The Cause and Effect of Exclusionary Zoning in Central Cities

Abstract

I model a central city where citizens differ by income, and housing confers benefits on neighbors. A city planner makes zoning laws that differ by neighborhood, and citizens separate into neighborhoods by income. This policy maximizes a benefit-cost welfare criterion and facilitates redistribution of income, so gains go to the coalition of citizens on whom the planner depends for political support. Under majority rule, supporting coalitions change from rich to poor as cities grow. The coalition extracts subsidies from non members, who may form suburbs to escape. If zoning requires unanimous approval, it brings about a Pareto improvement in the city, and suburbanization slows. Welfare gains from zoning increase as the distribution of income becomes less equal, which helps to explain why neighborhood stratification by income has outpaced stratification of income itself in U.S cities in recent decades.