A bill has been introduced in the Texas Legislature that would penalize cities for "down-zoning" property: it would require cities to pay a property owner damages whenever zoning changes cause the property's market value to drop by more than 10%.
I think this is a bad idea.
There's no question that down-zoning can be unfair to the property owner. I'm sure we'll see plenty of instances in the upcoming VMU boundary "adjustment" process, as neighborhoods try to pull properties from the VMU district for their own selfish reasons.
There's also no question that this bill will all but eliminate the occasional down-zoning. Any down-zoning could reduce a property's value by 10%. There will be plenty of appraisers willing to swear to that, at any rate. This means that cities will have to negotiate -- or sue -- each potentially affected property owner every time they want to tighten up zoning. As a practical matter, down-zoning will be too costly and cumbersome for cities to pursue, except in rare cases.
Down-zonings are relatively rare overall, though; the VMU process is a special case. Almost all of our zoning controversies are over up-zoning. And this bill will give city councils perverse incentives in these cases. They will understand that once they've given a property a particular zoning classification, it will be difficult to switch to a more restrictive classification. If they zone property commercial, they can't count on being able to rezone it residential. If they zone property multi-family, they can't count on being able to rezone it single-family. In other words, you can ride up for free, but the ride down will cost you.
City councils will respond rationally to this incentive. If given a choice between zoning property single-family or multi-family, they will choose single-family whenever possible. They will be more skeptical of requests to up-zone property, since these decisions essentially will be irreversible. And when they do up-zone property, they will increase the "entitlements" by the smallest increment necessary.
In my opinion, most of our zoning problems today stem from widespread under-zoning. We should be encouraging cities to up-zone. This bill will do just the opposite.
