Citywide rezoning, I believe, has a built-in difficulty. While many residents see rent rising and know that their city needs more housing, they don't want their neighborhood to change. You can see this truth in the insulting nickname we use for our opponents: NIMBY = Not In My Back Yard. I don't think most residents care if other people's neighborhoods change, just their own. But when citywide rezoning will change every neighborhood and residents don't want their neighborhood to change, we end up with mass opposition.
Let me emphasize my perspective. If you went to most residents and said "Someone wants to build a 5-story apartment building near your house. How many hours will you volunteer to help stop it?", their answer will vary a lot by the distance to their house. If the lot is next door to theirs, they may volunteer hundreds of hours. If the building is on their block, they may volunteer tens of hours. If the building is 5 blocks away, they may wonder why you're asking them. If the building is 10 blocks away, they may laugh at you for asking!
This attitude is embodied in the law of my state of Texas. Landowners can impede other landowners from rezoning their lots, but only if their land is within 200 feet. Since Austin's blocks are 375 feet apart, the state has said that landowners more than 1 and 1/3 blocks away don't matter to zoning changes.
Let me beat a dead horse by quoting the adage: "all politics is local". I think that's especially true with housing. Since many residents don't want local changes, when YIMBYs propose citywide changes, a whole city's worth of residents oppose the change. It makes us unpopular. And our failures make us look ineffective and waste everyone's time.
Some say we should ask the state government to implement citywide (or statewide) rezoning. But the same problem exists. Residents don't want their own neighborhood to change and a citywide rezoning is unpopular.
While citywide rezoning would be nice, I don't think we need it. We need some place to put more housing, but we don't need to put it everywhere. There is so much single-family minimum-lot-size zoning that we only need to change some of it to denser housing to get lower rents and have enough housing for all.
If we can achieve our goals by making changes on a smaller granularity, do we do those changes by the neighborhood or by the lot?
A few weeks ago, I would have said to upzone neighborhoods. Neighborhoods are a natural unit for zoning. They captures the economic idea of "externalities". They are larger and we can change more land with a single legal motion. But, most of all, it sounded easier. We only need to get the whole city to agree to change a few neighborhoods near downtown. That sounds easier than changing thousands of lots, where each lot has about 20 neighbors within 200 feet. Sure, we might allow the landowner to pay their neighbors to allow the change, but getting 20 or more neighbors to agree on anything has got to be near impossible.
But a few weeks ago, I made a discovery: it may not be so hard to get 20 people to agree on a price.
My discovery came while reading "Public Choice III" by Dennis Mueller. The book described research by economists on the Coase theorem. The Coase theorem is relevant to this discussion, so I'm going to explain it. It says that if anyone owns a property right, an economically efficient outcome results. Basically, if anyone owns the right, whoever profits from using the right will bribe the owner to let the most profitable use happen.
The Coase theorem is much easier to understand with an example. Let's say that your neighbor wants to host a loud wedding reception at night and you have the right to call the cops on a loud party at night. If you don't have a friendly relationship with the neighbor, the neighbor might try to pay you not to call the cops. When can you two agree on a price? That happens when the neighbor's willingness to pay for the loud party is more than the price you're willing to accept for loud noise for one night. So, even though your neighbor doesn't have the right to throw a loud party, the party can still happen and it happens when it is "economically efficient", that is, the neighbor values the noise more than you value the silence.
Most economists, like myself, know about the Coase theorem. But I've always heard it explained in terms of pairs of companies coming to agreement. It is rarely discussed in the context of large numbers, like the roughly 20 neighbors living within 200 feet of a property. Getting everyone in that diverse group to agree on an individual price seems like a mess. Because I didn't think large number of people could come to an agreement, I've ignored rezoning on the per-lot granularity.
But now I think it is possible, due to the paper "Experimental Tests of the Coase Theorem with Large Bargaining Groups". Elizabeth Hoffman and Matthew L. Spitzer did experiments with groups of 20 bargainers and 7 of the 8 experiments resulted in economically efficient outcomes. In experiments with smaller groups, they found that better informed participants improved the likelihood of a bargain. And they found that coming to an agreement doesn't necessarily get harder as you go to larger groups.
This research gives me hope that lot-based rezoning is possible. A home-builder could rezone a lot with the agreement of all neighbors within 200 feet. Consider the situation from a homeowner near the lot. They will accept a taller building next door or more housing units next door if they're paid enough. They're compensated for any inconvenience. They actually become in favor of redevelopment and moving the city towards an economically efficient outcome.
Right now, cities do rezone lots, but the process is not meant to rezone thousands of lots efficiently. It is not clear, quick, and easy. In Austin, rezonings require meetings by the Planning Commission and City Council. It is not just neighbors within 200 feet who can impede the zoning change. Neighborhood associations often interfere. Other groups too. The process takes about half a year.
But what if we changed that? What would a good policy of lot-based rezoning look like? It needs to be clear, fast and easy. The nearby landowners need information, both about what is proposed and what has happened in similar rezonings. Lastly, the process needs to be trustworthy for all participants.
Let's start by keeping it simple. City Council should define a simple set of zones available for each property, so lot owners and their neighbors know what is being negotiated. We do not need 39 different zoning types with 8 possible suffixes. We need a handful of zones with a few parameters that cover the externalities neighbors care about, are constitutional, and enforceable: shade, rain runoff, parking spaces, sidewalk connections, etc.. The policy should restrict side deals about aesthetic concerns or what will actually get built. The policy should be a cash-only exchange for a zoning change.
It needs to be fast, which means a few options and not a lot of back and forth with every participant. Consider a neighborhood under rapid redevelopment. A landowner might receive 50 requests for rezoning of neighboring properties in a year. We don't want to them to have to spend a lot of time negotiating and communicating with each one. So, the landowner requesting rezoning may only submit a few zoning options that they're considering. I suggest 3 options (plus the status quo as a 4th option for free). A landowner that receives a request for a nearby rezoning should receive a letter, write down their price for each possible rezoning, sign the form, and mail back their reply. To prevent abuse, landowners can only request a rezoning once a year.
The research indicated that better information means that bargainers are more likely to reach a deal. So participants should be required to disclose all payments once a zoning is decided. When a letter goes out requesting a zoning change, it should include information on similar rezonings, so participants know the usual prices for changes.
Trust matters, so the city government should take care of the payments. The rezoning only goes through with the city receiving the payment and the city disperses it to the nearby landowners. If there's any fraud by the landowner requesting the rezoning, the city can withhold the money and rezoning.
We want to find a fair bargain quickly. Often, bargains draw out because parties have various delaying powers and are trying to figure out the price the other party is willing to pay. No one wants to submit a price and then find out that there was more money to be made. Economists have tools, like the second-price auction, to quickly and fairly exchange goods. We should ask economists who are experts in this area to design a trading mechanism for participants.
A quick example of a trading mechanism might be: The city requires the landowner requesting a zoning change to write down the maximum they will pay for each possible rezoning. The city mails the neighbors to request their price for each new zoning and collects their replies. Then, the city (1) selects the rezoning with the most profit (value of the requesting landowner minus the sum of neighbors' asking prices), and (2) split the profits with half going to the landowner requesting the change and the other proportionally split between the neighbors. To prevent delaying, each neighbor's split decreases with their response time. (See Vickrey-Clarke-Groves mechanism for a trading mechanism with good properties that an economist might adapt for cities' use.)
Lastly, do we want to require landowners to bargain with everyone? The state law in Texas lets neighbors impede a rezoning, but it requires 20% of the neighbors to initiate the action. The lawmakers didn't want a single person to be able to stop progress. Getting an offer from every neighbor is difficult and some participants may impede change out of pure neighborly spite. So, we might want to keep existing paths of rezoning that do not pay neighbors but require a Planning Commission and/or City Council meeting.
To summarize, the YIMBY movement is having a difficult time trying to pass citywide rezoning. We should consider lot-by-lot rezoning as an alternative solution. It should work if we make it quick and easy to change zoning on a single lot. The proposed policy would let a landowner choose from a list of simple zones that were pre-approved for the property by City Council or staff. Nearby landowners could freely state the compensation they expect in return for the zoning change. And, if everyone agrees, that compensation would arrive from the city government acting as the coordinator and guarantor.
With this policy, the Coase theorem says that the city should end up with the zoning that is economically efficient. That is, we'll get the housing we need. Sometimes you win by overwhelming the opponent. Other times, you win by undermining their cohesion and make it profitable to join your side.
P.S., There is a lot more to discuss on this topic. I'm sure libertarians would like to talk about property rights. Lawyers will want to talk about the legal process. Economists will want to talk about the trading mechanism. Developers will want to talk about the price that will be paid. Equity advocates will want to talk about how much money is going to the wealthy who already own land. That's fine for future blogs and for other persons' blogs. I wanted to keep this one short and present the concept of the Coase theorem and the potential for a policy that rezones lots quickly.