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Why Is Japanese Zoning More Liberal Than US Zoning?

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Over the past few years, Japanese zoning has become popular among YIMBYs thanks to a classic blog post by Urban kchoze. It’s easy to see why: Japanese zoning is relatively liberal, with few bulk and density controls, limited use segregation, and no regulatory distinction between apartments and single-family homes. Most development in Japan happens “as-of-right,” meaning that securing permits doesn’t require a lengthy review process. Taken as a whole, Japan’s zoning system makes it easy to build walkable, mixed-use neighborhoods, which is why cities like Tokyo are among the most affordable in the developed world.

But praise for Japanese zoning skirts an important meta question: Why did U.S. zoning end up so much more restrictive than Japanese zoning? To frame the puzzle a different way, why did U.S. and Japanese land-use regulation—which both started off quite liberal—diverge so dramatically in terms of restrictiveness?

I will suggest three factors; the first two set out the “why” for restrictive zoning and the third sets out the “how.” Any YIMBY efforts to liberalize cities in the long term must address these three factors. First, the U.S. privileges real estate as an investment where Japan does not, incentivizing voters to prohibit new supply with restrictive zoning. Second, most public services in the U.S. are administered at the local level, driving local residents to use exclusionary zoning to “preserve” public service quality. Third, the U.S. practice of near-total deference to local land-use planning and widespread use of discretionary permitting creates a system in which local special interests can capture zoning regulation and remake it around their interests.

At the outset, why might Americans voters demand stricter zoning than their Japanese counterparts? One possibility is that they are trying to preserve the value of their only meaningful asset: their home. In the U.S., we use housing as a kind of de facto social safety net. Through a mixture of interest deductions, capital gains and property tax exemptions, and subsidized mortgages, current housing policy in the U.S. does everything it can to nudge every American into plowing their life’s savings into a home. Over time, the thinking goes, homes will accrue in value and homeowners will build “wealth.”

In reality, even with all these subsidies, a home is a poor investment: it’s highly illiquid, and if a region isn’t growing or if a lot of new housing being built, any meager housing appreciation will be wiped out by maintenance costs and taxes. To overcome this issue, U.S. municipalities systematically restrict the construction of new housing, creating artificial housing scarcity which drives up the values of existing homes. For more on this hypothesis, check out The Homevoter Hypothesis by William Fischel.

The situation in Japan is almost the exact opposite. Homes have little resale value in Japan. By one estimate, the average Japanese home fully depreciates after 22 years. There’s surely a cultural element, but most observers agree that the island’s frequent earthquakes play a big role: with structural damage so frequent and safety standards constantly improving, nobody wants to live in an old home. The result is that the resale  value of a home is really only in its land value, so Japanese savers have little to no reason to “invest” in a house, treating shelter like a consumption good.

This system has two downstream effects on land-use regulation: On the one hand, the average Japanese household simply has no reason to perpetuate housing scarcity, like their American counterpart. On the other hand, the average Japanese household has a vested interest in keeping land-use regulation light, insomuch as they see themselves as potential future developers in the event of a move. Would it be better if Americans, like the Japanese, demolished most homes after 30 years? I’m not so sure. But it would be wise to stop subsidizing excessive investments in housing, which would encourage smarter investment behavior and reduce demand for restrictive land-use regulations.

Another reason why Americans might support more restrictive zoning than the Japanese has to do with the peculiar way that we provide public services. Here in the U.S., the quality of essential services like parks, education, and public safety can vary dramatically municipality to municipality. A larger population of low-income households means higher public outlays, higher taxes on middle- and upper-income earners, and lower quality public services.

Residents respond by self-selecting into the most affluent communities they can afford and pulling up the ladder once they’re in. To put it another way, to ensure access to quality schools and open space, American households are encouraged to move out to a suburb and employ land-use regulations to keep out anyone poorer than themselves. This partly explains the extreme racial and economic segregation see in most U.S. cities today; for more on this, see The Color of Law by Richard Rothstein.

Japan avoids these pressures both by standardizing local public service provision and by enforcing strict economic and racial homogeneity through a mixture of high marginal tax rates and xenophobic immigration policy. The desirability of the latter two policies is highly suspect, but the decoupling of public service quality from local municipal boundaries is a no brainer. Insomuch as U.S. policymakers can expand policies like school choice and city-county consolidation, they minimize the need for local voters to try and exclude outsiders from moving into high opportunity areas.

We now know why a certain segment American voters might prefer restrictive land-use regulations. But how do they enforce these preferences against the apparent needs of the country as a whole? In the U.S., our 89,000 municipal governments are entitled to develop their own unique  system of land-use regulation, with little to no oversight from the courts, state governments, or federal regulators. The result is that zoning restrictiveness rises to the preference of local special interests like homeowners, which in small, homogenous, middle- and upper-income suburbs can be quite restrictive. This severely limits new development in most suburbs, with ugly elements of racism and classism typically mixed in.

In cities, the mechanism of enforcing these restrictive preferences is slightly different. More so than in suburbs, many U.S. cities force every development proposal to go through a long and costly discretionary review process. This is often done by making land-use regulations so restrictive that any development must pursue a discretionary action like a rezoning or a special permit. In practice, this submits all proposed development to months of negotiating and public review, in which locals can shout a project down to their preferred size (which is often a vacant lot) or extract large concessions from the developer.

Japan bypasses these problems completely through a large national role in land-use planning and an as-of-right system of development. On the first score, the national government sets out 12 zones, which are clear, liberal, and generally focused on actual nuisances. This places a lower bound on how strict a local land-use regulation can be, with even the most strict zone allowing for multifamily, home-based businesses, and small local retailers. This national zoning system takes away the power of local municipalities to develop complicated and exclusionary local land-use regulations.

On the second score, Japan combines these liberal use and design guidelines with an “as-of-right” system of permitting, meaning that if a project complies with the zoning, it doesn’t need to go through a discretionary review process. In this sense, Japanese zoning gets close to proper planning: policymakers consider upfront what type of development they would like to permit and where, and when developers come up with a conforming proposal, they hand over the needed permits. This provides developers and local residents with a high degree of certainty about what can and cannot be built.

So what exactly should we learn from Japanese zoning? At a superficial level, we might take away that Japan shows that a liberal zoning regime is workable and highly desirable. YIMBYs can and should go out and work on liberalizing our local zoning code in the near term. But at a deeper level, YIMBYs should learn that making their mounting victories sustainable in the long term means taking on the policies and institutions that built our system of exclusionary zoning in the first place.

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