Stupid zoning and planning rules

By Bruce Firestone | Uncategorized

Apr 06

Here’s an excerpt from a new (learning outcome) novel I am writing (called Jenna’s Story). In this excerpt, a group of folks are sitting around talking about how excessive zoning ordinances and their strict enforcement actually help entrenched real estate interests (who are referred to as “equity lords”), ie, protect their quasi monopolies…

Lastly, equity lords use zoning ordinances to artificially restrict
new supply/expansion of urban lands, which, of course, pushes prices up on
existing property most of which they already own.

It’s another scam—eliminating challengers either by zoning them out of
existence or by inflicting economic ruin on them by forcing erstwhile
development competitors to produce a nearly infinite series of useless
“studies,” which hardly anyone reads or even looks at. The number of studies
and documents required by most municipalities these days include: environmental
impact, traffic, site servicing, landscape plan, grade control and drainage
plan, overarching planning rationale, streetscape character analysis, site plan
control, heritage overlay, compliance with community design plan and official
plan, archaeological study, occupancy history, development assessment (highest
and best use analysis), and about a dozen more[1].

The only folks able to negotiate their way through this maze and
obtain an approved development plan are those who have nearly unlimited amounts
of capital. They are then able to deploy sophisticated armies of attorneys,
planners, consultants and lobbyists over long periods of time to get what they
want from regulators (basically, town, city or county government) that have
long since been captured by those they are supposed to regulate, ie, equity
lords.

Zoning rules are an equity lord’s best friend because they
artificially suppress competition as well as create cities that are uniformly
boring, mono cultured, sterile no-places.

And planners and regulators can’t help but be captured, over time, by
those they are supposed to stupidvise. So regulars like equity lords and their
humongous retinues get preferential treatment almost by default; everyone else
is slow walked through what is already a numbing maze of byzantine rules.

Still not convinced that the deck is stacked against ordinary folk?
Well, here’s a sampling of rules that mostly serve to lock people out of home ownership
and thereby remain trapped as equity lord tenants:

-it is illegal, and you are in breach of the fine print in your
mortgage to rent any part of your principal residence, so, for example, no
roommates allowed

-you cannot have an office or micro retail space or physiotherapy
clinic or yoga studio in your garage

-you still must be hooked up to the national power grid, and pay for
it even if you are producing and storing all the power you need locally

-it is illegal in most jurisdictions to use cost effective solar hot
water based on the pretext that it could be an insurance risk (due to potential
water leakage/damage)

-zoning rules mandate minimum lot sizes, maximum building heights, and
impose huge setbacks so urban spaces consume large (and unnecessary) amounts of
land relative to the amount of buildable area, making ownership unaffordable
unless, of course, you have access to unlimited amounts of capital at a
negative cost (ie, negative interest rate)

-more than half of all new development is inside gated communities
where work-from-home, coach houses, in-home suites, backyard maker spaces/workshops,
storage sheds are banned

-demand is for smaller, better homes, apartments, shops and offices
but snob zoning crushes those hopes

-collecting rainwater and reusing grey water is illegal in many
jurisdictions  

-realty taxes are based on improved values so higher density
development and redevelopment are disproportionately impacted thereby making it
almost impossible to produce affordable housing

-many urban dwellers live in places where backyard chicken coops, fish
farms/ponds and food cultivation are prohibited

-if you do have a spare room or granny flat, many cities insist that
you only rent to related persons

-virtually every village, town and city on the planet levy hefty
development charges to “pay for off-site infrastructure” even when there is
none (as in the case of infill development)—it’s simply another tax, and
another way to keep out less well-capitalized entrepreneurs

-sidewalk sales, street parties, organized tree planting, ride
sharing, natural gardens, bathrooms accessible from outside, garage doors left
open, outdoor Christmas lights, lemonade stands, public oration, scooters and
motorcycles, backyard camping, guest stays of less than 30 days, feeding
homeless persons, irrigating in a way that a passerby could use to get a drink
of water, furniture in the public room (ie, a bench that someone might sleep
on), being barefoot in public, street hockey and other games played on public
roads, commercial signage, outdoor music, public Halloween trick or treating,
using any part of your property for agritainment, selling more power (ie, a
surplus) to the Aye than a property owner uses on site, bingo or
fortune-telling, having more than one door facing a street, dumpster-diving or
sorting through trash cans not your own, purchasing anything secondhand,
door-to-door sales, restaurant patios, basement excavations/exploiting
subterranean rights, parades, flea markets… all banned.

Thus, anything that helps a new entrant pay his/her mortgage by
“animating” the place (enhancing its revenue and value) is prohibited. Even
Habitat for Humanity has (for several generations now) been prevented from
building homes that include any sort of secondary suite or maker/office space,
which means their goal of “giving people fishing rods (ie, potential new income
streams) instead of just giving them fish (houses)” has been frustrated.

Of course, existing properties are grandfathered/exempted so equity
lords can beat you in two ways—their financing costs are lower than yours and
their revenues much higher. Over time, these factors together with access to
more leverage (debt) at much lower (ie, negative) cost plus severe restrictions
on new supply[2]
are unbeatable—so generation after generation more property is coming to be
owned by a smaller and smaller number of people.

At some point during this convo, Jenna used Tom’s field to read a
Simone Weil quote to him. It turns out that Ms Weil is also one of Tom’s
favorite thinkers, and he lets Jenna know that.

The quote Jenna uses to disparage a nomenclature she refers to as “bureauaristocraps”
who have brought down on the general population a “bureauapocalypse” goes like
this:

“Whether
the mask is labeled fascism, democracy, or dictatorship of the proletariat, our
great adversary remains the apparatus—the bureaucracy, the police, the
military. Not the one facing us across the frontier of the battle lines, which
is not so much our enemy as our brothers’ enemy, but the one that calls itself
our protector and makes us its slaves. No matter what the circumstances, the
worst betrayal will always be to subordinate ourselves to this apparatus and to
trample underfoot, in its service, all human values in ourselves and in
others.”

Simone was a French woman who became a Christian mystic, a philosopher
and social activist. She died in 1943 at age 34 in London
where she was working for the Resistance (trying to convince Charles de Gaulle
to let her return to France
as a covert agent) and writing her final book, The Need for Roots.

In that work, Ms Weil set out a framework for post war reconstruction
of France once victory over Germany
was achieved. While she was a strong defender of human rights, Simone also felt
it was equally if not more important to recognize that individuals have
obligations, not only to their fellow human beings but also to their community
without which people become self-righteous and self-absorbed. In her mind,
obligations trump rights since, if there is only one person in any society,
s/he would exclusively have obligations since that individual could not, by
definition, grant herself or himself any special rights…

She passed away due to tuberculosis or cardiac failure or self-imposed
starvation… the cause of her death is unclear. What is clear is that she
suffered acutely from the deprivations her compatriots in occupied France
faced at the hands of Nazi Germany.

The tyranny imposed by bureaucrats in modern nations (which Ms Weil
would certainly have been suspicious of) is made worse by the reality that
equity lords control most of the banks as well as secondary lenders who’ll
provide entrepreneurs with high interest loans to get projects started. When
they fail to service their debt, foreclosure rights built into legal agreements
allow lenders to take ownership of those properties; that is, they’re not sold,
they’re “bought” for the cost of their debt plus legal fees, wiping out
whatever equity the original owner had invested/built up in them. Then equity
lords arrange replacement of all that high cost debt with negative interest
rate loans sourced from the very people they’ve foreclosed on plus all their
tenants and, indeed, from every bank client who deposits his/her paycheck,
savings or income there.

Periodic busts are just the thing for not only repossessing homes and
other property, which they’ve already funded, but also for foreclosing on
distressed property on which they did not originate loans, often at prices much
less than their debt. This is what, for example, allowed New York-based,
private equity firm Blackstone Group to amass a US portfolio of 50,000
single-family homes in just four years—following the Great Reset of 2008-2012[3].

After acquiring property in whatever manner is most cost effective,
equity lords and their property managers are encouraged to make their buildings
as inefficient as possible because
there is a financial incentive for them to do exactly that—they charge their
residential and commercial tenants an administration fee (usually around 15% to
25%) on all utilities, repairs and maintenance so the higher their costs are,
and the more often things breakdown, the more money they make.

Since they also own or control all or most of the firms that service
their properties, they make money coming and going.

The correlation between parents’ wealth and education, and the
economic success of their children is about twice as high in the US as it is in
its major trading partners[4],
which means picking the right family to be born into in America (in what is
known as the “birth lottery”) matters a great deal. Upward mobility and the
idea that you can pull yourself up by your bootstraps is now nothing but a
quaint Horatio Alger, Jr fable.

19th century political economist John Stuart Mill said,
“Landlords grow rich in their sleep without working, risking or economizing,” a
view quietly shared by We Camp’s current CEO. In fact, in Tom’s opinion,
landlords make sure they grow richer while they sleep by manipulating the
zoning system to exclude the possibility of any rivals arriving in a
neighborhood near you any time soon.

[1] For example, UC Berkeley construction management professor William Ibbs
reports it took 23 years to complete environmental reviews and acquire permits
and other approvals to replace the San Francisco-Oakland Bay bridge after it
was mangled in the 1989 Loma Prieta earthquake. Somehow, the 1995 Caltrans
(California Department of Transportation) estimate of a reconstruction
construction cost of $250 million transmogrified into an actual price tag of
$6.5 billion by the time the new bridge was ready in 2013. Source: Remaking the San Francisco-Oakland Bay
Bridge
, UC Berkeley planning scholar Karen Trapenberg Frick, Routledge,
2016.

 

[2] Equity lords and their
lapdogs within city hall and its planning staff use an endless series of
requests for phony environmental studies and community design plans to
derail/restrict supply of new lands for development. As comedian Dennis Miller
once said, “An environmentalist is someone who owns a cabin in the woods. A
developer is someone who’d like to build one.”

[3] Blackstone takes its single-family rental bet public as sector soars,
Diana Olick, CNBC, February 1, 2017.

[4] For example, Garnett Picot
and Feng Hou in their article, Seeking
Success in Canada and the United States: The Determinants of Labour Market
Outcomes Among the Children of Immigrants
(Social Analysis Division,
Statistics Canada, March 2011) reported that intergenerational income
elasticity in Canada
is 0.27, about which they concluded: “(it is) a relatively low correlation.
This correlation is roughly twice as high in the US
as it is in Canada.
This means that earnings mobility is greater in Canada
than in the US.”
A big part of the reason is that education and healthcare are more accessible
and affordable there, which also frees up income to become property and
business owners/founders, additional keys to earned economic success.

@ profbruce

copyright Bruce M Firestone, Ottawa, Canada 2017.

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