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Roads Not Taken

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Roads Not Taken

A new book argues that modern suburban development is a financial loser for some communities. October 22, 2019
Economy, finance, and budgets

Strong Towns: A Bottom-Up Revolution to Rebuild American Prosperity, by Charles L. Marohn, Jr. (Wiley, 256 pp., $16)

Strong Towns, the book and the namesake organization, resulted from civil engineer and urban planner Charles Marohn’s discovery that the highway projects he designed showed a negative return on investment. The local taxes generated by new road construction and expansion didn’t even cover the costs of the roads themselves, much less any other city services. Marohn calculated, for example, that it would take 37 years’ worth of property-tax revenue from all the houses on his own cul de sac just to recoup the street’s initial cost. This realization inspired Marohn to argue that urban sprawl is a financial loser.

According to Marohn, the current approach to suburban development is a “growth Ponzi scheme.” New developments, like housing subdivisions or industrial parks, require little maintenance for many years after their initial construction. This allows the municipal tax revenues they produce to be used for other purposes. But over time, infrastructure inevitably needs repairs, and, too often, a city can’t cover the cost. If the city goes ahead with the maintenance work, it will need to boost economic growth to generate the necessary revenue to pay for it. 

A similar challenge arises on the private side. Unlike traditional communities, which organically form in increments, modern neighborhoods are commonly built in large, uniform blocks intended as permanent developments. Zoning and building codes, along with restrictive covenants, ensure this outcome. Today’s housing developments, for instance, might feature hundreds of homes—separated into various pods—that collectively sell within a narrow price range. Since these homes get built at once, they require major maintenance, such as roof replacement, at around the same time. Homeowners confront significant repair bills, but some cannot afford the upkeep, so the neighborhood can start to look worn down.

This convergence of public and private redevelopment costs—along with changes in market demand for building and neighborhood types that disproportionately affect “monoculture” developments—has contributed to the decline of many outer-urban and inner-suburban areas across America. In modern suburbia, dead malls and rising poverty levels bring municipal fiscal distress; government incentives helped trigger this pattern. “Today, the public sector backstops almost all private land development,” Marohn observes, “either by direct investments up front or by assuming the long-term maintenance obligations before the tax base has matured.” Marohn believes that a significant amount of U.S. infrastructure will be decommissioned due to its high cost.   

Marohn is an outlier in his severe skepticism about infrastructure, but urban economists like Edward Glaeser have also cautioned against viewing infrastructure investment as a magic economic elixir, particularly given how we finance it. Glaeser cites a study that found return on investment for new highways had fallen to less than 5 percent by the 1980s. Even if an infrastructure project makes sense from an economic perspective, unless public revenues exceed public costs, it will be a loser from a public-sector finance perspective. Glaeser suggests adopting a model more reliant on user fees, like tolls or value capture, which he thinks would help discipline investment decisions.

Marohn argues for a neo-traditionalist approach to development that places him in the “new urbanist” camp. His thinking is shaped by his experiences in small-town Minnesota, including his hometown of Brainerd (with a population of about 13,500). It’s in places like Brainerd—small- or medium-sized, with an existing historic urban form, and growing slowly, if at all—that his prescriptions look most applicable. These places indeed should be cautious about implementing expensive new infrastructure projects, and they should allow incremental density in developed areas. For growing boomtowns, larger cities, modern suburbs, or communities without traditional development, it’s hard to see how to put Marohn’s ideas into practice. After all, growing communities often must construct buildings and infrastructure quickly. As Marohn acknowledges, New York City grew at extraordinary rates for much of the nineteenth and early twentieth centuries, with infrastructure like subway lines constructed on a large scale.

Whether or not one agrees with his many observations and prescriptions, Marohn provides a valuable analysis of sprawl-based development that differs from the usual environmental or aesthetic arguments. Conservatives are quick to highlight public-sector waste as a source of municipal financial distress, but Marohn reminds us that additional factors contribute to the problem as well.  

Photo: JohnnyH5/iStock

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