The economic justification for zoning is that the regulations prevent the negative external effects associated with the proximity of incompatible land uses (Clawson 1971, Moore 1978). By eliminating these externalities, the argument goes, zoning can produce a pattern of land use that results in greater overall economic efficiency than would occur in the absence of regulation.
By introducing controls on the private use of land, however, zoning necessarily results in land use decisions that are less efficient from the perspectives of the individual landowners. Proponents of zoning argue that these private inefficiencies would be offset by the increases in economic efficiency obtained by the prevention the negative external effects associated with unregulated patterns of land use. But the question arises as to whether the private inefficiencies created are indeed offset by the reduction in externalities (Nelson 1989). Furthermore, even if the net social benefits associated with zoning are positive, the question remains as to whether traditional zoning creates greater private inefficiencies than would be produced by alternative, more flexible forms of land use regulation.
Many have attacked traditional zoning on this basis. They have generally argued that zoning represents an excessive intrusion into private property rights. And they generally conclude that zoning, by interfering with the operation of the private land market, leads to economic inefficiencies in the private use of land that are not offset by any benefits gained through the reduction in negative externalities. Pogodzinski and Sass (1990) present a comprehensive review of economic theories of zoning.
Various critics of zoning have offered alternatives to the current system. These critiques share the desire to reduce government regulatory intervention and to increase the effectiveness of the market. Many of the suggestions involve dramatic departures from current practice and are likely to be politically unfeasible. Also, others would argue that they fail to adequately achieve the public purposes served, however imperfectly, by current systems of land use control. Garrett (1987) and Nelson (1989) review some of the critiques of zoning and the alternative proposals that have been offered as remedies.
Ellickson (1973) suggests that zoning be discarded in favor of an enhanced system of nuisance law. He argues that the appropriate function of zoning is the protection of landowners from the negative effects of land use on nearby properties. Nuisance law can serve the same purpose by providing mechanisms for compensating landowners for these negative effects. Such a system would either prevent the establishment of incompatible land uses or compensate nearby landowners when such a use would be economically efficient. Ellickson also favors the use of private covenants as another alternative to zoning for the control of land use.
Seigan (1972) favorably reviews development in Houston in the absence of zoning. He argues that covenants among private landowners represent a preferable alternative for protecting properties from incompatible nearby development. Widespread use of private covenants is thus offered as the alternative to traditional zoning.
Nelson (1984) takes this concept of privatization of land use controls one step further. He advocates the establishment of private neighborhoods as the alternative to zoning. The neighborhood organizations would possess not only the power to enforce covenants but also the power to authorize and sell rights for development in their communities.
Fischel (1985) provides perhaps the most comprehensive critique and the most extensive proposals for the reform of zoning. He argues that zoning regulations should be viewed as creating property rights or entitlements. These entitlements can then be analyzed within a market context. At the heart of his proposed reforms is the suggestion that zoning entitlements be made salable. Local governments would be authorized (and in some cases, required) to sell zoning entitlements to prospective developers.
Kmiec's (1981) proposal would replace zoning with a limited set of land use intensity standards for undeveloped land. These intensity standards would be established for residential, commercial, industrial, and mixed-use developments. Landowners could select the set of intensity standards to be used for developing their land. Kmiec would further require a developer to undertake improvement of public facilities up to the value of the increase in the value of their property provided by the selected intensity.
The common thread running through all of these analyses and proposals is the belief that traditional zoning places excessive restrictions on the use of private property. The goal is the establishment of less-restrictive systems that would allow private market forces to play a greater role in establishing land uses. The proposed remedies are all quite drastic, calling for the elimination of traditional systems of land use controls. Many of the public objectives achieved through zoning would be foregone with these alternative systems. Furthermore, the nature of the changes proposed make it quite unlikely that any of these proposals would be adopted as a replacement for zoning.