How Housing Development Creates a Collective-Action Problem, in St. Paul and Beyond

The Twin Cities area has a housing problem. The city’s population grew by 333,000 from 2010 to 2020, while the area built only 126,894 units of housing over the same timespan. Metro-area vacancy rates fell to 4.62 percent in 2020, the lowest vacancy rate in the country among metropolitan areas with over 1 million residents. This housing squeeze has made housing expensive: 45 percent of Twin Cities renters are rent burdened.

But the Twin Cities is not the only place with a housing shortage. Much of the United States is feeling the pressure of tight housing markets. As a report from the Council of Economic Advisers shows, housing growth has not kept pace with population growth, especially since the Great Recession, and nationwide rental vacancy rates are lower than they’ve been in decades.

Housing production is too low nationwide (Council of Economic Advisers).

Across the country, we know that regulations are a big part of the problem. As economists have shown, housing regulations have driven a huge wedge between the cost of housing and the prices paid by homeowners or renters. By pushing prices up in desirable neighborhoods, regulations maintain economic and racial segregation within cities.

The same effect plays out between cities, making our productive cities the most expensive ones and keeping workers out of high-productivity cities where they can earn the most. Strict land use regulations increase income inequality and strangle growth across the United States.

In light of the immense problems created by excessive housing shortages and regulations, we must understand the political reasons why they came about. These housing shortages are, in part, owed to local residents’ control of housing development in their neighborhoods. At multiple points along the approval process of a development or rezoning, neighborhood residents are able to protest, delay and deny increases in the amount of housing units in their neighborhood. 

Throughout national media, this group of housing-blocking residents has earned the name “NIMBYs” (Not in My Backyard) and often been depicted as a biased and exclusionary group.  Wealthy homeowners are understood to knowingly block opportunities for poorer and more racially diverse residents to move into their neighborhoods, making dwellings scarce in order to make the wealthy people’s homes more valuable. 

Strict low-density zoning was designed to segregate and exclude. In The Color of Law, Richard Rothstein describes how American low-density zoning came about. After the U.S. Supreme Court ruled in 1917 that neighborhoods could not explicitly zone areas by race, localities turned to density restrictions that would make all but the most expensive homes illegal to build. For example, Rothstein describes how St. Louis, Missouri adopted what was technically a race-neutral zoning code in 1919, but only after the city’s planning engineer had declared his intent to prevent “colored people” from moving into “colored residential districts.”

The Twin Cities used racial covenants to keep neighborhoods white for many years, and in Macalester Groveland — where I live — people burned two crosses on the lawn of Black St. Paul residents William and Nellie Francis when they moved into the neighborhood in 1925. 

A clear thread can be drawn between past racist, exclusionary policies and current ones. But I find this theory of anti-development — call it the “nefarious” theory of NIMBYism — to be incomplete. Destructive racial and class biases drive some of the opposition to new housing construction; that is true. White homeowners have shown and continue to show a willingness to fight against poorer or non-white newcomers.

But development also has real and concentrated costs. In the short term, construction can be a nuisance, and in the long term, denser neighborhoods bring increased demands on infrastructure and publicly provided goods. The benefits of new housing development are largely diffuse and non-excludable — anyone can take advantage of lower cost of living. Because the benefits for local residents don’t align with the broader social benefits, we should always expect an undersupply of housing when political structures favor local decision-making. This collective-action problem can help to explain the housing crisis, both in the Twin Cities and nationwide.

Understanding Collective Action

This explanation begins with a theory that economist and political scientist Mancur Olson advanced in the 1960s. To be clear, I don’t use this theoretical framework to defend people blocking housing. My goal is to positively describe one reason for widespread housing opposition, before jumping into normative implications.

Collective-action problems arise when a good has concentrated costs (one person or group pays for the good) and diffuse benefits (many people who don’t pay for the good can still benefit). A common example of a collective-action problem is reducing carbon emissions: Any one state, country or corporation that elects to restrict its emissions receives only a tiny fraction of the benefits of doing so — although the benefit of their contribution to reduced greenhouse gasses will be enjoyed by all inhabitants of earth. Even though most actors are aware of the need for climate action, none can coordinate a sufficient response.

Housing development also fits this description. New construction can create immediate, short-term drawbacks — construction creates loud noises, blocks roads and parking, and leaves dust everywhere. That’s unpleasant for nearby residents. More impactful than the short-term costs of construction, however, are the longer-term impacts that could be broadly described as “congestion costs.”

More people in a neighborhood means more use of the same publicly provided goods:

  • Roads are busier.
  • Parking is harder to find.
  • More people means more pressure on septic infrastructure.
  • Schools are more crowded, and so on.

Homes are also a unique asset. Land use economist William Fischel has argued that homeowners rationally fear for their property values, because the investment in a house makes up nearly the entirety of many people’s savings portfolios. When changes might threaten their property values, homeowners will act risk-averse. Even if the expected impact of a development on property values is minimal, homeowners will be concerned about any small chance of decline in their property values.

But while the costs of housing development are concentrated, the benefits of density are spread across an area much larger than a neighborhood. A concentrated amount of housing construction can keep prices marginal, putting housing costs within reach for many. In addition, having more people in a city will grow the absolute size of a local economy and tax base, and can increase the area’s productivity and wages via agglomeration effects. However, these benefits are spread over a metropolitan area. One development’s potential contribution to economic growth or lower rents will not be meaningful to any single resident.

Crucially, the diffuse nature of the benefits of housing development creates no natural constituency that favors developments on a case-by-case basis. Renters or homebuyers who might eventually want a home in that neighborhood won’t think to participate in that neighborhood’s political process — and as outsiders, they may not be able to. These potential renters and homebuyers will also have a difficult time collectively organizing compared with homeowners who live in the affected neighborhood. For a single development, individual incentives don’t line up with the optimal social outcome. Local residents will reject an increase in density and no one will oppose them (if you like thinking about these things as an economist would, see the model in this working paper).

This misalignment of incentives matters only when paired with political institutions that prioritize the concerns of nearby residents. Neighborhood-level planning grants local decision-makers the approval over — or, at least, a voice in — land use regulations and discretionary development. This allows decision making to be “captured” by the narrow interest group of affected neighbors.

A Case Study in St. Paul

In performing this case study, I’m inspired by and indebted to the researchers Katherine Levine Einstein, David M. Glick and Maxwell Palmer. Their excellent book, Neighborhood Defenders, contains detailed data collection and analysis of public meetings in the Boston area.

This case study examines a neighborhood council meeting at the Macalester-Groveland Community Council’s (MGCC) Housing and Land Use Committee (HLU). (I am a board member on this council and serve on this committee.)

According to MGCC’s website, the HLU conducts public meetings and approves motions to recommend approval or denial on land use decisions. Any members of the public may attend and comment, but only committee members (those who have expressed an interest in joining the committee and attended the two previous consecutive meetings) can vote. The HLU’s decisions are not binding; such decisions are voted on by other city bodies, including the Planning Commission, Board of Zoning Appeals and City Council. However, the City of St. Paul’s 17 district councils vote on nearly all developments that require variances, conditional use permits or rezoning and then send recommendations to decision makers at the city level. These district council recommendations hold sway both for appointed technocrats who rely on localized knowledge and for elected officials who are sensitive to this core constituency. 

The meeting at hand took place in March 2021. A couple had recently bought a large lot on Mount Curve Boulevard and were seeking a variance to split the land into two lots. The property had originally been platted as two separate lots in 1917, before St. Paul had a zoning code, but then became one property. One of the original plots had a full, single-family detached house, while the other had no structures on it — so the variance was presumably, although not explicitly, for the purpose of building a second house to sell. Under the R-4 zoning of this area, the minimum lot size was 5,000 square feet, but splitting these two lots would create two 4,336-square-foot lots. In order to split the lots, the owners would need a variance.

Highlighted in red is the lot that property owners wanted to split into two.

Neighborhood members of HLU strongly opposed this variance request. Multiple members of the public attended and commented who were not regular HLU attendees but were residents of the same street as the proposed variance. This meeting helps to demonstrate the ways that housing acts as a public action problem.

Their comments show an aversion to the concentrated costs of development. Some comments demonstrated fear of change on their street: “I have lived over 80 years on Mount Curve Boulevard,” said one neighbor, “and because of that, I feel that I should be heard for my reason in not wanting to have a building put up on the empty lot next to me, because the fence that belongs to this 400 Mount Curve is right up against my back steps as it is. I feel that a building will impact my property and so therefore I am against having a building put up close to my house.” 

These residents saw change as threatening their property values. One neighbor expressed concern that the developers were looking to develop a house similar to those on nearby Cretin Avenue, saying that there’s “nothing wrong with Cretin Avenue, but it’s a busy street, the home values are less than Mount Curve. Mount Curve is its own neighborhood.”

Some comments described potential infrastructure costs from the development. Three different residents mentioned concerns about drainage and standing water in the alley behind the development. Another resident warned that “this seems to be a really significant change and there really isn’t any previously existing construction.” These comments display the concentrated costs of development, both in the short-term inconveniences of construction and the longer term “congestion costs” on infrastructure. 

More subtly, some comments hinted at how little the diffuse benefits of housing development are felt at the local level. “I don’t see how this benefits the neighborhood, and I’m inclined to vote against it,” one commenter said. Another said, “I’m not sure how it is our place to change someone’s neighborhood when the people living on the street are not in favor of it.” The list of costs was long, and most residents saw no meaningful benefit in allowing this new housing. From their perspective, this is reasonable. As current homeowners, these residents have little reason for concern about inadequate housing supply. Even if they were concerned, one new house will do little to solve the Twin Cities’ supply shortage and its attendant problems, and any economic benefits that it does create will be spread across the metro area. 

However, the potential beneficiaries of new housing development were not in attendance. These include homebuyers and renters who stand to benefit from increased housing supply, which would reduce costs. 

The Macalester-Groveland neighborhood in St. Paul is populated largely by white homeowners. Photo courtesy of Edina Realty

Ultimately, the HLU recommended denial of the variance, and the property owners do not appear to have brought their request to the Board of Zoning Appeals.

By itself, the decision-making process described above may seem insignificant. Any single project being denied is hardly impactful on housing supply, and mundane concerns about infrastructure are reasonable reasons to oppose development. Yet in the aggregate, a planning process that follows the wishes of these residents is not functional. 

This is, essentially, the insight of Mancur Olson and the reason why development’s collective-action problem matters. Of course, homebuyers and renters across the city are less likely to show up to specific district council meetings in neighborhoods where they do not live. They may not even know these meetings are occurring, and their public comment will hold less sway than those of voting committee members if they don’t live in the area. But small groups of the most impacted homeowners care deeply about new development and will take steps to prevent it. The result is a devastating mismatch between the optimal outcome and reality.

This suggests that higher local levels of control over development and zoning decisions will tend to worsen exclusion. The more locally that decision-making occurs, the smaller the proportion of the diffuse benefits that residents receive, making them more opposed. This may be surprising: Prima facie, letting local residents control development in their own neighborhoods can seem democratic and just. But such an assumption falls into what urban studies scholar Mark Purcell calls the “local trap,” misguidedly equating greater local control with a more democratic or just system. As Purcell argues, local control is not inherently better than other scales of political control; this is dependent on other social, political and economic factors. 

Purcell’s argument requires us to differentiate between different contexts of local control. Small groups of adversely affected homeowners blocking nearby development are not the same as groups of low-income renters blocking expensive development that they fear will increase their rents. As Einstein, Glick and Palmer argue in Neighborhood Defenders, low-income communities and communities of color have long been removed from democratic decisions about housing and land use, and it is unjust to attempt to strip them of local control.

However, development decisions like those in Mac-Groveland are dominated by a wealthy group of homeowners with the time to participate in public meetings. In the MGCC 2021 internal demographic survey, 89.5 percent of respondents were white and 91.9 percent were homeowners. Meetings for specific developments can be even more skewed toward narrowly affected homeowners, while the potential beneficiaries of developments are unable to participate in decisions in neighborhoods where they do not yet live. In many instances, local control has failed to justify its democratic superiority.

Offering a Way Out

One way to “reduce local control” is to make more projects approved by right — that is, to allow more housing to be built without requiring approval from neighbors. If projects can be built by right, then the incentive structures that lead to systematic blocking of housing development will not matter, for they can simply be surpassed. Developers used to come to the Macalester-Groveland Community Council requesting variances to build fewer parking spots than were mandated under the city’s minimum parking requirements. Now that the city has abolished those requirements, developers who want to construct less parking can do so without requesting approval. Similarly, if most parts of Mac-Grove didn’t have 5,000-square-foot minimum lot sizes, the property owners from this case study wouldn’t have needed to request a variance, and affected homeowners wouldn’t have been able to block the development. Pairing the removal of these regulations with complementary non-market policies could greatly improve our housing situation.

Law Professors Roderick Hills Jr. and David Schleicher have proposed a “zoning budget” to address housing’s collective-action problems. While local control under-provides housing, mayoral or citywide control over development sacrifices some of the place-specific knowledge that local control can offer, and may lead to housing in unnecessarily harmful places. To harness local residents’ knowledge advantage for positive ends, states and cities could implement “fair share” laws, where smaller localities have control over development but must meet numerical targets of housing construction. These targets would be decided at a city or statewide scale. In such a plan, the dispersed beneficiaries of new housing could coordinate more easily, collectively deciding on housing targets that adequately consider the benefits of housing. For incumbent residents, the most harmful developments can be avoided without stifling too much development.

Massachusetts’ Chapter 40B operates in this vein, allowing affordable housing developers to preempt local land use regulations or decisions if jurisdictions are failing to meet a target of affordable housing development. 

Although the federal government can’t implement strict “fair share” laws or change zoning codes, the feds could wield fiscal carrots and sticks to better align residents’ incentives. If housing opposition can be explained, in part, by the mismatch between development’s concentrated costs and diffuse benefits, then compensating local residents for this mismatch could bring us closer to a socially optimal outcome. For example, U.S. Senator Cory Booker has proposed using the Community Development Block Grant (CDBG) program as a tool to encourage localities to increase their housing supply. The CDBG offers grants for localities to spend on local projects, and the federal government could withhold these funds from areas that do not meet targets in constructing new housing units. The Fair Housing Act could also be wielded to incentivize development: As the journalist Jerusalem Demsas has suggested, the Department of Housing and Urban Development could sue localities that don’t build subsidized and public housing, under a doctrine from the Fair Housing Act.

The current distribution of control over housing construction is not working. Local residents who bear concentrated costs in developing housing will hope to block housing construction, and it is hard to coordinate and build political power around the dispersed beneficiaries. Combine this dynamic with local control over land use decisions, and the result is too little housing. As long as these residents have such power, all of us will feel the effect.

Photo at top of story courtesy of Edina Realty

About Zak Yudhishthu

Pronouns: He/him

Zak is a student at Macalester College studying economics and music. He's interested in all kinds of urban politics and policy, and is the student representative for the Macalester-Groveland Neighborhood Council. Tweet him @zyudhishthu or email him at zyudhishthu@yahoo[dot]com.