The Coase Theorem, which tells us that the social optimum may be reached by exchange no matter how property rights are assigned if transaction costs are zero (and not if transaction costs are high enough), has relevance to the problem of zoning.
In much of the U.S., zoning is excessively strict, pricing moderate-income households into bad dwellings or out of the local market altogether. Yet zoning has defenders in the logic of externalities. More development makes people worse off in some ways: more traffic, etc. (Contrary to popular belief, zoning does not prevent a factory from opening up next door to you and polluting your airspace. The common law of nuisance torts prevents that. Zoning instead centrally plans the residential and commercial uses of particular pieces of land throughout a jurisdiction. Developers can appeal a prohibited use to a “board of zoning adjustment.” But such boards often deny requests.)
One simple reform to local zoning laws in the spirit of Coase would be to require zoning-adjustment boards to price the net negative externalities of any proposed use. Instead of outright prohibiting a use, boards would be required to come up with a dollar amount that any developer or property owner could pay in order to be permitted the use. After all, no negative externality from development is infinite, so no form of development, anywhere, should be absolutely prohibited.
This reform wouldn’t be a panacea, because zoning boards could obviously try to inflate the price a developer could pay, but state laws could force them to come up with some reasonable price based on objective, explicit criteria. Indeed, the negative interjurisdictional externalities of local land-use decisions make this an ideal area for state legislative intervention. We’re leaving big dollar bills on the sidewalk.