Smart Growth = Constipated Cities

By Lorenzo

Smart Growth is a term of art. In the words of Wikipedia(tm), Smart Growth:

is an urban planning and transportation theory that concentrates growth in compact walkable urban centers to avoid sprawl. It also advocates compact, transit-orientedwalkablebicycle-friendly land use, including neighborhood schools, complete streets, andmixed-use development with a range of housing choices. The term ‘smart growth’ is particularly used in North America. In Europe and particularly the UK, the terms ‘Compact City‘ or ‘urban intensification’ have often been used to describe similar concepts, which have influenced government planning policies in the UK, the Netherlands and several other European countries.

In Oz, the equivalent of urban intensification is infill. It is an approach to urban policy that regards it as desirable to restrict the quantity of land available for housing. Restricting quantity in the face of rising demand has a predictable result–rising prices for land available for housing. Those rising prices are often the real motivation for the approach, since they provide capital gains to those already owning housing land. Land approved for housing use thus becomes a positional good. (Houses being large decaying physical objects, it is not the house which gains value but the land it is sitting on.)

smart-growth-21

Restricting land use also provides rising property taxes for governments, require (due to the use of discretionary approvals for land use) developers to buy access to officials (so helping to fund political parties) and provide windfall profits for government land supply organisations, who can acquire land around cities at the farming-only-value then “release” it for use for housing at greatly inflated value. With so many significant political and electoral interests being served, it is no wonder a useful set of justifications has grown up “showing” why restricting the quantity of land available for use in housing is a great idea.

Positional posturing

In a situation of rising population, it is a spectacularly stupid idea (if a well-functioning city is your goal). If you don’t want urban sprawl, stop immigration. But, of course, that would greatly reduce the demand for housing land and so not generate all the above financial benefits. Unsurprisingly, being against immigration has been cast into the realm of evil beliefs.

Leave aside the invidious social effects of making housing so expensive or the potential economic issues (particularly for the financial system) of so many people being so highly leveraged on regulatory approval. Let us just consider the effect of land-use-restriction on the functioning of cities-as-cities.

Networks and niches

Cities can be usefully thought of as networks of networks which can support a greater variety of commercial and social niches the bigger they are. That niche variety is much of the appeal of cities. Modern communication and (particularly) transport technology allows cities to grow indefinitely.

Better health provision means that cities–for the first time in history–have become areas of higher life expectancy than rural areas, as cities have quicker and broader access to health services. Previously, cities had higher death rates than birth rates, which meant they could only replenish themselves by migration from the countryside. If that migration stopped, cities could shrink (or even disappear) remarkably quickly.

If one thinks of cities as meta-organisms, then infrastructure–water, power, sewage, telephone, roads, rail, etc–provides skeleton, blood circulation and nerves of the city. Infrastructure is typically either a network good (such as roads, rail lines, tram lines, water, sewage, power and phone lines) or network nodes (airports, ports, television towers, mobile phone towers).

Networking

Networks provide economies of scale which tend to encourage monopolies, as the bigger the network the cheaper adding in an extra user is and the more they are getting access to. Networks also usually involve considerable sunk costs and fixed costs, which make them easy targets for political manipulation for the purposes of providing targeted benefits. Hence it is often better to have the monopoly bit government run, so that all taxpayers bear the costs of such manipulation rather than a minority of shareholders. There is also a “natural monopoly” argument for government ownership, but the tendency of governments to create legislative monopolies and the historical patterns of government ownership suggest that the ability to provide targeted benefits is a much more powerful motive in public policy.

Providing infrastructure generates benefits to third parties (i.e. positive externalities) which are not easily captured by the provider of the infrastructure. Hence the US Congress often provided land grants to railway companies in the C19th, so they could reap some of that extra benefit by selling off or renting the land which acquired increased value due to the building of the railway. This railway-as-landowner helped generate the term railway baron. Which was even more appropriate, given the tendency of early medieval kings to give land fiefs with extra privileges to develop and protect frontiers. (Hence markgraf, margrave, marquis and marcher lord.)

Alternatively, the government just provided the infrastructure itself and reaped the benefits through higher land and other tax receipts. Governments could and did take the view of “build it and they will come”. Infrastructure provision–particularly transport provision–broadly kept up with urban expansion.

Return on restriction

Then governments decided that they should “manage” provision of land and discovered the fiscal joys of rising tax revenues from restricting land use and happy voters from rising value for their houses. Infrastructure provision dropped off dramatically, and we moved into the “infrastructure is evil” period–dams were evil, freeways were evil, power stations were evil, railways through established areas were evil (such as the mid-1970s opposition to the Doncaster railway line). Victoria, for example, has not built a substantial new dam in over 30 years, during a period when its population has increased about 30%.

Growing demand for water, low ceiling on water prices, no extra provision of water, what would we predict from this combination? Water shortages. Just as California, which blocked new power station construction and set a constraining ceiling on power prices, suffered power shortages.

Starving the periphery of cities of new infrastructure makes the higher infrastructure established areas relatively more valuable while expectations of capital gains and high value to housing land intensifies resident opposition to anything that might reduce said value or expected capital gains. Hence NIMBY (Not In My Back Yard) or, in places where this form of politics is particularly entrenched, BANANA (Build Absolutely Nothing Anywhere Near Anyone).

Wolfinsheepsclothing

This is the politics of inner city elites; the educated middle class whose networks dominate the public service, academe, most of the school system, much of the media but, while having huge “insider” advantages they milk for all they are worth, parade as “subversive outsiders” thereby relieving themselves of responsibility for anything in anyway negative or unfortunate–such being the result of “capitalism”, “markets”, “developers”, bad ideas, evil attitudes or wicked ways of using language.  All of which can be cured by agreeing with them; a very congenial mix of self-serving self-righteousness which relentlessly seeks to frame public debate in its own interests while parading its conspicuous compassion.

They tend to favour approval systems over explicit rules, since the former are far less accountable and favour insider connections so strongly.

Indeed, there is a striking dichotomy where the uniformed arms of state coercion (the armed forces, the police) are viewed with deep suspicion or hostility while amazing powers of social regeneration are imputed to other arms of state coercion–the arms run by, strangely, people like them. But if you are subversive outsiders heroically struggling to transform a benighted legacy into something worthy of such fine people as themselves, those who defend the existing order have an extra burden of wickedness.

Planning for whose good?

The above is city planning as promoting the “social good” (which turn out to be benefits to preferred residents) rather than general services to residents. How this good is defined changes over time, but the underlying patterns endure. Consider this study of the racial origins of zoning in US cities (pdf) which notes that:

In the case of Baltimore, middle-class reformers paid particular attention to blighted housing conditions in the predominantly Black Seventeenth Ward. A 1907 report illuminated “the horrors of the slums and the plight of the slum-dwellers” and offered various improvement strategies, such as model housing, enactment of housing codes and building regulations, and removal of alley dwellings. Although the city took no formal action on the 1907 report, interest in controlling the spread of blighted housing logically translated into support for racial zoning as Blacks crossed the color line after 1910 in search of better housing (page 5).

One can look at problems of the urban environment in terms of the underlying incentives (what generates urban blight, for example), which can lead to places one might not want to go (such as the negative consequences of existing rules one is attached to) or one can see it as crying out for the controlling hand of benevolent planners. Indeed, there is no need to consider incentives when controls will do, while considering incentives could easily undermine the case for control in the first place. (Though there is the little inconsistency that rules themselves rely on incentives; but they are coercive incentives, for benevolent purposes, so different. Or something.)

Such an approach also devalues knowledge embodied in social interactions as well as the standing of the aspirations of the socially benighted while elevating the superior knowledge of the planners and the supporters of the “social good”. An example of this is the sneering at the working class love affair with the car (cars provide a profound sense of freedom) and at the enduring preference of people for houses-with-gardens–people want their own open area, particularly if they have pets or children. Given the choice, generally only about 15% of people prefer to live in apartments or equivalent. But gardens require space, and space leads to “sprawl”. So this preference for gardens has to be devalued in the service of justifying quantity controls. Conversely, getting 15% of trips to be via public transport is doing well in any city that is not geographically constricted along the lines of Hong Kong or Manhattan.

Invidious incentives

While these interest-network politics are important part of the story in the serious under-provision of infrastructure, the biggest problem in how smart growth produces constipated cities is the invidious effect on government incentives. Driving up the price of land makes infrastructure provision much more expensive–either in acquiring land or in land sales foregone. Worse, restricting the quantity of land provides revenue gains much more cheaply and extensively than providing infrastructure. The revenue incentives for infrastructure provision are swamped by the returns to restriction.

The freeways of Houston (Pop 6.1m)

The freeways of Houston (Pop 6.1m)

We no longer have infrastructure leading or keeping up with population growth, now we get massive lags; with infrastructure only being provided when voter pressure gets too intense.

Melbourne, whose flat geography should make keeping up with transport demands comparatively easy, has transport infrastructure increasingly inadequate for the demands being put on it.

Though there is one revealing exception to the infrastructure provision lags. Where once people could have housing in places without curbing and guttering or sewerage–allowing cheaper entry to home-owning–now such provision is compulsory, creating a barrier to entry, aiding the process of land use restriction, with developers (and so market-entrant home-buyers) paying for their provision.

Indeed, an extra benefit of immigration is not only does it drive up the demand for housing, but migrants are typically not citizens or, if they are, are poorly politically connected, thus further undermining the overall political pull of housing market entrants. Elevating the value of migrant diversity and disparaging assimilation increases this effect and decreases the chance that migrants will compete with the established cultural-capital elite.

Where I live, in a new area of Western Melbourne, everywhere has curbing and guttering and sewage, but a single lane road (Sayers Road) services at least 10 suburbs with about 6 or more being laid out but no widening of the road, which already gets clogged up early in the morning. The roads between suburbs seem almost designed to create bottlenecks. The only bit of “Smart Growth” we actually get is the price effects of limiting land use and increasing the value of inner city areas with better services and established infrastructure, but that is the real point of the exercise. (I live in the PM’s electorate, so a safe seat decision-makers can largely ignore.)

The combination of land use control, high immigration and hostility to infrastructure provision is a highly incoherent policy mix that suits interests of inner city elites. So-called “smart growth” is actually quite dumb in the sense that it seems to ignore the incentive effects of constrained supply and discretionary power. Alternatively, it is merely deceitful; using ostentatious virtue as a cover for generating insider benefits.

Always remember the two basic principles of public policy analysis:

(1) In the race of life, back self-interest, it’s the only horse that’s trying.

(2) A fool can put on his trousers better than a wise man can do it for him.

11 Comments

  1. Posted May 16, 2013 at 5:20 am | Permalink

    [email protected] Developers already pay for much of the immediate suburban infrastructure and places put up for sale already have power, water, sewerage, etc.. The issue is much more major transport connections And why visibly raise taxes when you can invisibly get the developers to raise land prices?

    [email protected] You don’t get around much, do you? We already have freeway connections that look much like that, the only difference is being three-way rather than four-way. And traffic is increasingly horrible because we do not have enough transport infrastructure.

    [email protected] Curiba is an interesting case: there is such a thing as good urban planning, that is not my point. My point is land-rationing and approval systems are more-or-less guaranteed to produce poor outcomes.

    And no, I am not being a mouthpiece for Alan; we have similar but not identical views.

  2. Posted May 16, 2013 at 5:22 am | Permalink

    [email protected] It is not about wisdom having no value, it is about realising the limits thereof.

    Also, small group interactions where there is lots of information and quick feedback are very different from managing much larger and more dynamic systems.

  3. marks
    Posted May 16, 2013 at 7:18 am | Permalink

    Mel @ 47. Developers now pay for most of the infrastructure provision within subdivisions, and from time to time, for the associated headworks.

    Having said that, that new infrastructure immediately hits the books as an asset and therefore attracts a depreciation charge, and other ongoing charges such as maintenance are paid for by the utility.

    If the infrastructure development is ‘dense’, those charges per household served are less costly. The lower the infrastructure density, the higher the ongoing costs per household. Those higher costs for basic services anger your average voter as they are in your face, and everyone pays them, not just those buying homes.

    On the other hand, land shortages (say created by Governments or developers not releasing land) affect only those trying to buy a house, and not every home owner. In addition, not all those buying houses really understand who is restricting the supply…because often it is a combination. In the NT, in Alice Springs, there are Native Title issues in some areas, and government release issues in others, and developer dithering in others.

    This means that increases in infrastructure charges hit most voters who can sheet the blame home to government, but increases in land costs hit a smaller number of voters and often the blame is shared. Hence a predisposition of governments to try to minimise infrastructure costs. ‘Densification’ is just one of those ways.

  4. Mel
    Posted May 16, 2013 at 9:19 am | Permalink

    Lorenzo @51:

    [email protected] You don’t get around much, do you? We already have freeway connections that look much like that, the only difference is being three-way rather than four-way. And traffic is increasingly horrible because we do not have enough transport infrastructure.”

    I couldn’t quickly find a pic of one of those American horror stories where you have a spaghetti like arrangement of overlapping freeways 🙂

    I was a member of the Public Transport Users Association when I lived in Melbourne and their claim is that as quickly as you build a new road it will fill up with traffic. The evidence seems to back them back them up.

    What are your thoughts on the Curitiba experience? Do you think it might possibly have more to teach us than Houston?

  5. Posted May 17, 2013 at 6:14 pm | Permalink

    [email protected] If you don’t ration by price you ration by queue. Congestion is queueing.

    But, on the “they just fill up” argument, you would never provide any roads at all. For a given level of congestion, you can still provide a lot more transport.

    Today, I was out Cranbourne way. It was painfully obvious that they were much better supplied for roads than the opposite side of Melbourne. And there is no way enough public transport can be provided to solve the problem.

    Yes, it would have been much better if we did not have cookie-cutter suburbs where nothing is in walking distance. So we should shift to an approach to urban planning that does not create them. As it is, developers simply churn out what got them through the approval quickest and easiest last time and everything is at the mercy of the comfort level of officials wielding rubber stamps.

    On Curitiba, it is clearly a successful city, but it is hard to comment without more nitty-gritty details on the details. It seems there was a clear yet responsive plan. How much of the specifics of Curitiba can be applied to Melbourne is a lot less clear.

  6. Mel
    Posted May 17, 2013 at 10:23 pm | Permalink

    Lorenzo,

    I think public transport needs to be augmented by a more affordable taxi service. Scrapping the licence system would be a great start, as licences trade for around $400,000 at the moment. The system is nuts.

    Ideally, most city people would make do with public transport + taxis + hire cars and few people would own a car.

    BTW, I learned about Curitiba from this book, which I highly recommend altho I don’t agree with the author’s politics.

  7. Posted May 18, 2013 at 5:03 am | Permalink

    [email protected] Hard to get enthused about a book which gets elementary economics wrong in the second and third sentences of the blurb. But it might have other qualities.

    The taxi licensing system is nuts, but buying out the licenses would be very expensive–I have suggested issuing the State Government bonds to same value.

    But a lot more taxis would take up a lot less of the slack than you might think. We have to deal with the urban geography as created.

  8. Tim
    Posted May 18, 2013 at 5:26 am | Permalink

    Very interesting blog and discussion. Thank you. You are a very smart, well informed and well read person Lorenzo.

    Much though by no means all of this discussion seems to be specific to Melbourne. Is your critique of smart growth laws intended to apply to other cities or other countries? How much of land use planning laws are you proposing to repeal? I’m no expert but my understanding is that smart growth ordinances are only a part of the panoply of land use planning laws. I take it you’re not against zoning per se, for example. But you are against land use planning laws that give too much (any?) discretion to land use planning bodies.

    In the United States, constitution law places very substantial limits on land use planning laws, the discretion of land use planning bodies, and the degree to which land use planning laws can restrict property development. When constitutional law thus circumscribes land use planning laws, I am in favor of them and think they work okay in many communities. I agree that land use planning laws are prone to abuse (I am of the opinion that there is an inherent tendency in government to abuse), and that too much discretion in land use planning bodies is a poor way to govern. But I am also of the opinion that land use planning is a legitimate activity of local government, although I recognize that there is a wide variety of ways to land use plan governmentally.

    Anyway, those are some overall thoughts.

  9. Mel
    Posted May 18, 2013 at 5:57 pm | Permalink

    Lorenzo @57:

    There is no need for state governments to buy out existing taxi licences as new licences could be issued for a nominal fee. Call it quantitative easing. This would greatly upset current licence holders but I could live with that.

    “But a lot more taxis would take up a lot less of the slack than you might think. We have to deal with the urban geography as created.”

    When I lived in Melbourne’s inner-middle North I didn’t own a car. I used taxis, public transport and cycled. Cars burn a hole in your wallet.

    But you are very right about the psychological aspect of owning a car; being able to jump into your car and drive anywhere at any time give’s one a great sense of freedom.

    Anyway, my major point is that eventually we will have 11 billion people on this planet and more and more people are being dragged out of poverty. I don’t see how 11 billion people can consume resources like Houstonians.

  10. Posted May 20, 2013 at 3:13 pm | Permalink

    [email protected] Wiping out substantial property rights like that is usually regarded as poor form and is definitely politically fraught.

    And if the urban geography of Northcott was general, of course taxis and public transport could do more. But the problem is precisely the creation of under-transport-provided car-access-only suburbs which the current system will continue to generate unless there are some fundamental changes.

    And Houston is hardly the only alternative.

  11. Posted May 30, 2013 at 4:47 pm | Permalink

    [email protected] Apparently, the Victorian Government is prepared to take the plunge on taxi licenses, but as quietly as possible.

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