The Difference Between Government-Imposed Zoning Restrictions and Private Planned Communities

Unliking zoning, private communities respect property rights, and do not create major barriers to people seeking to "vote with their feet" for a better community.

(Illustration: Lex Villena; Lev Kropotov )

I am a longtime critic of zoning restrictions on property rights, which often preclude owners from building new housing on their land, and thereby impede mobility and "foot voting." On the other hand, I am also a longtime advocate of private planned communities, such as condominiums and homeowners associations (HOAs). Critics sometimes argue that this is a contradiction. After all, like zoning boards, HOAs and other private communities also often restrict what owners can build on their land, and this might block the construction of new housing, which in turn could prevent would-be foot voters from moving to the area.

I had been meaning to write a post about this for some time. But my George Mason University colleague, economist Bryan Caplan, beat me to the punch:

When I attack housing regulation, market-oriented economists occasionally push back.

"Do you have a problem with homeowners' associations (HOAs)?" they ask.

No, I don't.

"Even when they tell you what you can and can't do with your own house and land?"

That, I affirm, is the whole point of an HOA.

"Well," the critics continue, "what's the difference between HOAs and local government? If the former can rightfully restrict what you do with your own home and your own land, why not the latter?"

My answer is simple: The difference is that HOAs start with unanimous consent. You can't launch a new HOA unless you get all of the members to voluntarily join. Which is like pulling teeth!

Upshot: In the real world, HOAs are almost always founded not by homeowners coming together, but by the initial developer. How? Developers create HOAs by imposing three conditions of the sale on each and every original owner:

1. The buyer agrees to submit to the authority of the HOA.
2. The buyer agrees to require the next owner to agree to (1) if they ever sell their home.
3. The buyer agrees to require the next owner to agree to (2) if they ever sell their home.

As a result of these carefully-crafted contractual conditions, 100% of the members of the HOA—past, present, and future—consent to belong.

In stark contrast, local governments essentially never start with unanimous consent. Usually you're lucky if they even start with majority support….

Why make such a big deal about unanimous consent? Because anything less than unanimity means that some participants participate at the point of a gun. Picture a massive construction project. 10,000 workers toil side-by-side. What would you think if you learned that a single plumber was there under the CEO's threat of violence? Instead of being a noble undertaking, the project is a criminal enterprise….

The requirement of unanimous consent ensures that HOA restrictions rarely, if ever, violate owners' property rights. It also makes it unlikely that HOAs and other private communities can significantly restrict mobility in the way zoning restrictions do. It is nearly impossible for an HOA with severe restrictions on building to take over a vast area, such as a major metropolitan area or even a good-size suburb. The city of Houston, which has no zoning, but gives relatively free rein to HOAs, is an excellent case in point. The extensive presence of HOAs hasn't prevented Houston from building large amounts of new housing, and featuring far lower housing costs than cities with zoning restrictions. Indeed, the city's openness to consensual private land-use restrictions may even have facilitated new housing construction by allowing those who really want restrictions to create small enclaves for themselves instead of imposing those rules on everyone else.

I expounded on the difference between HOAs and zoning in a bit more detail in Chapter 4 of my book Free to Move: Foot Voting, Migration, and Political Freedom. Here's an excerpt (notes omitted):

[T]here are over 350,000 private planned communities in the United States… and it is likely pos­sible to create many more of them. The variety of organizational forms for private communities provides a range of options for potential foot voters to choose from, and reduces the risk that any one type will dominate the market, leaving potential residents with few or no alternatives.

Critics fear that private planned communities, particularly homeowners associations (HOAs), can themselves become exclusionary impediments to mobility. Like local governments, they can adopt land-use restrictions within their domain, and make it difficult to build new housing, thereby potentially keeping out the poor, racial minorities, and others.

But the sheer number of private planned communities makes it unlikely that they can create barriers to mobility to anything like the same extent as government bodies, which control far larger territories. If some HOAs keep out a particular group, that creates a potential profit opportunity for others in the same area.

Moreover, unlike zoning regulations imposed by the government, a pri­vate planned community can only be established with the unanimous con­sent of all the property owners whose land it includes. That both makes it more consensual than zoning….  and makes it less likely that an entire large region will be covered by planned communities that all work to exclude the same types of people, whether the poor, a racial minority, or some other group. The danger of exclusion is, however, an additional reason for eliminating regulations that require all new housing development projects in a given area to join a private planned community.

In the book, and other writings, I also explain how private communities can actually expand foot voting options, including for the poor and lower-middle class. They can do so even more if we break down barriers to the establishment of new private communities, an issue I also cover in the book.

I do, however, criticize laws that, in some localities, actually require homeowners to join HOAs. Property owners should be allowed to join these organizations or to set up new ones. But they should not be compelled to do so.