Where SimCity Gets Zoning Right, and Where Not

To solve the current housing crisis, planning needs to become more coherent and flexible

Many readers will be familiar with the game SimCity. You play an omnipotent mayor, laying roads, planning infrastructure, and zoning land to grow your city and attract “Sims”, the inhabitants of your marvel creation. With good planning, your city prospers, Sims are happy, and you earn “Simoleons” (SimCity’s currency) to develop your city further. That is, of course, barring the occasional zombie apocalypse.

Brain eating creatures aside, SimCity captures the basics of land-use planning well. Want attractive residential areas? Connect them well with roads and locate services and amenities in their vicinity. Want to attract wealthy residents and don’t care about gentrification? Increase lot sizes and price out the poor.

Nonetheless, housing governance in real-life is not a simple matter of ‘if you zone it, they will come.’ Sadly overlooked – both in SimCity and in reality – are the need for flexibility in zoning and land-use, and coherence in housing policies across governments. Boring as flexibility and coherence may sound, the latest OECD Housing Report shows that they are critical to ensure affordable homes, thereby contributing to inclusiveness and well-being. We explain why.

The importance of flexible land-use planning

In SimCity, land-use planning plays a crucial role in your city’s success: it determines everything from how many Sims your city can house to how many Simoleons you can earn. In real-life too, land-use planning is a key tool for local governments: it opens up areas for development, transforms spaces and their use, and influences the shape and density of cities. Regulations that overly restrict the conversion of undeveloped land, or restrain floor space, limit housing supply and push up prices. On the other hand, unregulated land-use fails to incorporate hidden costs (or externalities) such as health or longer-term environmental implications: in this case, think of Sims fleeing their homes after you have carelessly built a coal-fired power plant next door. To make our cities more accessible and more environmentally sustainable, spatial planning plays a critical role, but too stringent or badly designed land-use regulation can undermine housing affordability and the flexibility of cities to evolve in structure, form and function over time. The key for land-use planning lies in balancing the two extremes, and how this is best done, in practice, is set out in our recent report, Housing policies for sustainable and inclusive cities.

Many governments and planners struggle to achieve this delicate balance. Studies show how, for example, land-use restrictions in California and New York not only detract from U.S. aggregate productivity and consumption, but also raise housing prices in already unaffordable areas. Flexibility in land-use is crucial in better aligning housing supply with demand. Except for specific purposes such as hazardous industrial areas, the three-pronged, rigid classification into residential, commercial, and industrial zones you see in SimCity and arguably in many cities across the world simply does not cut it. Apart from making housing less affordable, rigid single-use zoning is also bad for the environment: it results in more cars on the road as single-use residential neighbourhoods force people to drive long distances for their activities, starting with grocery shopping. Local zoning plans also need to be flexible to reflect diverse local contexts and adapt to demographic change and growth prospects. Here, incorporating population projections and shifts in preferences in local plans is crucial: doing so allows neighbourhoods to change over time in line with population patterns and shifts in housing and service demand. Many shortcomings of zoning can be avoided by adopting mixed-use zoning and using flexible regulations of permitted uses that prevent only the most important negative externalities, together with the regular re-evaluation of urban boundaries.

Inter-government co-operation and coherent spatial planning frameworks

Also often overlooked is the importance of co-ordination, across and within government entities. In SimCity this is understandable. With no central government or city council above you, an omnipotent mayor, and neighbours largely silent to whatever you do, who wants to be bothered with co-ordination? And no, banding with “friendly” aliens to offer up citizens as a sacrifice in return for Simoleons doesn’t count. In the real world, housing responsibilities, such as for social housing and for reducing the carbon footprint of housing, are shared. In principle, national governments tend to set overall priorities. Local governments then put these into action, taking into account the local situation and local preferences. However, in practice, many OECD countries do not have effective governance frameworks to align local and national housing and land use objectives. Another common issue is sectoral silos in housing policy: close to 60% of OECD countries have three or more ministries in charge of housing, whereas only a few have a dedicated housing ministry. Think of a bug-laden version of SimCity where you must now deal with mandates that sometimes contradict each other. I’d want my money back.

Another problem is national policies that have unintended consequences. For example, a seemingly space-agnostic policy of making mortgage interest rates tax-deductible in order to encourage home ownership tends to increase residential lot sizes and overall housing demand. Such outcomes may work against local land-use plans, which often aim to deter urban sprawl in an attempt to make cities more environmentally sustainable and to keep infrastructure costs manageable for local governments.

Finally, the notion of inter-municipal cooperation is often overlooked, with detailed metropolitan or inter-municipal plans still far from the norm in the OECD. As a result, local governments tend to compete rather than co-operate with each other. This is particularly concerning in areas such as housing. While agreeing on the necessity of higher density developments, municipalities often resist having them within their borders. Consequently, construction of housing has been severely constrained in many large urban agglomerations – with the results on housing affordability we are witnessing today. An effective governance framework aims to prevent such inefficiencies by aligning incentives to ensure that sufficient housing is being built where it is needed. This, in turn, helps to achieve the common goal of making housing affordable for all.

Where to go from here?

To put it simply: if we want to end the current housing crisis, we need to improve our housing governance frameworks. National governments need to ensure that all their policies are coherent with their desired housing outcomes. They also need to co-ordinate with authorities at all levels to integrate land uses and regulation across territories. Local governments, in turn, need to plan their zoning in a flexible manner that better aligns housing supply with demand. They need to be sensitive to national agendas and, maybe most importantly, municipalities within an urban agglomeration need to coordinate their land use decisions. As much fun as it is in SimCity, we are not the all-mighty, know-it-all, eternal entity reigning over Happyville.

Let’s talk.

Author profile
Head of the Economic Analysis, Data and Statistics Division, OECD/CFE at | Website

Dr Rudiger Ahrend is Head of the Economic Analysis, Data and Statistics Division in the OECD Centre for Entrepreneurship, SMEs, Regions and Cities. In addition, he also oversees the activities of the OECD Laboratory for Geospatial Analysis. In these capacities, and in his previous role as Head of the Urban Programme, he has been supervising numerous projects in a wide area of subjects, including on industrial transition, regional and urban innovation and development, subnational finance, spatial productivity, metropolitan governance, land use, land value capture, housing, green growth, climate change, transport, metropolitan governance, and national urban policies. He has also supervised numerous reviews and case studies of regions and major metropolitan agglomerations, and is the main author of “The Metropolitan Century: Understanding Urbanisation and its Consequences”. During his time as Head of the Urban Programme, Dr Ahrend was also in charge of the OECD Working Party on Urban Policies, as well as the OECD Roundtable of Mayors and Ministers.

At the OECD, where he started as an official in 2002, Dr Ahrend worked as a Senior Economist in the OECD’s Economic Department and as Head of the Urban Programme in the Directorate for Governance and Territorial Development. Prior to joining OECD, he worked as a researcher and independent consultant. In addition to his work on OECD countries, he has extensively worked on Russia and other emerging economies. In addition to his OECD work, Dr Ahrend has published widely, both in academic journals and newspapers.

Rudiger Ahrend holds a PhD in Economics from the London School of Economics, as well as degrees in Social Sciences and Mathematics from the University of Göttingen, Paris-IX Dauphine, and the Sorbonne.

Author profile
Junior Economist in the Economic Analysis, Data and Statistics Division, OECD/CFE at | Website

Dr Jaebeum Cho is a Junior Economist in the Economic Analysis, Data and Statistics Division in the OECD Centre for Entrepreneurship, SMEs, Regions and Cities. In this capacity, he works on a wide variety of urban and regional issues including land-use and spatial planning, housing, depopulation and ageing, sustainability, and land value capture. In addition, he is also part of the OECD team that manages the activities of the OECD Laboratory for Geospatial Analysis. Prior to joining the OECD, Dr Cho has worked as a consultant for the United Nations Economic and Social Commission for the Asia-Pacific, as a post-doctoral associate at Indiana University Bloomington, and as a professional urban planner in Korea, among other roles. He has published a number of academic articles, working papers, and reports on topics ranging across agglomeration economies, entrepreneurship, complexity economics, and sustainable development. Dr Cho holds a PhD in regional science and urban planning from Cornell University.