The Invisible Moat: Modern Zoning and the Persistence of the Feudal Mindset

In the Middle Ages, the architecture of exclusion was honest. If you were a feudal lord seeking to protect your status and wealth from the "unwashed masses," you built a castle. You surrounded that castle with a deep, water-filled moat and a drawbridge that remained resolutely upright. The message was unmistakable: We are in here; you are out there. Our safety depends on your exclusion.

As we examine the modern American housing landscape, it is tempting to believe we have evolved beyond such primitive gatekeeping. Yet, if we peel back the layers of contemporary land-use regulation, we find that the castle and moat have merely undergone a rebranding. Today’s moat isn't filled with water; it is filled with red tape, minimum lot sizes, setback requirements, and "character of the neighborhood" ordinances.

This is the modern zoning cartel—a sophisticated alliance of local politicians, career bureaucrats, zoning boards, and NIMBY (Not In My Backyard) activists. While it lacks the overt iron-fisted rule of the Middle Ages, its effects carry striking authoritarian parallels, functioning as a highly effective, modern-day system of exclusion.

About the author: Jeff Hulett leads Personal Finance Reimagined, a decision-making and financial education platform. He teaches personal finance at James Madison University and provides personal finance seminars. Check out his book -- Making Choices, Making Money: Your Guide to Making Confident Financial Decisions.

Jeff is a career banker, data scientist, behavioral economist, and choice architect. Jeff has held banking and consulting leadership roles at Wells Fargo, Citibank, KPMG, and IBM.

The Great Pivot: From Overt to Nuanced Exclusion

To understand how we reached this point, we must look at the historical inflection point found in the 1970s. Following the passage of the Civil Rights Act, the legal tools for overt racial discrimination were dismantled. One could no longer use a "back of the bus" approach to keep "those people" out of "our neighborhoods."

However, the underlying desire for exclusion did not vanish; it simply migrated. In the decade following the Civil Rights Act, we saw an explosion of zoning restrictions and land-use requirements. This was not a coincidence. When direct discrimination became illegal, the "cartel" shifted toward economic discrimination as a proxy. By mandating that a home must sit on a massive lot or adhere to hyper-specific architectural standards, the cost of entry was driven so high that only the affluent could cross the threshold. The civil rights movement ended the era of visible walls, but it inadvertently birthed the era of invisible moats.

Housing and income data:  Federal Reserve Economic Data, Federal Reserve Bank of St. Louis

• MSPUS:  Median Sales Price of Houses Sold for the United States, Dollars, Quarterly, Not Seasonally Adjusted

• MEPAINUSA646N:  Median Personal Income in the United States, Current Dollars, Annual, Not Seasonally Adjusted

Zoning data:  Cato Institute:  Zoning, Land-Use Planning, and Housing Affordability, Estimate based on data from Daniel Shoag of the Harvard Kennedy School.

For more information on the historical zoning pivot in the 1970s, please see the article:

The Decade That Bent the Arc – How the 1970s Redefined Money, Power, and Culture

The Zoning Karen Effect: Our Pre-Wired NIMBYism

Why is this system so resilient? As an advocate for affordable housing and an observer of human behavior, I call this the "Zoning Karen Effect."  Zoning Karens spend their days with their noses pressed against the window, obsessed with the "irregularities" of their neighbors.

The Zoning Karens of today populate our neighborhood associations and pressure local governments. They are not necessarily "bad" people; in fact, NIMBYism is a default setting of human nature, though some people seem to have more time and predisposition to behave as NIMBYs. We are evolutionarily pre-wired to protect our immediate territory and view change as a threat. Karen has a righteous chip on her shoulder because she believes she is the moral guardian of the status quo.

The Role of the Bureaucratic Machine

While the NIMBYs provide the social pressure, it is the bureaucrats who provide the machinery. In local government offices across the country, layers of administrative staff have built entire careers on the maintenance of these "moats." For a bureaucrat, a complex web of regulations represents job security and institutional power.

These officials often hide behind the "process," claiming they are simply following the rules. But we must ask: whose rules are they? Political scientist William H. Riker (1980) famously described institutions as "congealed preferences." In this view, the zoning codes enforced today are simply the "frozen" desires of past majorities—the Zoning Karens of the 1970s—who codified their exclusionary impulses into law to prevent future generations from changing the status quo.

Today, the bureaucratic machine treats these congealed preferences as sacred text. When the rules are designed to prevent affordable housing, the process itself becomes a weapon. By the time a builder navigates the environmental impact studies, traffic assessments, and public hearings required by the zoning board, the cost of the project has often doubled. This "congealed cement" of regulation ensures that only the most expensive, high-end developments are viable, effectively pricing out the working class.

The Renter Society and the Rationality of Investment Banks

The result of this institutionalized exclusion is the "Renter Society." As zoning makes it increasingly difficult to build affordable entry-level housing, the supply remains artificially low while demand skyrockets. This creates a perfect environment for institutional investors.

Many critics blame large investment banks for "buying up the American dream." However, from an economic perspective, these banks are simply being rational. They see a market where the Zoning Karens and the bureaucrats have guaranteed a permanent supply shortage. If the government refuses to allow new supply, the existing inventory becomes a high-yield asset. The banks are not the cause of the crisis; they are the scavengers thriving in a habitat created by the cartel.

The Path Forward: Blankslating

If we are to dismantle these modern moats, we must move beyond incremental reform. A knee-jerk reaction, maybe, "we need a law...." Stop right there, we actually need the opposite. We need less regulation, but in the right way. We need "Blankslating." 

Blankslating is an approach to remove all zoning requirements periodically and start from a clean slate. It forces us to ask: Does this rule protect public safety, or does it merely protect an entitled few? While some zoning is necessary—specifically when it serves commutative justice by protecting property rights and ensuring legal agreements are honored—much of it is simply rent-seeking behavior disguised as public interest. This is a behavioral economics-inspired answer to the zoning moat challenge. It changes the default decision environment from opt-out (we must vote to remove rules, which have proven to be notoriously difficult) to opt-in (we start from a blank slate and build only necessary rules based on commutative justice. The opt-in approach requires a fresh and inclusive perspective, not just of the entitled few, but also of those in need of affordable housing.

We must overcome our natural default "always on" NIMBY mode. We must empower our builders to do what they do best: build. By breaking up the zoning cartel and draining the invisible moats, we can transition from a society of protected castles to one of accessible communities.

The Zoning Karen effect has won for a long time, but the next generation—the generation currently being locked out of the American dream—cannot afford to let her keep the drawbridge up any longer.

Ready to take action? To learn more about the mechanics of this solution and how we can practically implement this approach to restore housing affordability, I invite you to read the full breakdown of Blankslating here:

Zoning: Good Intentions, Bad Outcomes, and the Blankslate Solution.