The Infrastructure Canard

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One of the principal arguments used against suburbanization is that its infrastructure is too expensive to provide. As a result, planners around the high income world have sought to draw boundaries around growing urban areas, claiming that this approach is less costly and that it allows current infrastructure to be more efficiently used.

Like so many of the arguments (a more appropriate term would be “excuse”) used to frustrate the clear preferences about where people want to live and work, the infrastructure canard holds little water upon examination.

Becoming Less Affordable as Demand Declines: Within the new world high-income nations, there was considerable urban growth between World War II and 1980. Nearly all of this growth was in the suburbs, where infrastructure was provided through borrowing, taxation and utility user fees. Yet, even as population growth has slowed, the diminished bill has been declared beyond the capability of governments which have often opted for what is seen as more affordable compact development (smart growth).

Estimating the Cost of Suburban Infrastructure: The seminal volume Costs of Sprawl – 2000 projected a need for $225 billion more in costs from 2000 to 2025 for expanding suburban infrastructure than would be required for more compact development. This superficially large number melts down to $30 per capita on an annual basis. This is hardly the kind of expenditure increase that brings bankruptcy to local governments, even if it were not disputable.

Higher Cost Infill Infrastructure: Costs of Sprawl – 2000 and other analyses generally rely upon a “build up” of infrastructure costs, which is then extrapolated to develop overall estimates. These estimates are rarely, if ever, calibrated for consistency with actual experience as reported in government financial sources. Moreover, they generally assume that the cost of building comparable lengths of sewer, water or roads are equal throughout the urban area. They are not. Generally, costs are far higher in infill areas, for a variety of reasons, especially higher labor costs.

Public and Private Costs: Further, many of the infrastructure costs decried in Costs of Sprawl – 2000 and other sources, are not government costs at all but incurred by private companies. Virtually all local roads and some arterials are built and paid for by developers, with the costs passed on to homeowners. Sewer and water expenditures are usually financed by user fees, either paid to private companies or municipally owned utilities.

Cost Differences are Minimal: Moreover, my analysis with Joshua Utt of municipal water and sewer user fees from all reporting jurisdictions in 2000 indicated a 1,000 increase in population per square mile is associated with a $10 reduction per capita, a figure that does not justify strong-armed land use regulation.

The High Cost of Infill Infrastructure: Proponents fail to account for the fact that infill development also requires more infrastructure. The existing water and sewer systems in densifying areas are likely to require upgrades, now or later. In many older cities, these systems are older, even obsolete and may not have the capacity to meet the increased demand. Constructing these upgrades will generally be far more expensive in an already developed area than building new, state of the art facilities in greenfield areas.

Building Gridlock: The proponents virtually never propose expansion of roads to deal with the increased traffic that occurs in densifying conditions. Yet, the national and international evidence is clear: higher densities produce more traffic. Without more capacity, this means slower speeds, more intense pollution and more greenhouse gas emissions.

There is no point in imagining that it can be any different. For example, the most dense part of the nation is New York’s Manhattan. It is served by a rail system that is far more comprehensive than any other place in the nation. Yet, traffic volumes (total vehicle miles) per square mile in Manhattan are more than 3.5 times that of the nation’s most congested urban area, Los Angeles, and 12 times that of the nation’s least dense major urban area, Atlanta.

Thus, any savings that might be obtained from not expanding roads to meet demand is achieved by retarding service levels. Further, the longer travel times would stunt economic growth.

The Transit Infrastructure Canard in Australia: One of the more ludicrous features of the infrastructure canard in Australia is the fixation with rail transit, which planners frequently justify to ban or limit suburban expansion. This is a Neanderthal view that fails to recognize that only a small portion of urban fringe dwellers work in the downtown areas, which are the only employment centers effectively served by rail. The minute roads are opened, the infrastructure for transit is in place. Bus service can quickly and efficiently be established to downtown, local employment poles, or the nearest rail station for those few outer suburbanites who can get to work more conveniently by transit than by their cars. Overall, less than 20% of commuters work downtown in Australian urban areas, and the farther out they live, the less likely they are to commute downtown.

Operating Costs are the Problem: Moreover, the focus on construction of new facilities is misplaced, because, construction costs are not the principal driver of public expenditures. Less than 20% of local government expenditures are for construction, while more than 80% covers day to day operations. New population, or the same population in a larger area will require similar government operating expenditures. It is likely that compact development will require just as many teachers and just as many public servants. Moreover, they will probably be paid more, since older, more dense communities have significantly higher government employee wages and salaries per capita than average.

Cost Consequences of the Infrastructure Canard: More importantly, the infrastructure canard imposes far greater costs on society than any savings even its most ardent proponents can imagine. This is because compact development materially increases housing costs.

Destroying Housing Affordability in Australia: There’s ample evidence of this down under. Planners have tied a noose around all Australian urban areas which virtually outlaws development on or beyond the urban fringe. As economics would predict, land for development has become scarce, which in turn has increased its price. Once known for its affordable housing, most Australian areas have seen the price of homes relative to incomes double or triple since the new policies were enacted. Nearly all of this increase has been in the price of the land, not in the house construction (inflation adjusted). Land for development is so scarce in this less than 0.5% developed nation that its urban areas are likely to be buried by blizzards before housing affordability returns.

Destroying Housing Affordability in the United States: In the United States, compact development polices have also increased house prices. For example, even after hitting bottom earlier this year, house prices in compact development markets such as California, Seattle and Portland remained as much as twice as expensive related to income than in less strongly regulated markets. The annual US infrastructure savings suggested in the Costs of Sprawl – 2000 are so small that they would pay less than one-third of the excess higher annual mortgage payments in California attributable to compact development (Note).

Fastest Growing Metropolitan Areas: Doing the Impossible: While planners in California, Portland, Seattle and elsewhere delude the public and elected officials into believing that suburban infrastructure is unaffordable, faster growing metropolitan areas found the opposite. Atlanta, Dallas-Fort Worth and Houston are the three fastest growing metropolitan areas with more than 5,000,000 population in the high income world. Rather than restraining suburbanization, these metropolitan areas allowed it to continue. Their reward was not only delightful communities (despite their being despised by the planners), but also the retention of housing affordability. None of this has slowed some positive inner-ring development, particularly in Houston, to meet that niche demand.

A Matter of Will: The fast growing metropolitan areas demonstrate that suburban infrastructure can still be provided without a material financial burden to the community. Indeed, given the house price escalating effects of compact development, the cost of living will be lower where suburban expansion is allowed. It is not a matter of suburban infrastructure being too expensive but the resistance of planners and urban land autocrats to crafting policies that actually reflect the desires of the vast majority of people in most advanced countries.


Note: Estimated based upon the approximate 50% house price premium compared to metropolitan areas without compact development, assuming the average house price, a mortgage of 90% of the house value, amortized over 30 years at 5% and applied to the approximately 75% of houses that are mortgaged.

Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris. He was born in Los Angeles and was appointed to three terms on the Los Angeles County Transportation Commission by Mayor Tom Bradley. He is the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.



















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Strange set of arguments...

So just so we're clear on your argument:

a) building "greenfields" development on open farmland is cheaper than maintaining infrastructure in dense urban environments. In other words, it's cheaper to not bother maintaining crumbling infrastructure (urban or suburban). Presumably we should just walk away from these developments at the end of their 40 year lifecycle.

b) Manhattan has the densest concentration of motor vehicles because they have churlishly refused to add new roads to the built environment. Let's get cracking Manhattanites!

The Left Coast

Virtually all local roads and some arterials are built and paid for by developers, with the costs passed on to homeowners. Sewer and water expenditures are usually financed by user fees, either paid to private companies or municipally owned utilities.

Do you have a source for this assertion? Perhaps new roads or sewer lines within a development are privately funded, but did you analyze expansion and maintenance of existing roads/lines?

Furthermore, your arguments about housing affordability in Portland and Seattle (two cities with urban growth restrictions - I have no idea what you mean by "California" as it is far from a homogenous market) is backwards. The urban growth restrictions didn't serve to inflate values artificially. The "strongly regulated markets" served to preserve home value in a market that nationally was tanking. In other words, middle class investors were able to have security in their home investment thanks to regulation. They were not at the mercy of the hugely volatile boom/bust cycles seen in less regulated markets. So, instead of well-heeled developers or investors being able to turn big short-term profits, middle class homeowners are able to grow long-term wealth.

By the way, where is that Chinese drywall creating so much of a problem? Is that in the suburbs and exurbs? I bet that's going to be private money funding that clean-up too, right?

Give The People What The Want

Do you have a source for this assertion? Perhaps new roads or sewer lines within a development are privately funded, but did you analyze expansion and maintenance of existing roads/lines?

"Maintenance"? Feh. The People don't want to "maintain" infrastructure. When it starts to crumble, you walk away from it, and start anew twenty miles further out from the urban center. The people want shiny new things and to be free of the natural consequences of their previous choices. Anything less is "strong-arming".

:)

Capital Costs are the Issue

Here in the DC area, we're currently building a suburban highway, the Intercounty Connector, for a price of $150 million per mile. In the 60s, we built the SE-SW freeway through the city for just $10 million per mile, or just under $70 million per mile adjusted for inflation. Most of this is not land acq, but for physical construction.

Issue is capital labor costs are rising faster than inflation, this factor is going to restrain suburban reach more than any liberal gov't could ever hope to. Atlanta is not about to build a second perimeter, too expensive, and much more so than if they built one in the woods 30 years ago. The DC area has a de facto western growth boundary at Route 15 in Loudoun County. It's an issue of microeconomic reality, not government policy.

This issue of rising capital costs applies to rails and roads equally, these highly charged transit vs. highway debates are good entertainment, but economically irrelevant. Engineering firms like Bechtel don't care whether you contract with them to build a rail or highway, many of the same skilled laborers, civil engineers, etc.

Atlanta's growth rate is slowing relative to smaller sunbelt metros like Charlotte, RDU, and Austin. DFW is better positioned to grow than Atlanta because it already has parallel N-S and Eastern highways, which Atlanta lacks and cannot afford to build now. But even in Dallas, growth hits a pretty hard stop around McKinney and Denton, and Collin and Denton Counties are hardly anti-growth.

And you're right that infill costs can be higher per new home. But compact development in infill areas typically attracts people without kids, saving $ on schools. Close-in Arlington and semi-Socialist DC have lower property tax rates than outer suburban Loudoun and Prince William. No amount of patronage and leftist union nonsense in the city can make up for average household sizes that are 35% smaller than in the outer suburbs. Arlington has 70,000 people per high school, Loudoun 28,000.

I agree with you that sewer costs are nonsense and the rhetoric about them is based on media hype, not financial fact. But road/rail transport costs are real, and will limit just how far out you can build a metro area.

It seems you're obfuscating

It seems you're obfuscating reality here by stating people are choosing to live in certain areas due to a free-market at work. You have not discussed thoroughly the most expensive infrastructure element of all: transportation.

For a long time now, our main road-financing system has been used to expand roads outward, rather than concentrating the funding where the miles are actually driven. Coupled with the fact that our entire highway system "does not pay for itself" -- not even close[1][2], it's easy to say that people are choosing the suburbs when they don't actually have to pay for their direct automobile costs. Combined with the negative externalized costs associated with automobiles; the true cost of the highway/suburbia typology is not even close to being paid for, and one cannot say that people would prefer this typology if they actually had to do so. It's always easier when someone else is paying the tab.

I've read through your paper conducted by yourself and Utt, and I essentially see infrastructure costs agglomerated together with government expenditure costs. *Most* infrastructure is government expenditure (minus sewer/water in some municipalities), but not all government expenditure is infrastructure. It is expected that total government expenditures would be higher in dense cities, but the issue is infrastructure components; schools, sewers, police, fire, sewer, water, parks, and transportation, among others.

It would be nice to see the individual elements segregated so one could see them. The only infrastructure cost per capita I saw in your paper was water and sewer. Schools were not even included.

The higher cost of government expenditures in dense cities might reflect bureaucratic inefficiencies rather than actual costs of infrastructure -- which is the main issue.

    "There is no point in imagining that it can be any different. For example, the most dense part of the nation is New York’s Manhattan. It is served by a rail system that is far more comprehensive than any other place in the nation. Yet, traffic volumes (total vehicle miles) per square mile in Manhattan are more than 3.5 times that of the nation’s most congested urban area, Los Angeles, and 12 times that of the nation’s least dense major urban area, Atlanta."

I don't quite follow this statistic. Of course Manhattan, the densest area in the US is going to have more total vehicle miles per sq. mile than LA and Atlanta for the simple fact that it's denser. But the real question is, why are you comparing a small section of New York's total urban area (Manhattan) with that of LA's and Atlanta's total urban areas?

[1] http://www.subsidyscope.com/transportation/highways/funding/
[2] http://www.txdot.gov/KeepTexasMovingNewsletter/11202006.html#Cost

Cost of Sprawl

Wendell is correct that developers, not the city typically pays for much of the infrastructure, but what Wendell missed are some other points:

1) Suburban land is far less initial cost to develop. With the crash in the housing market, in many areas (if not most) the cost of raw suburban land has plummeted. Typically Urban areas are already developed. This means the land must be cleared of existing homes and businesses to be redeveloped. In the past this meant relocating existing residents, many of which were perfectly happy to be where they live, some probably happy to move. Businesses would have to be compensated for going out of business. This meant an acre of urban land might be bought at the same price as 20 or more acres of suburban land. No wonder densities had to be great to justify the expense, and even then it not make financial sense. That said, urban areas today are being cleared of foreclosed downtrodden homes and failed businesses - so it may actually be more financially viable today to redevelop than ever before (in some urban areas)!

2) Form any urban boundary and the little available land that is within that boundary has just skyrocketed in value... this makes developing in the outer suburbs away from the restrictions of that urban core far more enticing to developers. By forcing a limit on sprawl, those expert planners only make it worse!

3) Todays suburbs are much different than decades ago. Environmental laws require much more stedwardship of the land, forcing the developers to retain wetlands, some with buffers, requiring developments to retain all run-off to predevelopment stages, etc. Urban cities had no such restrictions - the urban environmentally sensitive areas were bulldozed many years ago, and are now basically all concrete and rooftop. Even if redevelopment is required to match the environmental restrictions of a typical suburban development, it would hardly make any difference.

4) OK, so we gentrified an area that was downtrodden - how does that improve the living standards of those that were displaced? Where did all these people go? Brushing entire populations under the carpet does not solve the many social problems we have today. Urban redevelopment must not be solely for gentrification - it must be at attainable prices to create a better life for those that currently reside in those areas.

Just some thoughts to add to Wendells...

Rick Harrison

When is gentrification a problem?

Rick Harrison does not explain why gentrification is a problem in commenting on Wendell's explanation that it makes more sense to spread development out into the landscape.

What is wrong with people becoming more prosperous and valuing a "positional good" of a house in a prime location? What is wrong in poorer residents in a newly fashionable area selling up and moving out to cash in on the inflating values of the dilapidation they don't have the capital to fix.

Gentrifiers obviously get a good location, and those moving out may feel squeezed out, but sometimes they can cash in and get a better life elsewhere. Capitalism is after all not fair.

That is all manageably unfair provided those moved out have somewhere to go, which is I think Wendell's point.

If development on former farmland in new suburbs and exurbs is resisted, so that cheap infrastructure and utilities can't be provided on cheap land using sound construction methods, then those moved out by the process of gentrification are in a predicament. As spatially constrained densified cities become increasingly gentrified, not only is the process of gentrification more acute, so is the ability to live cheaply elsewhere increasingly reduced.

What people require is the ability to create a brand new "positional good" while cashing in on those who think their old neighbourhood is really the best. This process of location creation is denied as "sprawl" by the same professionals who hate the idea of "gentrification" and claim to be regenerating existing areas by densifying them.

The gentrification still happens, and more excitedly the more house price inflation is driven into the market by legally preventing the poorer sections of industrial society from pioneering new locations.

Extending the freedom to pioneer a frontier of sprawl is the best antidote to speculative gentrification, while the containment of the industrial workforce through a planning system is the guarantor of speculative gentrification. Gentrification happens anyway. This is Capitalism. But only a a capitalism that claims to be protecting the countryside from the sprawling industrial poor can turn gentrification into a housing bubble. Plan fuelled asset inflation is a consequence of planning restrictions imposed as an environmental responsibility.

Only Green Capitalism can come out of one housing bubble into another by using planners to oppose the building of new places to live at lower density, and thereby inflating the antiques market of existing "positional goods". In Britain the middle classes have long known these as the former Georgian and Victorian suburbs. Built because building new infrastructure made more sense than digging up an old city while trying to live in it.

So can Rick be more precise about gentrification please?

He is not alone in his imprecision. Paul Barker muffs it in the otherwise excellent The Freedom of Suburbia, London, Francis Lincoln, 2009. He doesn't quite explain that the promise of freedom from the landlord and the state is what made suburban life pioneering, and what prevented ordinary processes of unfair gentrification from turning into a housing bubble. But his is a book that should be on your recommended list.

Ian Abley
www.audacity.org