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Introduction to Chapter 1

A Justification for Zoning?• If nuisance law is too uncertain and too unpredictable to facilitate ordered (Coase-ian) private bargaining over land use, then . . . . . . .

•One might view (or try to justify) zoning regulation as a form of social contract, reflecting true Coase-ian bargains that individual landowners couldn’t accomplish

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The parcel of land on p. 1

Subject Parcel

(10 acres)

Elementary School

Existing residential subdivisions

Undeveloped parcel

Existing residential subdivisions

Strip Shopping Center?

Single‐Family Detached Home Subdivision?

CondoBuilding?

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Condo Project v. Strip Mall

• Condo project• Cost: $5 MM• Selling price $8 MM• Potential profit $3 MM

• Strip mall• Cost: $3 MM• Selling price: $5 MM• Potential profit: $2 MM

Which project is the developer likely to choose?  Why?  What factors will be relevant to the choice?

•Which project — the strip mall or the condo project —is the city likely to prefer? Why?

•What about the neighbors? Why?

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• Assume the neighbors prefer the subdivision (rather than the strip mall or the condo)

• Also assume no zoning or other legal constraints on the developer

• What should happen in this situation?

Coase Theorem•Ordered private bargaining should result in parties contracting to achieve the most efficient (highly valued) use

Ronald Coase

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•Strip mall may have spillover effects (external costs) on neighbors• If benefit of strip mall <<< burden on neighbors (i.e., diminished enjoyment of their land), CoaseTheorem suggests neighbors and developer would bargain and neighbors would pay developer to avoid undesired development

• But, as we saw in Nuisance material, numerous barriers exist to effective Coase-ian bargaining

• One might defend a zoning ordinance that allows (or prohibits) strip mall as a “social contract” approximating the efficient (Coase-ian) bargain

• But note: if zoning prohibits the strip mall, the neighbors no longer have to pay the developer to stop it!

• Thus, the presence/absence/content of a zoning ordinance has distributional effects (e.g., neighbors are richer at the potential expense of the developer, or vice-versa)

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Review• In theory, zoning can duplicate the results of ideal “Coase-

ian” bargains that couldn’t (or would be unlikely to) occur in real life

• E.g., suppose Developer wants to build strip mall (at expected gain of $2MM), but the strip mall would have spillover effects on residential neighbors that would diminish the value of neighboring land by $2.5MM

• Zoning ordinance prohibiting strip-mall (R-zone) would duplicate efficient Coase-ian bargain

Variant of Developer Hypo• Now suppose Developer’s potential profit from the strip

mall = $2 MM, and negative spillover harms to neighbors is only $1.25MM

• If City has no zoning, what will happen?• There will be no forced “bargain” to stop the strip mall (which

will be built), and it is unclear that the harms from the strip mall are so substantial as to be a private nuisance

• Is this an “efficient” result?

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• Strip mall may not maximize efficiency if Developer doesn’t have to take account of external harms imposed on neighbors; however,

• Zoning ordinance could address this by:• Defining use to allow Developer to build strip mall (e.g.,

“Commercial” zone), but• Allowing zoning official to “condition” granting of building

permit on certain “conditions” designed to minimize spillover effects on neighbors (e.g., sound barriers)

Variant of Developer Hypo• Same facts, but now suppose that the City DOES have zoning ordinance, and it zones the parcel for residential use

• Could the developer and the neighbors “bargain around” the zoning prohibition and allow the developer to build the strip mall?

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• Neighbors and Developer cannot explicitly contract in fashion prohibited by law (contrary to public policy)

• However, such a result can occur through the zoning process if the zoning ordinance provides for sufficient flexibility

• Flexibility can be introduced through:• Variance procedures (administrative)• “Conditional use” permits (administrative)• Rezoning (political process)

Other Potential Zoning Objectives• Other potential goals of a zoning regime

• Aesthetic concerns [pp. 2-3]• Community concerns [pp. 3-5] (i.e., “what kind of city do

we want to have?”)

• These goals are related to efficiency in some sense, but may be more difficult to quantify in an objective sense