How Zoning Rules Would Work in a Free Society
It is well known that the libertarian political philosophy is antagonistic to coercively imposed rules that limit people's freedom to use their private property as they see fit. Indeed, the very essence of libertarianism is the nonaggression principle that condemns the initiation of force against person or property. As a result, libertarians have been critical of zoning laws, which restrict the ability of property owners to develop their property or use it for their desired purposes.
Because of this antipathy to zoning laws, some critics of libertarianism fear that a libertarian society would leave people incapable of exercising any control over their neighborhood and preserving the character of their surroundings. They worry that the decisions of surrounding property owners could change the character of their neighborhood to the detriment of their property values or preferred lifestyle. For example, some may worry that their local park will be developed into a housing complex leaving them with nowhere to take their children to play. Others worry that their neighbors may build huge structures that overshadow their now sunny backyards. Whatever their specific concerns, many people share the view that zoning laws are required to prevent their neighborhood from being despoiled by outrageous building developments or uses.
Fears of inappropriate building development or drastic changes to the character of a neighborhood are often grossly exaggerated. Some are inclined to fear that without the protection of coercive zoning laws a skyscraper might be built in a small suburban neighborhood or a brothel might open up next to a children's preschool. However, even in the absence of any restrictions, the possibility of such outcomes is extremely remote and fears that the repeal of zoning laws would open the floodgates to outrageous developments such as these are overstated.
Building developments and commercial usage of buildings are almost always strongly driven by the desire for profit and therefore they will almost always cater to the tastes of prospective property purchasers and customers. There is not likely to be much demand for residential or commercial space in a skyscraper towering over a sleepy suburban area, simply because such a tall development would unnecessarily and wastefully economize on cheap and ample ground space, leading to excessive expense. Similarly, no brothel worth its salt would choose to open next door to a children's preschool (or at least operate during school hours) since this would almost certainly drive away potential customers. In general, developments such as these are avoided simply by the desire of property owners and businesses to do business in an area that is suitable to their particular industry.
Private property and voluntary zoning
Contrary to the alleged necessity of zoning laws, there is ample scope for noncoercive solutions to zoning issues in the context of a free society of private-property ownership and nonaggression. In particular, private ownership of property allows for restrictive covenants to be agreed between the property owner and another party so that the allowable uses of land are limited according to the wishes of the parties. It follows that property owners within a given neighborhood may contractually agree to impose restrictions on themselves with respect to the allowable developments on their land or the allowable uses of their property.
In some cases, restrictive covenants may mimic the kinds of restrictions present in zoning laws and may therefore be used as a means of voluntary zoning. Property owners may agree to limit developments on their land to a certain height as in existing zoning laws; they may agree to paint their properties in a similar color scheme, as with some housing complexes; or they may agree to restrict the use of their property to particular uses, such as residential use.
It is no mystery why private-property owners might voluntarily undertake to restrict their own property rights. They might do so for monetary payment or other valuable consideration. For example, some property owners might enter into restrictive covenants in order to secure similar restrictions on their neighbors. In such cases, a property owner would weigh off the benefit of having an enforceable restrictive covenant over his neighbor's property against the detriment these restrictions would cause his own property ownership. A property owner would also have regard not only to his own desired usage of his property, but also to the likely desires of prospective purchasers and the resultant effect on the market value of his property.
Instead of relying on quid pro quo restrictions, a system of voluntary zoning would also allow people to purchase restrictive covenants from a willing party. For example, a man with a strong aversion to dogs in his neighborhood could seek to purchase a restrictive covenant preventing dogs from living on his neighbors' properties even if he does not desire any particular restrictive covenant being imposed on his own property (obviously he will not allow dogs there himself, but he does not need a restrictive covenant to do this). In such a case, the neighbor would consider whether or not the money offered is more valuable to him than his existing right to have dogs living on his property. Regardless of the particular preferences of the parties involved, voluntary agreement to a restrictive covenant would demonstrate ex ante gains to all parties to the covenant.
Voluntary zoning through private restrictive covenants already exists in areas where government has not imposed zoning laws. Such covenants have shown themselves to be perfectly adequate to protect property owners against adverse development by others. Voluntary agreements for restrictions on the use of property also exist in apartment and townhouse developments where property owners govern common areas under a corporate arrangement. These arrangements exist even in areas in which there are existing government zoning laws, though they are often crowded out by these laws. Some complexes have restrictions on use (such as rules against pets), some complexes have restrictions on development or alterations, and some have rules requiring a certain uniform color scheme or aesthetic design for all properties.
While some may prefer not to live in complexes such as this, where they are restricted by their neighbors in the use of their property, there can be no moral objection to this from a libertarian perspective so long as these arrangements are undertaken with the consent of property owners. Of course, in many cases, property owners will buy into a scheme with existing restrictions, but in this case the property title purchased is already restricted, and the restrictions therefore become a condition of their purchase.
Some may object that zoning rules involve substantial positive externalities and that voluntary zoning would result in a "free-rider problem" since those property owners who refuse to agree to restrictions may nonetheless benefit from the effects of restrictions agreed upon by other property owners. However, even if a property owner can safely rely on others to enforce restrictive covenants to his own benefit — and this is by no means certain — and even if such positive externalities lead to problems of economic efficiency, it is sheer economic nonsense to suggest that coercion is the proper means to solve these efficiency problems.
A property owner should not be compelled to join a restrictive covenant simply because he derives a benefit from a covenant between others. Nor should any other person be forced to contribute to the value of this unsolicited good. Any "free-rider problem" in this situation is merely an assertion of an inefficient underutilization of restrictive covenants, for which there are several available entrepreneurial solutions such as pledge contracts, buyouts of property, and other voluntary arrangements. If property owners do not avail themselves of these voluntary options, then this is prima facie evidence that any such restrictions are not in their best interests so that no efficiency gains are possible.
Problems with government zoning
Like most other government legislation, zoning laws are a violation of property rights. They involve forcibly imposing a restriction on legitimate private-property use through legislative fiat. A person, who has acquired property through homesteading or through voluntary trade with another person who legitimately owned the property, should rightly be able to use his property in any way that does not intrude upon the property rights of others.
Some may argue that property rights are themselves restricted in scope to the conditions inherent in the initial land title, so that zoning rules may be built into the initial grant of land by government. Under this view, freehold title may be considered as granting reasonably wide property rights, whereas leasehold title grants narrower property rights, which are restricted by zoning or other rules. The problem with this position is that it implicitly assumes that government is the legitimate owner of all (otherwise) unowned land, so that property rights in this land are acquired by government grant and substantiated by government certificates of title.
However, this position is incorrect. The right to property is not determined by government decree; it is determined by the objective principles of homesteading and voluntary trade. While government certificates of title may approximate genuine property rights and provide evidence of acquisition, they cannot grant property rights since the government holds no genuine rights over unowned land to begin with. In fact, most government certificates of title illegitimately specify restrictions on land use that are untenable according to the rules of homesteading.
Aside from the coercive nature of government-imposed zoning laws — which is itself sufficient reason for objection — these restrictions are also far less likely to accord well with the preferences of local residents than systems of voluntary zoning undertaken between the residents themselves. Indeed, the fact that these restrictions are imposed without the consent of property owners demonstrates that they are not in accordance with the desired arrangements of at least some of those property owners. Moreover, lacking an unhampered private market in property titles and restrictive covenants, the government has no means of rational economic calculation of people's preferences when imposing zoning rules. Regardless of their intentions, government officials simply cannot weigh the pros and cons (to local residents) of proposed restrictions, since they have no rational objective means of economic calculation. For these reasons, it should come as no surprise that zoning laws are one of the most controversial areas of local governance, with many dissatisfied parties.
Controversy over zoning laws is aggravated by the fact that coercive zoning laws must inevitably involve arbitrary bureaucratic discretion. Changes in communities — such as growth in population, changing demography, or growing or diminishing affluence — can give rise to new demands for certain kinds of property and property uses, and the restrictions on property development and use must therefore be adapted to suit changing demands. In the case of voluntary zoning, restrictions like this will occur by renegotiating existing arrangements and providing consideration to induce covenant holders to allow changing restrictions. This ensures that rational economic calculation occurs. However, in the case of government-imposed zoning laws, this will instead involve political advocacy and political decision making — in particular, zoning laws will inevitably involve substantial discretionary power being arrogated to government bureaucrats and being exercised without recourse to any rational means of economic calculation.
In addition to the calculation problem involved in coercive zoning laws, these laws also make the enforcement of restrictions more remote for the actual people involved with the property in question. Whereas a system of voluntary zoning gives direct enforceability to individual property owners and covenant holders, a system of government-imposed zoning laws gives control to their political masters, bureaucrats and politicians. This relocation of the locus of decision making entirely changes the character of the decision and the incentives involved. Property owners and covenant holders have intimate direct knowledge of local conditions and are motivated by their desire to improve their amenities and property value. On the other hand, bureaucrats and politicians in charge of zoning issues usually lack this intimate local knowledge and are instead motivated primarily by job security, predicated on political popularity. As with other forms of coercive top-down planning, the accumulation of decision-making power in these political bodies renders the zoning process less responsive to the genuine needs of affected residents — and more responsive to political lobbying.
Because zoning problems involve continually changing local conditions, bureaucrats and politicians are inevitably vested with substantial discretionary power in the creation and enforcement of restrictions. As with other forms of political power vested in the government, this discretionary power is inevitably exercised in favor of those groups who support the power of the decision makers. In a representative democracy, a local property owner, affected by zoning decisions, is merely another face in the crowd whose power over zoning decisions is limited to his political influence with the local council. As a result, most people have little ability to exercise control over the zoning decisions in the neighborhood in which their property is located. Instead, such a process is liable to be overly influenced by politically influential groups, such as wealthy property developers or highly organized groups of perennial busybodies. In some cases, local residents may successfully band together to influence the decisions of their political masters, but this is by no means guaranteed, and their property rights are highly insecure as a result.
In fact, like other discretionary bureaucratic rules that allow interference with property rights, zoning rules allow bureaucrats and politicians to hold developers and other property owners to ransom. Even in the course of arguing in favor of zoning laws, law professor Bradley Karkkainen nonchalantly tells us that, while zoning laws may appear to completely prohibit certain developments, the reality is a little different:
In fact, zoning functions more like a "property rule" [a rule protecting an entitlement by injunctive relief], allowing neighborhood residents (or their governmental representatives) to enjoin a proposed development that does not conform to current zoning, while leaving room for the would-be developer to "buy" the entitlement to build through design concessions, campaign contributions, and the like.
Here we see the real nature and purpose of zoning laws. Since such laws invest discretionary control over property development and use in our "governmental representatives," these laws allow political parties and other political interest groups to extort funding from wealthy developers — funding that is usually forthcoming.
In addition to being inherently corrupt, this practice of extorting money from property developers often leads to a quid pro quo in which governments use coercion to assist wealthy developers in acquiring land and trampling on the legitimate property rights of others (through eminent domain laws or other coercive means). One commonly hears the complaint that local governments are in the pockets of developers, but it is rarely appreciated that this is an inevitable consequence of the government's attempts to extort support from developers through coercive zoning laws. This is just one manifestation of the inevitable regulatory and political capture that occurs when governments attempt to control private business.
This neat little symbiotic arrangement, which is of great benefit to major political parties, may help to explain the large disparity between a highly critical academic literature and the zoning policies of government. Over a decade ago, Professor Karkkainen noted that:
Extensive academic literature critical of zoning has accumulated in the last twenty years, beginning with Bernard Siegan's landmark 1970 study lauding Houston's non-zoning approach, and followed shortly thereafter by Robert Ellickson's broader theoretical critique of zoning. Subsequent academic literature has been almost as uniformly critical of zoning as public policy has been uniformly in favor of it. Although few academic defenders of zoning have stepped forward, governmental decision-makers have proceeded with zoning apace, apparently untroubled by the academic onslaught.
Government zoning laws do not merely operate more arbitrarily and less efficiently than voluntary restrictive covenants, they also crowd out these private arrangements. In some cases this occurs because voluntary restrictive covenants are prevented by law or because the government arrogates to itself large areas of land and refuses to contractually restrict future development in these areas, relying instead on zoning laws that government officials can change unilaterally. Indeed, one of the most common instances of controversy and anguish in local government administration occurs when a government sells or rezones previously vacant government land near to or inside existing residential areas for property development. Such cases show the illusory nature of zoning laws in binding government decisions. Even where voluntary restrictive covenants are not restricted by law, and government is not the owner of land that is subject to some proposed restriction, government-zoning laws often crowd out private arrangements simply by giving property owners the false assurance that "the government will take care of it." Thus, in addition to being inherently coercive, zoning laws derogate from more efficient and effective voluntary arrangements.
Pollution, noise and property rights
Of course, there is one situation in which libertarians countenance forcible restriction of property development or use without any contractual agreement. That is the case where the development or use of property is itself an aggression against another person or their property — that is, where a particular property development or use violates the property rights of another. This can occur in cases where a development or use of property produces excessive pollution or noise to surrounding properties or invades their space. Thus, opening a coal-fire power station or an oil refinery in the middle of a residential neighborhood may legitimately be prevented by residents, since the pollution would involve a violation of their property rights.
Force may legitimately be used only to prevent actual property invasions by others and not merely to prevent noninvasive actions that detrimentally impact upon our enjoyment of our property. For example, in the absence of some voluntary restrictive covenant, there is no inherent right to prevent one's neighbor from keeping a car body in his front yard or painting his garage an unsightly color. This is the case even if the aesthetic distaste for this ugliness is widespread, such that it impacts the market value of adjoining properties — there is no such thing as a right to preserve the value of one's property, only its physical integrity. Moreover, this is true regardless of whether one is speaking of the objective market value, the subjective value to the property owner, or any other measure of value. People are entitled to protect the integrity of their property from invasive acts by others; they are not entitled to forcibly prevent legitimate acts by others merely to protect the market value of their property.
Economic calculation and efficiency
Notwithstanding that there is no inherent right to the subjective or market value of one's property, the existence of private-property rights and consequent market value is very useful for the purposes of economically efficient decision making. When property is privately owned and traded it acquires a monetary value, allowing it to be compared with other factors of production and use. This allows people to undertake rational economic calculation in matters involving property and property restrictions and thereby make decisions that do not squander scarce resources. Zoning restrictions that are formulated as enforceable property rights under voluntary restrictive covenants would be capable of creation or repeal by voluntary agreement, including agreements involving monetary payment. It follows that these restrictions would also acquire a monetary value, allowing for rational economic calculation and better economic efficiency. By knowing the monetary value of a restrictive covenant, people would be able to determine whether these assurances are worthwhile to them, when weighed off against other goods.
In order to take advantage of the greater certainty and efficiency of voluntary zoning, property owners and others concerned about neighborhood development should seek the repeal of coercive zoning laws and the privatization of existing government land holdings. This would prevent voluntary development and use restrictions from being crowded out by government, and would allow property owners and others to enter into restrictive covenants that are adjudicated by objective contractual agreement rather than by the vicissitudes of political lobbying and bureaucratic whim.
 For a libertarian critique of zoning laws, see Jim Fedako "Zoning is Theft." See also Hans-Hermann Hoppe and Walter Block, "On Property and Exploitation" (International Journal of Value-Based Management 15 (2002): 232–33); Murray N. Rothbard, For a New Liberty: The Libertarian Manifesto (Auburn, Ala.: Ludwig von Mises Institute, 2006), pp. 93, 162–63, 197.
 For more discussion on this point see Hoppe and Block, "On Property and Exploitation."
 On mutual ex ante gains from voluntary trade see Murray N. Rothbard, Man, Economy, and State with Power and Market, Scholar's Edition (Auburn, Ala.: Ludwig von Mises Institute, 2004), p. 277.
 For example, law professor Bernard Siegan has examined the use of voluntary zoning in Houston and found that voluntary zoning contracts mimic zoning laws in other cities. He also finds that zoning outcomes in Houston are achieved more efficiently than in cities with zoning laws. See Bernard Siegan, "Non-Zoning in Houston" (Journal of Law and Economics 13(1): 71–147).
 The same cannot be said of restrictions imposed by zoning laws, even though these restrictions often apply at the time of purchase. These restrictions are not a legitimate condition of a property purchase, because the restrictions were initially imposed by coercion rather than by agreement from the property owner. It follows that the initial property owner has every right to sell his full entitlement to the property (ignoring the zoning restrictions) despite the fact that it is illegitimately restricted by the government. The same applies to subsequent purchasers who sell the property. In each case, the coercive restriction is illegitimate and the owner is entitled to own and sell the full entitlement to the property. Thus, unless there is some agreement to the contrary between buyer and seller (without government coercion), the buyer purchases the entire property title from the seller and any restriction imposed by the government remains illegitimate as against the new property owner.
 In fact, the imposition of a coercive arrangement cannot possibly lead to a Pareto improvement in the utility of the various parties since coercion implies detriment to at least some party. For more on the "problem" of free riding and the ridiculousness of the alleged solution of government provision see Ben O'Neill, "Solving the 'Problem' of Free Riding."
 That is, contracts that do not take effect unless and until a certain number or group of people all agree to be a party to the covenant.
 In particular, economic modeling of the alleged preferences and utility curves of the relevant parties cannot rationally be used to demonstrate that their preferences are in opposition to the preferences revealed by their own action.
 For broader discussion of the importance of the decision-making unit on the structure and incentives of the decision, see Thomas Sowell, Knowledge and Decisions (New York: Basic Books, 1996), pp. 11–20.
 Of course, this may be merely self-defense, since it is often property developers who are the target of illegitimate zoning laws in the first place.
 Bradley C. Karkkainen, "Zoning: A Reply to Critics" (Journal of Land Use and Environmental Law 10(1): 22). (Emphasis added.)
 Observe that property developers are often among the biggest donors to major political parties for local government elections and are also commonly found to be "donors" directly to planning bureaucrats themselves. While the former instances of extortion are generally regarded as a legitimate part of a vibrant democracy, the latter create quite a scandal. A recent example of the latter occurred in a large planning scandal in Australia, with revelations that planning bureaucrats in the Wollongong City Council extorted bribes from developers in exchange for planning approvals. The entire council was sacked after the Independent Commission Against Corruption (ICAC) found it was dominated by "systemic corruption." See "Corruption 'systemic' — all councillors 'should go'."
 For example, see Siegan, "Non-zoning in Houston"; R.C. Ellickson, "Alternatives to Zoning: Covenants, Nuisance Rules and Fines as Land Use Controls" (University of Chicago Law Review 40(4): 681–81); J.Z. Krasnowiecki, "Abolish Zoning" (Syracuse Law Review 31: 719–53); D.W. Kmiec, "Deregulating Land Use: An Alternative Free Enterprise Development System" (University of Pennsylvania Law Review 130(1): 28–130); W.A. Fischel, The Economics of Zoning Laws: A Property Rights Approach to American Land Use Controls (Baltimore, Md.: John Hopkins University Press, 1987); A.J. Cappel, "A Walk Along Willow: Patterns of Land Use Coordination in Pre-zoning New Haven (1870–1926)" (Yale Law Journal 101(3): 617–42). On the topic of free riding and zoning, see also T.J. Miceli, "Free Riders and Distortionary Zoning by Local Communities" (Journal of Urban Economics 30: 112–22) and "Optimal Fiscal Zoning That Distorts Housing Consumption" (Journal of Real Estate Finance and Economics 5(4): 323–31).
 Karkkainen, "Zoning: A Reply to Critics," pp. 2–3.
 Of course, a private land owner would have every right to refuse a restrictive covenant so long as they legitimately owned the land by homesteading or voluntary trade. The problem here is not so much that the government refuses to enter into contractual restrictive covenants with its land — the problem is that the government's land monopoly is illegitimate in the first place.
 There is an abundant literature on the libertarian theory of pollution, including noise pollution. See especially Murray N. Rothbard, "Law, Property Rights, and Air Pollution" (Cato Journal 2(1): 55–99).
 In particular, coercive zoning laws cannot be justified on the basis of the "consumer surplus" or alleged "collective value" of a property in excess of its market value, as is asserted by Karkkainen. In fact, voluntary zoning involves a property owner's own assessment of the value of his property, including any "consumer surplus" above the market value.