Roderick Hills Jr. and David Schleicher criticize the process of project-by-project negotiation in modern zoning and planning law (“Can ‘Planning’ Deregulate Land Use?” Fall 2015). Robert Nelson and I have argued that this process leads to more efficient outcomes than would be obtained by rigid adherence to a city’s master plan and zoning ordinances. I further argue, relying on the Coase theorem, that reducing transaction costs between regulators and developers will result in developments that maximize the value of real estate in the city. Both Nelson and I commend institutional reforms that would make bargaining easier.

Hills and Schleicher criticize the transactional approach because it does not work very well, especially in big cities. They see that the NIMBYs (“Not in my backyard” opponents to development) have recently gained the upper hand in large cities—they have always ruled in the suburbs—and distorted the development and redevelopment process. Hills and Schleicher’s chief concern is that the regulatory negotiation process lacks what economists call “time consistency,” which is the ability to hold fast to public policy commitments over time. For instance, New York City planners might want to place some low-income housing on the Upper West Side and assure the residents who oppose it that other neighborhoods will, in the future, have to take their fair share, too. But the Upper West Siders know that there is no way for the city to actually commit itself to scattering undesired projects around, and they resist accepting the unlovely development for fear that they will end up being the “sucker” in a real-life prisoner’s dilemma game.

This is a real problem. It is especially acute where, as Hills and Schleicher insightfully point out, political parties are weak and thus cannot make plausible commitments to behave consistently over time. (It is even more acute when anonymous voters get to approve individual projects, as is often the case in smaller communities.)

Hills and Schleicher suggest that the city’s master plan could serve as the commitment document. Master plans are not currently taken seriously because they are not legally enforceable in most jurisdictions. It is the current zoning map that counts, not the hypothetical changes that a master plan might envision. Hills and Schleicher argue that the master plan should be taken seriously not because planners know best, but because it can resolve the time consistency problem. They argue that allowing the developer–regulator bargaining would dissolve the credibility of their version of the master plan and thrust cities back to the current, unsatisfactory situation. You cannot have a commitment to a long-term plan and at the same time allow exceptions to be negotiated for every project.

More rent seeking / Hills and Schleicher are aware that cities change over time. The ideal plan for New York in the 1950s would emphasize finance, shipping, and railroads, while the ideal plan for the 2020s might emphasize research, culture, and high-density housing nearby. They know that master plans have to change; they approvingly call them “impermanent constitutions.” Accordingly, the mayor would direct the planning staff to update plans periodically.

But that’s where the problem begins. The retail-level rent seeking that occurs during the current project-by-project process would be replaced by wholesale rent seeking when the citywide plans need revision. Once plans become important, they will become central to political maneuvering by whole neighborhoods and industries. This will make the current plan last a lot longer as the political demands are sorted out. The original plan won’t be “impermanent” after all. With the obsolete plan still in force, incremental changes that move in more efficient directions will be forgone.

Again, a New York City example: As manufacturing and shipping moved out of the city in the 1970s, obsolete buildings called “lofts” became attractive for what we now call the “creative class” of artists and entrepreneurs to live and work in. The original zoning was obsolete, but city officials were reluctant to give up on their former plans that called for blue-collar industry and ocean shipping to be based in lower Manhattan and Brooklyn. Instead, the incremental process of rezoning (and sometimes illegal occupation) gradually allowed the new users to take over. Once they were established, the city began to recognize the interlopers as assets and adjusted their plans and zoning accordingly. The point, which urban activist Jane Jacobs often made, is that the bottom-up dynamics of city prosperity are nearly impossible to see before they happen.

The faults of the incremental rezoning process are many, but they can be mitigated. In my current book, Zoning Rules! (Lincoln Institute, 2015), I analyze the NIMBY problem as originating in the top-heavy assets of homeowners, whose value cannot be insured or easily diversified. One way to deal with this would be to reduce the federal tax subsidies that cause so many people to be overinvested in housing. While the homebuilding industry would lose some demand from a more tax-neutral housing policy, it would gain from having less resistance by homeowners to new projects. The inevitable negotiation process of urban land use policy could proceed without quite as much drama if homeowners didn’t have such a big stake in the outcome.

In the meantime, the cure for the commitment problems that Hills and Schleicher prescribe—making the city’s master plan into a constitution-like commitment—seems likely to suppress the benefits of decentralized innovation as well as ad hoc negotiation. The conceit that city planners can foresee and implement necessary changes may not be fatal, but it is still a conceit.