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A Model for Suburban Development?

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A Model for Suburban Development?

10 Blocks podcast November 20, 2019
Economy, finance, and budgets
Cities

Charles Marohn joins Michael Hendrix to discuss why the current approach to suburban development isn’t working—the subject of his new book, Strong Towns: A Bottom-Up Revolution to Rebuild American Prosperity.

“Strong Towns,” notes Aaron Renn in his review of the book for City Journal, “resulted from [Marohn’s] discovery that the highway projects he designed showed a negative return on investment.” Marohn has dedicated his career to helping the country’s older suburbs avoid such costly mistakes by founding the book’s namesake organization, Strong Towns. “Whether or not one agrees with his many observations and prescriptions,” Renn writes, “Marohn provides a valuable analysis of sprawl-based development.”

Audio Transcript

Brian Anderson: Welcome back to the 10 Blocks podcast. This is Brian Anderson, the editor of City Journal. Joining us on today's show is Charles Marohn. Charles spent his early career as a professional engineer and a public land use planner, but now he's the founder and president of Strong Towns, an organization that works to support a realistic model of development for America's aging suburbs. His new book is similarly titled, Strong Towns: A Bottom-Up Revolution to Rebuild American Prosperity.

One of our contributors, Aaron Renn recently reviewed the book for the City Journal website. We'll link to both the book and the review in the description. Charles joined us in the studio where he was interviewed by the Manhattan Institute's Michael Hendrix, who also writes for the magazine.

That's it for me. The conversation between Charles Marohn and Michael Hendrix begins after this.

Michael Hendrix: I'm Michael Hendrix, director of state and local policy here at the Manhattan Institute. And I'm joined by Charles Marohn, president and founder of Strong Towns. Chuck, it's good to have you here.

Charles Marohn: Good. Hey, wonderful. I'm glad you called me Chuck, because that's what my friends call me. So I wouldn't want people listening thinking that we're not pals.

Michael Hendrix: Absolutely. You are the author now of a new book, Strong Towns: A Bottom-Up Revolution to Rebuild American Prosperity. Tell me, what is a strong town?

Charles Marohn: Oh my gosh, I haven't gotten that question for a long time actually. It used to be the number one question I get, what is a strong town? I think in my engineering planning days, in the early days of Strong Towns, I would have said, it's a place that has the wherewithal to take care of itself. It's not going to go away if outside forces stop propping it up. It's a place that has enough wealth, enough economic activity going on to where it can maintain its essential infrastructure; its streets, its roads, its pipes, all that stuff.

I think over time the idea of what is a strong towns has expanded as my kind of humility about cities has also expanded. I think as an engineer and as a planner, you're trained or you're programmed to look at cities in this very mechanistic way, but cities are this deep place of culture and beauty and love and interdependencies. I've come to appreciate that while the base definition of a strong town is a place that is strong and resilient and won't go away if the kind of support systems around it fade. I've also come to appreciate that a lot of those bonds that make a place strong go beyond the basic infrastructure, and the finance, and the economic ecosystem, and they go to a deeper cultural human ecosystem, it's the glue that binds that all together.

Michael Hendrix: But they're not less than financial or physical underpinning, which is a lot of what you focus on.

Charles Marohn: Oh my gosh. Well, that was the entrance into this conversation for me. I mean as an engineer, I worked on so many projects and would run the math on them and said, “This is a ridiculous project.” Like, “This is making the city poorer.” And in delving into that, I actually reached a set of questions regarding humans and human habitat that ... My wife, the more empathetic one would say, “Yeah, these are the questions that you should focus on, dummy.”.

Michael Hendrix: It's like, I'm glad you finally figured this out.

Charles Marohn: Yeah. She's like, “I've been telling you this for years.” Like, no one cares about your stupid street. It's about the people who live on it and how they interact and what this all means to them.

Michael Hendrix: Tell us, for those who are not familiar with Strong Towns, what was the moment of revelation that you're hinting at?

Charles Marohn: I get asked, was there a Road to Damascus moment, where the bright light shined? And I've tried to, in my mind, recreate what that was. Like, okay, when was that? And it really wasn't, it was a series of more like aching pains and struggles that I pushed back against.

So very early in my engineering days, working on projects that were just patently ridiculous. I mean you didn't have to have an advanced degree, seven quarters of calculus and all this stuff to run the numbers on these things and realize that the city was ultimately going to lose money on these transactions. And when I say the city, it's really a proxy for me for the community, the residents, the people, the small businesses. Everybody that lives in this community was going to really take it financially in the negative in this transaction.

Dealing with that and kind of digging into and pulling on that string for a while and saying, “Okay, there's a lot of stuff here I know about engineering but I don't know much about finance. Let me try to figure out the financial side of this.” Like, why are we doing these things?

Michael Hendrix: Give us an example. Why were you doing this thing? Like, what would be the thing…

Charles Marohn: I'll give you a crazy one. I worked for a city, and this was back before the housing ... During the housing bubble. So during the whole-

Michael Hendrix: Before 2008?

Charles Marohn: Yeah. And I had put together ... I was a little bit advanced now in digging into what would become strong towns, and I put together this thing for the city and I showed them, every new development we do, we're losing money on. And here's the math, here's how this sets up, and here's where when we project this out 20 years, you're going to be completely broke. I mean we don't have anywhere near the money we need. And the worst developments we do are these ones with one-acre, two-acre plus lots in this kind of ... This was a lake community, so the off lake stuff. And the council was like, “Oh this is really impressive work. I'm so glad we know this. Thank you for army Norris at this.”.

It was the next month, we got a request to do this development of this exact same type, one-acre, two-acre lots and I pulled up my analysis and I'm like, “Here's the numbers. There's a whole lot of reasons to say no to this development, but one of them is that the finances don't work.” And then I went through our code and I'm like, “Here's the five things they don't meet.” They want tax subsidies, they want the city to build the infrastructure and upfront those cost. Everything about this gave them 50 reasons to say, “Sorry this doesn't meet our code, this doesn't meet our ordinance, we're not going to do this.” They fell all over themselves to do it, and gleefully did it and got mad at me for making friction in the process.

Michael Hendrix: You were the fly in the ointment.

Charles Marohn: I was the burr under the saddle, yeah. I was the one saying, “Hey, maybe we should rethink this.” And they just wanted to do it really bad. And that was when I started to ask questions about, okay, how does group behavior work? How do decisions in large groups be made? Because as an engineer, there's a certain part of me that is almost mathematic about it. Like if A is greater than B, you don't do it. If A is less than B you, you do. And it's almost programmatic. Like you could put it in a computer and just spit out the result. And that's not how messy humans work. That's not how groups of people make decisions.

And it goes beyond ribbon cuttings, it goes beyond ... I mean there is no one on this little council getting kickbacks. There were no ribbon cuttings, there was nothing flashy about this little silly development on the edge of town. It just they felt very ... They were very committed to the growth mindset and the idea that if they could build more infrastructure and get more homes and do more things that their city would be growing, and that would make them better off.

Michael Hendrix: And this is partly what you call a Growth Ponzi Scheme.

Charles Marohn: Yeah. It's funny because that term was very easy for me to apply because it has, again, in this kind of programmatic way, the nature of a Ponzi scheme is that you always need more new entrance to make up for the promises you made to prior entrance into the system. So your system has to grow in a pyramid kind of way exponentially in order to add new things in to take care of the last one. I came to understand it because people started to push back on Ponzi as being nefarious. Like if you look at Bernie Madoff, in the early years of Bernie Madoff's Ponzi scheme, it was actually not an attempt necessarily to defraud as much as it was to make the numbers work in a way that he promised.

It's kind of like you fudge a little bit at first to make it work and then the next year you wind up fudging a little bit more to cover up for the last year's fudge. And pretty soon you go out a couple of decades, you're running a full blown Ponzi scheme. And our cities get to the end of the year, “Oh my gosh, we don't have enough money to do this. Well, we need a little bit more growth next year.” So you juice the skids for a little bit more growth, the next year you come and your bills are even bigger and, “Oh my gosh, we need even more growth now.” And pretty soon you get to a place where cities are willing to give away the store, give massive amounts of tax subsidy, take on all kinds of liabilities, do whatever it takes in ways that are patently ridiculous because they so desperately need the growth. Because if they don't get the growth, they'll sunk next year.

Michael Hendrix: This is a lot of what I see in the suburbs of North Texas where I grew up. A suburb can be bright, shiny, and new for the first generation, 20-30 years. After that bright, shiny new period, something begins to change. Is that the moment when maybe the roofs need to be repaired on houses, the pipes begin to need to be replaced, the roads need to be repaved and people begin to move on to another bright, shiny new neighborhood, is that the moment of reckoning? What happens then?

Charles Marohn: I wish that were the moment of reckoning. That's actually the moment where the desperation starts to I think prompt the ridiculousness. This is really deeply pernicious because I worked in my early engineering years for a city that was growing very quickly and we were next door to an old railroad town that was not. And the hubris and kind of sneering of the people in the growing city, including myself, as like, “Well, we've got it figured out. We know what we're doing.” The people in the struggling city was really astounding.

I'm now in my mid 40s. The work that I did in my early 20s as an engineer is now essentially reaching the end of its life cycle, and I'm watching this growing city starts to reach that phase. You go in and you build a neighborhood all at once, all of a sudden there's 80 new homes in a place where there was none.

20 years later, everybody's siding started to go bad simultaneously. Everybody's sidewalks have cracked simultaneously. Everybody's appliances go bad, everybody's roof goes bad. It's like this whole calamity hits the neighborhood all at the same time because everybody's end of life cycle for this stuff that they built is the same exact period of time. So the neighborhood goes into distress and as you suggested, the people who are affluent in this neighborhood then pick up and they move on.

Now you're left with rising costs, with people who are struggling to make ends meet with a city whose kind of now reached the end of that, what we call the illusion of wealth phase, that early growth… where now they have to go and start making good on these promises.

And because we've locked these places into regulatory amber, both from a zoning standpoint, but also from a financing standpoint, you can't go in and change your house into a duplex now because it's financed with some 30-year mortgage that's been securitized 50 times. And is owned by pension funds all over the world. You don't have the flexibility to do these things even if your local code allowed. The only thing that can happen is this long, slow decline.

The city, to make ends meet, will take on debt and we encourage cities to take on lots and lots of debt. We made it very easy for municipalities to borrow. We made it very lucrative for them to do so. We made it very lucrative to investors to put their money into that type of borrowing. I mean the muni-bond market is massive. And so what cities wind up doing is they take on huge amounts of debt during that second life cycle in order to keep things going.

If you look at Ferguson, Missouri, a first ring suburb right after World War II. That was the hot, affluent suburb of St. Louis. You go out into the third lifecycle now. The year Michael Brown was killed, they spent $800,000 on interest on their debt and only $25,000 on sidewalk maintenance. They don't have the money to fix anything. They're broke. And so you look in cities wind up in a despair situation like that where they have all these liabilities, they have massive amounts of debt and the tax base has dwindled and denuded to the point where it can't keep up, and then you're done.

Michael Hendrix: Do you have two separate messages to a city that is functionally broke versus a city that is in that growth phase?

Charles Marohn: That illusion of wealth phase?

Michael Hendrix: Yes. Or is it the same message?

Charles Marohn: It's the same message. I think it's harder to deliver to one. One is like the teenage kid who ... I think back to my teenage years and I was, I'm six feet tall. I weighed, honest to God, I'm going to tell you this, I weighed 123 when I joined the army on my 17th birthday. I had no meat on my bones. I ate Swiss rolls and pizzas and drove my car too fast and all that stuff when I was a teenage kid. Had just horrible habits. You could go tell me as a teenager, “Look, you're going to have to eat healthy and you're going to have to exercise and you're going to have to slow down and you're ... ” And I would not have heard it because life was just way easy. It was so easy that I could do whatever I wanted and there was really very little consequences. In terms of my metabolism, there was no consequences at all. If I were to do that as a 46-year-old now today, there's huge consequences. And so the message is a little bit easier to deliver to me, even though it's the same message.

I think with the fast growing cities, you do have this, I want to use the word hubris, but I think that that actually doesn't capture fully. There is a sense that all those places that we've seen do this before and failed. They were deficient in some way. The people there are either weren't as smart, they weren't as bright, they didn't have as much sophistication as we do. Boy, they were building ranch houses and now we're building these a split entry houses and they're so much better. They used oak cabinets and now we have maple cabinets.

It literally comes down to that kind of thing. Like we're building the stuff that is new and in demand and we're so much smarter. It's really hard to talk to someone like that. Like your on the knife's point of getting yourself into a huge trap financially that you're going to struggle to get out of. Because every cultural signal they're getting is go, go, go.

Michael Hendrix: It seems like America has always had a frontier and been defined by a frontier, maybe the Western frontier. Then it became an urban frontier. We built big cities bigger than ever before around the turn of the century. We also had a suburban frontier. And in a way for wealthy, maybe more highly educated, even younger elites, we have most recently had a downtown frontier.

Charles Marohn: Yeah, reurbanisation frontier in a sense, right.

Michael Hendrix: Have we lost our frontiers? Is that part of the reckoning or the fear that maybe we have today that's captured in Strong Towns?

Charles Marohn: That's a deep question. Because I do agree with you that part of the American psyche is the idea of going out and putting a stake in the ground or something new that's yours. I do think and ...

Michael Hendrix: The frontiers closed, right? What do we do when the frontier is closed?

Charles Marohn: Well, yeah, but I mean you look at our history as a nation and the people from Europe who came here were the malcontents. I mean they were the people who said, “All right, things aren't working out here, let's get on a ship and go see if we can make something for ourselves over there.” It does take a certain mentality to basically strike out and do something like that. You have to be a little bit of a dice roller, like a risk taker. We have that mentality here.

I've spent time in Detroit, and Detroit is a city well known for desperation and well known for the, the difficulties that it has. We've all seen the ruins in photos and it's very real. You can go there and see houses that were there one year and two years later, there's a tree growing up in the middle of it and it's stark. It is shocking to the mind to see some of this. Yet there are people, and they've been called urban pioneers who have gone into places like Detroit and they've come sometimes from places like San Francisco, where they can take one month's salary that you make in San Francisco, buy a house in Detroit, fix up that house, rent out part of it as a respectable Airbnb. Use that to cashflow your entire life, have a nice little garden, live in a neighborhood with similar people who are doing similar things, do a little bit of computer code hacking on the side for some extra income and live a really high quality life.

Now, it's not a high quality life if your life is Manhattan and you have the things that you experience here, but you pay for that here too as a premium. Here's people who are able to travel the world, do all kinds of things, live in a community with others in a way that humans are kind of attuned to, very close knit, kind of almost tribal community. I think tribal brings up images in our minds. What I'm trying to say is a very communal way of living that I think humans are very attuned to or used to, and do it on a very low financial burden rate. Are these our next pioneers? I don't know.

And I think the question that comes to my mind when I think about that kind of pioneering is, how common is that going to become? How many more people is that going to become a good option for in their community? I think there's a theory out there, and Glaeser, bless his heart. I love them. I think the guy is a genius. I read all his stuff. I think he's great, but I think Ed Glaser and people who kind of subscribed to his thinking have looked at cities as the end point. Like we're in this trend now where there is no frontier, there's just going to be a lot of urbanization and basically most Americans are going to wind up in five different cities, and that will be North American civilization.

I suspect the opposite. I suspect that there's a limit to the two-hour commutes that people can tolerate to be part of the New York ecosystem, and that at some point there will be people who say, “You know what? Detroit's got a great opera house. They've got a ... ” I going to say a good baseball team, but I'm a Twins fan so I'll take that one back. They got a nice Triple-A team in Detroit. Just kidding Detroit. They got good basketball team, they got football team, they got arts, they got culture. You can live there really, really cheaply. It's an increasingly safe place. It's an increasingly, I think, coherent place, if they figure out some of the government stuff that is weighing them down. It can be a spectacular place. And I can see places like that, places like Kansas city and Omaha and Minneapolis is a booming, booming place with Saint Paul. These are places that I think might be the next frontier.

Michael Hendrix: It seems like there's also a role for regulatory reforms to make it easier to build or to retrofit the types of development that would lead to more private wealth, that would offset the public investments and the liability that we have on our books.

Charles Marohn: There are groups out there, and especially in the YIMBY community, the Yes in My Backyard.

Michael Hendrix: The Yes in My Backyard.

Charles Marohn: Yeah, that group. And we're completely aligned with the idea that we're doing lots of self harm from a regulatory standpoint. I just think back to how families used to build wealth.

If you were a poor family, the idea of having a shop and a house in the same building, very obvious way of doing things. The idea of having a shop and a house in the same building, what you're building was income diversity. Someone could work outside the home, someone could work within the home. If things worked out, you had two sources of income. If they didn't, you at least had one. These things we make illegal today.

Cities throughout all time would have very fancy hotels for the upper-class who would come to town, but everybody else would stay in people's houses. It wasn't people's houses that you knew, people would operate what we maybe today would call an Airbnb, but I don't even think it was that technical. It was just, let's put out a little sign in the window that says, “Room for rent.” We got an extra room in the back and if the guy shows up and gives us a buck, we'll let him sleep in the back room and we'll send him off with a couple of sandwiches the next day. That was very common and people used to be able to supplement their own income streams with that type of thing.

There's lots of stories about families who, the husband dies and the wife and the kids are alone and they decide to split off the house and rent out part of it to someone else. That income stream then creating a way for them to keep the house.

Well, back in 2008, as these 3,000-4,000 square foot homes in the suburbs were going into foreclosure because the people couldn't make the reset payments. None of them were allowed to cut up this massive house into duplex or quad unit. It wasn't allowed in their financing, it wasn't allowed in the local zoning code. It would have been hell with the building code to go through all this, and so what do they do? They just mailed their keys back in and walked away and they took a hit and the community took a hit and the housing market took a hit and the banks took a hit.

We have, and I think this is important to understand, we have created a system and our version of capitalism today is one where we emphasize efficiency. So let's create the most efficient capital allocation market we can with the banks. Let's create the most efficient construction market we can with the housing industry. Let's have a few big players able to do this at mass, at bulk, at scale. Let's create efficient networks of food distribution at a franchise restaurants and franchise grocery stores. And what that does is it does create a lot of efficiency and a lot of growth and you can, in a sense, drive down costs. But what you lose is the adaptability and the resiliency and the capacity for people to make independent choices.

This is a bipartisan kind of thing. I mean all across our political spectrum, Democrats and Republicans can agree on it. The need for more efficiency and more centralization and more top-down to solve our problems. And what we really need, and this is why our book is the bottom-up revolution, we really need a lot more messiness. A lot more kind of chaotic, individual action at the lower levels of our governing structures to figure things out, to try, to fail, to fail many, many times, to figure out a new set of spooky wisdom for how we build the next version of America. That that's what we need right now.

Michael Hendrix: Charles Marohn, president and founder of Strong Towns, thank you so much for joining us in the 10 Blocks podcast.

Charles Marohn: Hey, thanks for the opportunity. So happy to be here.

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Photo by Larisa Sviridova/iStock

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