early 2000s, the US government urgently needed a long-term underground storage site for spent nuclear fuel. Otherwise, spent fuel would be left in aboveground storage that must be actively maintained (at considerable expense) for thousands of years. During a war, these sites can become surprisingly serious threats to surrounding areas. We therefore need to put our nuclear fuel back in the ground it came from, using a repository like the one in Onkalo, Finland. In 1984, the US identified Yucca Mountain, Nevada, as a good candidate.
Of course, nobody wants to live within fifty miles of a nuclear waste dump, even a dump deep inside a mountain, so Nevadans rose in protest. Locals played every card in the book to delay construction at Yucca Mountain: environmental lawsuits, religious heritage claims, treaty litigation, and more. It worked! Yucca Mountain was scheduled to open in 1998. By 2002, construction had not even begun, so Congress passed a bill formally approving the project over Nevada’s objections.
Munger treats this as a triumph for his “circuit-breaker” approach, as well he ought. It is the most notorious example in recent history of a higher level of government solving the “prisoner’s dilemma” of land use by overriding a local veto. Munger calls on state governments to enact similar circuit-breakers today, so that data centers, too, can flourish like the Yucca Mountain Nuclear Waste Repository.
However, Munger doesn’t mention a weakness of this theory: Yucca Mountain never opened! Congress ratified the site in 2002. For four years, President Bush continued trying to slice through legal obstacles thrown up by angry Nevadans. They delayed Bush long enough for the 2006 midterms to take away his majority and hand it to Senator Harry Reid, a Nevadan, who then defunded Yucca Mountain. Two decades later, four decades after the drama began, the US still has no long-term nuclear storage site. The circuit-breaker approach failed.
It failed because it’s very hard to short-circuit incentives. Activated “neighborhood defenders” are an intense special interest group, and the people they harm are diffuse and disengaged, so the NIMBYs can punch way above their weight class even in state and federal legislatures. Since legislators want to get re-elected just as badly as city councilmen, they have the same incentives to deny and delay construction. Time and again, then, residents simply defeat “circuit-breaker” measures outright. Even the measures they can’t block can be stalled into desuetude, like the Yucca law.
As Abraham Lincoln said, “With public sentiment, nothing can fail; without it, nothing can succeed.” Suburban homeowners, defending their property values, have consistently maintained exclusionary zoning and low density across nearly all of Western civilization, for over a century. They have managed this across a huge range of intellectual fads, economic cycles, architectural fashions, and paradigms in contract and zoning law. They thrived in Obama’s progressive America, and they thrived in Mussolini’s fascist Italy. We aren’t going to one-weird-trick our way into declawing a political interest that’s been abusing setback rules since our great-grandfathers were in diapers.
It is still worth pursuing circuit-breaker rules, but we aren’t likely to enact many of them without winning more hearts and minds. Bypassing public sentiment, rather than converting it, could make matters even worse. Jasmine Sun’s recent, insightful reporting on the anti-data center movement shows that residents routinely distrust their own city governments, often with good reason. They feel powerless and betrayed. Trying to take away their best leverage point through a “circuit-breaker” law is asking for a backlash that could well lead to moratoria. That would only deepen the shortages.
Of course, that’s exactly why essays like Munger’s are so important! In the long term, the way to win hearts and minds is through well-reasoned arguments like his.
Unfortunately, we have a housing crisis (and other shortages) on our hands right now. Builders need a path to start building yesterday.
Changing the Equation
I suggest bribery. Residents know new construction will inflict minor costs on them, like construction noise or traffic inconvenience. They also think that, for any project, there’s a risk (however small) that it might inflict major costs, like crime, cancer, or collapse in home values. They do not trust reassurances about these costs because, for many reasons, we are transitioning from a high-trust to a low-trust society (raising costs in many sectors). Meanwhile, new construction compensates residents with exactly zero direct benefit.
It’s a simple equation: for nearby residents, most projects have costs and no benefits. Therefore, they use all their wiles to place bureaucratic obstacles in builders’ paths. However, those obstacles are pretextual. Nobody actually cares what the third traffic study says. They’re just trying to avoid costs! The circuit-breaker approach tries to bypass residents’ incentives by taking away their leverage.
However, builders may have more luck if they change the incentives instead. They could update some dilapidated playground equipment as part of any deal, or fund operations at the struggling municipal pool for a summer (with ample signage extolling their role). If all else fails, they could cut everybody in a three-block radius a check for $50 and promise another $100 when the project is approved. (If you’re a data center, multiply those figures by ten or more. People really hate data centers.) This isn’t fair; it’s still deadweight loss; it raises prices … but, if it greases the skids with the public hearing grandpas, it might be cheaper for everyone than the alternative.
Indeed, this is the approach that has finally started to succeed with America’s long-term nuclear storage sites. Weeks ago, the White House announced, at long last, five finalists from a group of states that asked to host the next Yucca Mountain. Why the different attitude? This time, unlike at Yucca, the federal government is promising that whichever state gets the waste site will also get major nuclear investments, cutting-edge manufacturing facilities, and lots of new jobs. The feds couldn’t bypass local incentives, so they changed the equation.
Builders want something: permission to build. Residents have something: the power to grant that permission. In the long term, we should reform land-use laws to reduce municipal discretion and better align local incentives to regional needs. In the short term, however, it might be simpler for everyone if builders simply found the market-clearing price for the permission they crave, and paid it.
