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NONZONING IN HOUSTON

Zoning, along with death and taxes, is often considered to be one of life's necessary evils. How else, one is asked, can the hapless homeowner be protected against having a boiler factory or rendering plant erected next to his suburban bungalow? Few people can quite believe their ears when informed that Houston, a city of 1,280,000 people, has never adopted a zoning ordinance. Neither, in fact, has Harris County, in which it is located, nor have eight other cities in that county. Moreover, the citizens of Houston have twice had the opportunity to vote on whether to adopt a zoning ordinance and both times (1948 and 1962) rejected it by a substantial margin.

How can this be? Can the market really provide ways of protecting property values and ensuring orderly development and land use? Apparently it can and does, according to Bernard H. Siegan, whose 76-page analysis in the Journal of Law and Economics is the first comprehensive study of property use in a non-zoned city. The basic mechanism which the market has developed to protect land values is the restrictive covenant—a contract between an owner/developer and the subsequent purchaser concerning the uses to which the land may be put. The covenants are generally enforced by the people themselves and through numerous homeowners' associations and similar private efforts, although in recent years there has been a trend toward some governmental enforcement of the covenants.

Mr. Siegan's analysis is outstanding for its thorough coverage of the subject. He describes in detail the way covenants work, and how they change over time, and the types of land uses in various sections of the city. He has also gone much deeper in analyzing how zoning would likely have handled each of the situations he describes. In addition, he attempts to assess the costs and benefits of zoning, as compared with the non-zoned conditions existing in Houston.

In general, the most important finding is that land use is primarily determined by economic factors independent of zoning—and that, for this reason, the nature of Houston's land use is little different from what it would be if it were zoned. It is just economically ridiculous to build a boiler factory in a residential neighborhood. Nonetheless, the lack of zoning does have certain effects. The three major ones are that the demand for apartments has been far better satisfied in non-zoned Houston that it would have been under the typical zoning restrictions. Secondly, more commercial and multifamily uses exist along major thoroughfares than would be the case under zoning. And there are "probably" more non-home uses (corner groceries, etc.) in single-family areas than if these areas had been zoned for single family use.

Siegan points out the political nature of zoning, its usage in artificially creating windfall profits or forcing people out of homes and businesses, its stagnating effects on innovation, and its tendency to freeze land use into an unchanging, out-of-date pattern. These costs Houston has avoided. Mr. Siegan is well aware that zoning is a highly emotional issue—yet, as he points out, most critics of zoning "are not moved to study the Houston system. Instead they advocate additional government controls over the use and development of property. The dogma persists that if zoning does not work, it is desirable to try more of it."

In answer to such critics, Bernard Siegan's carefully-reasoned, factual study is a landmark in the development of urban analysis as a science. Defenders of zoning can no longer rely on emotion-laden strawman arguments to support their case—a vigorous, feasible counterexample exists and has now been well documented. It cannot longer be ignored. All readers interested in property and land-use should obtain a copy.

SOURCE: "Non-Zoning in Houston," by Bernard H. Siegan, Journal of Law and Economics, Vol. XIII (1), April 1970, University of Chicago Law School, 1111 E. 60th Street, Chicago, III. 60637. NOTE: The Journal of Law and Economics is probably the best academic journal of its kind. It frequently presents papers written from a classical liberal (libertarian) viewpoint on current issues in political economy, by such scholars as Yale Brozen, Ronald Coase, Harold Demsetz, Milton Friedman, and George Stigler. It is issued twice a year, at a subscription price of $7. Single copies are $4 each (about 500 pp.).

DEREGULATING THE RAILS

Advocates of the status quo often accuse libertarians of being utopians—i.e., of advocating vague ideas about laissez-faire competition which have never been tested in the real world. Others acknowledge that some aspects of laissez-faire existed in the 19th century, but they say that our modern economy is too complex for such ideas to be workable. In answer to both types of critic, a recently-begun controlled experiment is dramatically demonstrating the superiority of laissez-faire.

In 1967 the Canadian government passed a National Transportation Act which substantially freed Canadian railroads from freight regulation, allowing rate levels to be set by market forces. Meanwhile, U.S. railroads continued hobbling along under the protection of the Interstate Commerce Commission.

Under the ICC's guidance, U.S. railroads are allowed—even encouraged to meet and fix prices (such acts in other industries violate anti-trust laws). The net effect is to preserve the status quo, since an innovative proposal by one road is usually voted down by its "competitors". For this reason the rate structure (though not the rate levels) in the U.S. today is virtually the same as it was 50 years ago, despite the vastly-changed market conditions of the 70's.

In sharp contrast, under the near-laissez-faire Canadian atmosphere, radical changes have occurred. One of the major changes has been the development of integrated freight service, offering any combination of highway, air, and small shipment operation. This type of "inter-modal" operation, illegal for the most part in the U.S., is ideal for shipping multi-purpose containers, which can be loaded at a supplier's plant, moved by truck to the railroad, shipped to a port, and loaded directly onto a freighter, all without any human contact handling or repacking. The economics of containerization are so great that many midwestern U.S. shippers have switched to Canadian railroads, bypassing east coast U.S. ports in favor of Canadian ports.

Other services now available due to the "cutthroat competition" of Canadian laissez-faire include wholesale discounts to ocean shippers for a guaranteed minimum number of containers per year, new "retail" discounts applying the same rate to all containers regardless of contents (in contrast to U.S. rates still based on a variant of the labor theory of value), and a special small shipment service tied in with domestic package express service.

And what of U.S. railroads? "Container traffic on Eastern railroads could triple over-night if railroad men would wake up to the 20th century," said a speaker at last spring's International Container and Equipment Exposition. U.S. Maritime Administrator Andrew Gibson is attempting to bring U.S. railroads, ship lines, and port interests together to develop a Canadian-style container service in the U.S. Such an effort is almost certain to fail, so long as the present regulatory structure continues. Not until the lesson of this side-by-side demonstration of laissez-faire vs. regulation is learned will meaningful progress be possible.

SOURCE: "An End Run Around U.S. Ports," Business Week, April 25, 1970, pp. 56-57.