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Blaming sprawl for part of the economic crisis

The economic meltdown is generally blamed on lax regulation of the financial sector's real-estate dealings. Christopher Leinberger lays further blame on the real-estate industry itself, especially on his fellow developers.

"We built too much of the wrong product in the wrong place," the author and Brookings Institution scholar told me last week before addressing an overflow crowd of developers and local government officials in downtown Minneapolis. What he meant was that the industry kept doing the easiest thing – building single-family homes on the suburban fringe – despite evidence that the market was shifting toward smaller homes in denser neighborhoods closer to the metropolitan core.

"This was a structural shift; it was sprawl's last gasp," Leinberger said. "The market was fundamentally changing."

So, what's to be done now? What should the public and private sectors do as the nation tumbles into a deep recession that may halt commercial and residential development for a number of years?


Prepare to compete
Leinberger's answer came quickly: tee up the ball. Do all of those things that need to be done to make sure that your community succeeds when good times return – among them:
 
•    Built transit, especially rail transit.
•    Change zoning laws to allow a walkable, compact and mixed-use form of development to proceed, once the market comes back.
•    Institute business improvement districts (BIDs) to manage downtowns and other town centers as a way to ensure their proper maintenance and long-term success.

A pivotal moment will come next year when Congress takes up a new transportation bill. That bill must be "mode neutral," Leinberger said, meaning that gasoline-tax revenues don't go overwhelmingly to roads and bridges but also to transit and other auto alternatives. The Twin Cities should have considerable influence in the outcome, he said, given that Rep. James Oberstar, D-Minn., is chairman of the House transportation committee and will be the bill's primary author.

Stakes will be extremely high for metropolitan America, Leinberger said. "There are two kinds of metro areas: those that offer walkable alternatives and those that don't – and those that don't will be left behind."

Retrofits for both downtowns

Minneapolis-St. Paul has a lot of work to do in that regard, he said. To be in a position to compete when the economy rebounds, we must retrofit both downtowns to make them friendlier to walkers and transit riders. And we must develop a dozen additional walkable town centers throughout the region, preferably served by rail transit, he said.

He's talking about new transit villages around the new Target Field, around a refurbished Metrodome, at the University of Minnesota, in Uptown, along the Midway in St. Paul, at Central Station in Bloomington and a half-dozen other locations in the suburbs.

Denver's example is, perhaps, the best for Minneapolis-St. Paul, Leinberger said. In building its extensive light-rail system, Denver re-zoned and promoted 53 stations for new town center development. A layout like that will be difficult to compete against, he said, especially for younger knowledge workers who, as a generation, have rejected the auto-dependent suburban style and want to be less dependent on cars.

Leinberger was in the Twin Cities to speak to the Minnesota chapter of the Urban Land Institute. Aside from his research at Brookings, he teaches at the University of Michigan and is a founding partner of the Arcadia Land Co., a development firm. Among his best-known writings is his current book, "The Option of Urbanism: Investing in the New American Dream," and his memorable Atlantic magazine cover story (March 2008) "The Next Slum?"  In that piece he predicted the decline of – and in some cases the abandonment of – many single-family subdivisions on the metropolitan edge.

With high gas prices and other factors pushing the highest quality development back toward the metro center, "many low-density suburbs and McMansion subdivisions, including some that are lovely and affluent today, may become what inner cities became in the 1960s and '70s – slums characterized by poverty, crime and decay," Leinberger wrote.

A historical perspective
In his speech, he tried to place the current crisis in historical perspective. For 5,500 years humans had built cities on a walkable scale, he said. People moved efficiently from task to task. Then, in an abrupt departure in the 1950s, Americans began to build cities in a radical new way, one that was wasteful, inefficient and socially unfair. Prompted by cheap gas and new freeways, cities sprawled outward to consume land and energy at rates that far exceeded the rate of population growth.

"It was the biggest social engineering project in history," he said. And it was subsidized heavily by those living in older, more traditional neighborhoods.

When the market began to shift in the 1990s, banks, developers and local governments resisted returning to the traditional form. "The market shift is outpacing our ability to respond," he said, noting that the per-square-foot value of property in walkable neighborhoods is $40 to $200 higher.

The most desirable real-estate investments

In the next era of building, town centers built around rail stations will be the most desirable real-estate investments, he said. The nation will deal with climate change by taxing carbon impacts, he said, pushing up the cost of auto commuting. The marginal advantage of building denser, more efficient communities will become apparent, he said.

Demographic shifts further strengthen his argument. Parent-child households are declining steadily in metro areas. He estimates that 88 percent of the metro housing market will soon be couples and singles. Those people are more apt to trade the cost of driving – now about $8,000 per year per car – for the $150,000 equivalent value in home equity.

Peter Katz, a founder of the new urbanist movement in the early 1990s, mentions Leinberger's analysis in a new piece for Citiwire.net. In it he challenges the federal government, as the housing industry's new lender of last resort, to charge extra for loans in inefficient settings and to give breaks to homes and projects built on a more reasonable development pattern. In other words, he says, this is the time for lenders to begin charging for the true cost of sprawl.

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Comments (6)

"... local realtors (sic), bank loan officers, city council members ... could benefit from the discipline of a strongly recommended – or even mandatory – checklist of more rational, community planning rules."

First, this is a false solution that fails to take into account the tradeoffs of such a mandatory policy. It begs the question of who makes decisions about what tradeoffs will be made in how people live -- individuals themselves or government planners?

Second, it is a sad commentary on what America has become -- a country where individuals are merely the means to the end of government planning.

Government planning like the following, Mr. Westover?

"Prompted by cheap gas and new freeways, cities sprawled outward to consume land and energy at rates that far exceeded the rate of population growth.

"It was the biggest social engineering project in history," he said. And it was subsidized heavily by those living in older, more traditional neighborhoods."

Yup – government planning like that.

As I wrote previously at MinnPost (http://www.minnpost.com/craigwestover/2008/09/26/3663/whos_really_to_bla...), economics is all about trade-offs. In a market-based economy, individuals decide what those trade-offs are going to be. Prices are set based on demand, and demand is always at a price. In a managed economy, when government intervenes in the market on behalf of one industry or pushes a specific social goal, it alters the market for capital. Government policies that guaranteed low risk and artificially inflated reward caused money to flow into housing that otherwise would have been more effectively invested in other segments of the economy. At the margins, the government housing policies enabled some people the opportunity for a suburban lifestyle who otherwise might not have been able to afford it, but at the price, wanted it.

The point is, they wanted it.

Here is what you are missing -- “Sprawl” as its critics are wont to say, is unplanned development. It might have been fueled by government policy, but not planned by government bureaucrats. Given the choice between inner city and suburban lifestyles, and provided the means to choose, people chose the suburbs. Developers followed the people, putting up shopping centers with private money, which both served an existing market and spurred further growth. Business followed the market, with employers moving to suburban areas to take advantage of the growing labor pool. In turn, business and job opportunities lured more people to the suburbs.

You have a point that some of this growth was made possible by the housing policies put in place by government – at the expense of people living in the city. No argument. At the margins, you would be right. As a result of government policy, suburban development grew faster than may prove to be economically sustainable, but that does not change the fact that suburban growth was, absent government policy, inevitable as evidenced by the choices people made when given the opportunity to choose.

Had people wanted to live in the city, those same government policies that encouraged suburban growth would have supported city living. The fact is people didn’t want to live in the city if they could afford something different. They chose different tradeoffs.

The new urbanism philosophy is the opposite of free choice. It is a philosophy that starts from the premise of dictating how people ought to live. It takes their money in the form of taxes and builds public infrastructure (which at market price could not support itself) supporting the experts’ vision, and then imposes taxes and regulations that punish people that would choose another lifestyle.

Using tax policy and government policy to push social goals is bad policy regardless of the objective. That said, recognize that any policy has social implications. Good policy is that which is least restrictive of individual choice. New urbanism is premised on limiting choice. It is bad policy.

Whether we like it or not, sprawl is a fact of life in this day of urbanization and population growth. Roadway infrastructure and planning are needed. It is also time for new solutions.

For example, employers and government need to promote remote working options for office workers. Most office workers can work remotely and skip the long daily commute as long as they have adequate facilities and support from management. Rather than spend billions on new roadways and mass transit, government should be encouraging the use of Remote Office Centers for office workers.

Remote Office Centers are fairly new. They lease individual offices, internet and phone systems to workers from different companies in shared centers located around the city and suburbs.

High speed internet, VPNs and VOIP make it possible for most office workers to go to work on the internet, rather than on the highway each morning. It is just a matter of getting people to change the way they think of their 'work place'. It can just as easily be down the street as in some centralized office.

Remote Office Centers exist in many cities and can be found by searching the internet for "Remote Office Centers" in quotes. Existing commercial real estate can be converted into a Remote Office Center with minimal infrastucture investment. The biggest change is how the property is marketed.

Sprawl is here and it needs to be addressed. Roadway infrastucture is strained to the limit. However, internet and remote work technology is available, reliable and inexpensive to implement.

I have to disagree with Craig on his conclusion that New Urbanism is premised on limiting choice and is, therefore, bad policy. New Urbanism is about creating choices by allowing mixed land uses and a built environment that allows people to use transit, to bike, to walk in addition to the choice of driving a private auto. Current policy limits choice by making it difficult for many to do anything, but drive a private auto.

I also have to disagree with Craig's idea that suburbia was somehow "not planned by government bureaucrats". The separation of land uses that results in driving the private motor vehicle as the only mobility option in many communities is very much written into zoning code throughout suburbia. This is the result of attempting to plan the country into communities.

I do agree with Craig that any policy has social implications--that was, in fact, my original point. The policies we have (and had in the 1950's) are choices of bureaucrats that have implications on our everyday lives. Here's a talk that James Howard Kunstler gave a few years ago describing the social implications of suburban style land use and transportation policy:

http://www.tcstreetsforpeople.org/node/303

And Craig, don't tell us that the public just wanted to live in the suburbs and there was no social marketing going on at all like this Two Ford Freedom commercial:

http://www.tcstreetsforpeople.org/node/227

Finally a brief quote to further explain my point:

"A child accepts the man-made background itself as the inevitable nature of things; he does not realize that somebody once drew some lines on a piece of paper who might have drawn otherwise. But now, as engineer and architect once drew,
people have to walk and live.”

-- Paul and Percival Goodman
Communitas, 1960

A couple of points –

New Urbanism is about creating choices with other people’s money, which misrepresents the concept of choice. “Choice” is only valid when the individual voluntarily makes the choice and pays the freight to do whatever it is he or she wants to do. When you create a choice at a subsidized price that is below market demand, the value of the subsidy is money that people would have chosen to spend elsewhere. The result is a lower standard of living. That money has to come from somewhere.

It is new urbanism that constantly refers to “sprawl” as unplanned. But if you want to have it both ways, your error is one usually made by libertarians – ignoring federalism. Sure, communities did land use planning, but Woodbury planned differently than did Lake Elmo. If you didn’t like Woodbury, you could move to Lake Elmo; if you didn’t like Lake Elmo, you could move to Woodbury. Now we want land planning at a regional level – in other words limiting choice.

The point is vis-à-vis government planning in the 1950s compared to now is that government in both cases cannot respond or plan as well as the market. Government simply cannot have all the information contained in millions of individual decisions to engineer a society in its own vision.

The primary objection to new urbanism – it cannot tolerate any free choice (hence Lake Elmo has to get with the plan or be punished). It cannot allow people to make decisions that upset the plan.

Vis-à-vis advertising – there is huge difference between advertising that must persuade and government, which when it fails to persuade has the authority, as noted in the article, to make its policy mandatory.

True community is the result of voluntary associations, not associations forced by government policy.