The attrition of urban real-property rights.

• Author: Mills, Edwin S.

Local governments have become such dictators of urban land use that they make a mockery, of the notion that the United States is characterized by private urban real-property markets. Courts have enabled the dictatorship by giving governments almost unlimited power not only to seize, but also to regulate private urban property under common-law "nuisance" dicta. Urban planners have encouraged government controls by their enthusiasm for comprehensive planning and their lack of understanding of how competitive markets function.

Urban land-use controls are most stringent on the two coasts (Glaeser, Gyourko, and Saks 2005), least stringent in the South, and mostly moderate in the Midwest. Chicago is the laboratory for this article because of my familiarity with the details of its controls. Schwieterman and Caspall (2006), planners who believe that more control is invariably preferable to less, are the authors of a recent detailed history of Chicago land-use controls that I use as a backboard for this study.

Social Efficiency of Market Allocation of Urban Land Use

The basic theory of competitive market allocation of urban land use has been known and such allocation has been recognized as socially efficient for more than two biblical generations (see Alonso 1964, Mills 1967, and Muth 1969; for more advanced analyses, see Mills 1998). Under conventional and appropriate neoclassical assumptions concerning producers and consumers, urban land use has the commonly ob served characteristics of high-density production at the business center, surrounded by high-density housing adjacent to the business center and low-density housing, land-intensive manufacturing, and consumer services farther from the center.

Of course, workers and consumers must travel between places of residence and places of work and shopping. Hardly anybody doubts that governments should acquire transportation rights-of-way by eminent domain and should own or supervise transportation improvements, (l) Governments should also levy or supervise charges for the use of transportation vehicles. Fares can be set optimally for buses and fixed-rail commuter modes. Private vehicles can be charged by fuel taxes or by electronic systems. Electronic systems are more subtle--they can vary charges by place, day, and time--but they are more expensive to install and administer than fuel taxes, which are theoretically a good second-best alternative.

Competitive land allocation results in more intensive land use where land is more expensive--that is, close to the urban center--because structures can be substantially substituted for land in most urban activities. Likewise, for the urban transportation system, fees should be higher and right-of-way use should be more intensive (crowded) where land is more valuable--again, close to the urban center. Congestion means excessive crowding, and it would not occur with unrestricted private land development and optimum pricing of transportation. In fact, virtually all U.S. urban transportation is underpriced by governments. Transportation underpricing and government density controls cause pervasive congestion.

Analysis that implies social optimality of private land markets is inevitably about equilibrium land use, in which markets have adjusted densities and land uses to land values. Of course, urban land markets never adjust land uses and densities to reach an equilibrium configuration. The long durability of structures and transportation improvements means that markets never reach equilibrium in a world in which population, incomes, and technology change. Poorly informed commentators, most of whom are prejudiced in favor of government intervention, typically believe that private markets' inability to achieve equilibrium justifies almost any government intervention. This belief has no merit. Land owners, developers, and residents have powerful incentives to pursue equilibrium land allocations. There is no reason to believe that government controls can or do improve on the tendencies toward equilibrium in private markets. In fact, they invariably slow or halt such tendencies. (2)

Background of Land-Use Controls

Governments have confiscated private land or subjected it to controls and extortionate taxation since governments and urban areas first came together. Throughout history, seizure of urban and rural land has been a major objective of military activity. Farmers or other land users could stay or go because they could easily be replaced by others living at or near the subsistence level. South and West Asia and Africa have long been particularly violent, and the violence was aided and abetted by technologically superior European powers (Polk 1980). Much the same was true in the Western Hemisphere, where violent seizures of land and people long predated Columbus's arrival (Fehrenbach 1995). In North America, as elsewhere, technologically superior European imperial powers seized the land from natives, occasionally engaging in land purchases in which the seller had little more claim to the land than the purchaser, as with the U.S. purchases of Louisiana and Alaska.

Regular registration of private land and reliable enforcement of owners' rights developed gradually in a few western European countries, especially England, during the late eighteenth century and early nineteenth century, strongly influenced by Adam Smith's writings (Hohenberg and Lees 1985). The private-property rights of British North American colonists, but not of natives, bad common-law protection from the earliest colonial settlements, and after the War of Independence Americans also enjoyed constitutional protection of their property rights once the Fifth Amendment was ratified in 1791. Nevertheless, some urban land-use regulations were imposed during the colonial period and later. In San Francisco in the late nineteenth century, commercial laundries were outlawed in certain residential neighborhoods, evidently to exclude the Chinese from predominantly Caucasian areas. And the first comprehensive zoning in the United States occurred in New York City, where the intent was clearly to exclude low-income workers from choice areas in lower Manhattan (Babcock 1966; Mills and Oates 1975).

Like government spending, government land-use regulations were limited until the early twentieth century. During the past century, however, U.S. courts have permitted almost unlimited government regulation of land use without compensation on the basis of a government's mere assertion that a "public interest" or a "nuisance" prevention justifies the control (see O'Hara's chapter in Yandle 1995). The primary goal of government land-use regulation has consistently been exclusion or limitation of low-income and minority residents from the best neighborhoods.

Land-Use Controls in Chicago

In the United States, government intervention in formerly private matters often moves along the following path: government perceives or imagines an "unmet need" and intervenes in a modest way; the intervention fosters and frequently finances lobbyists, who benefit from it and organize to demand greater intervention; each intervention creates distortions that are themselves recognized as "unmet needs"; and further interventions follow. Private rights are progressively sacrificed to government control. Assistance for the elderly, health-care insurance, and environmental protection are good examples. Chicago's land-use controls fit the pattern perfectly.

Chicago's controls, following the 1871 fire and accompanying the burgeoning growth of the city, were tentative and sometimes of doubtful legality. They were also intended primarily to justify public works (water supply, sewage treatment, public transportation, and environmental protection). The city's first "comprehensive" zoning law was enacted in 1923, following a 1921 state-enabling law that broadened the city's power to control land use (Schwieterman and Caspall 2006, 20-25) and against a background of gradually increasing court tolerance of government land-use controls. The 1923 law and every zoning act after that were inspired, studied, drafted, and enforced by boards, committees, and...