Land Use and Fiscal Stress

Introduction

This is the first of two posts to consider land use in the context of fiscal stress. Land use and the way cities are built has received a lot of attention, especially from planners and architects. Today we will look beyond some of the typical “costs of sprawl” arguments. The reality is that suburban-type development may or may not be a fiscal strain on a community. It depends on some broader economic forces at play.

Land Use Defined

Land use is not the same thing as zoning. Zoning regulations identify the permissible uses for a piece of property called a parcel. Land use is what is happing at this moment on that parcel. That could be, for example: single family residential, retail, manufacturing or agriculture uses. Zoning may allow many different uses. What may be more important for the fiscal implications of land use are the ways an activity takes place on a parcel and the way the supporting buildings and infrastructure are positioned and built on the parcel.

Land Use as a Source of Fiscal Stress

When we hear someone mention that sprawling development is costly for they are singling out what most of us would recognize as suburban land uses. The argument is that this type of development brings higher costs for local government than urban land uses. Suburban development patterns provide for fewer buildings per acre because of the need to accommodate the movement and parking of automobiles. This land use pattern also reduces building density with requirements that buildings be set back a minimum distance from the property line for aesthetic or safety reasons.

No doubt this pattern of development requires more public infrastructure per private building (say single family homes.) They need more linear feet of water pipes, storm drains, streets. Longer streets require more street lights and so on. There will be more infrastructure to maintain and eventually replace.

There can also be higher operating costs for general city services such as police and fire protection. The police department will need more vehicles to patrol the more spread out area. More fire stations will be need to be built, staffed and provided with trucks to maintain an adequate response time in a less densely built environment.

Whether a city with this type of land use is or will experience fiscal stress because of the higher infrastructure and operating costs depends on local market conditions. If the private buildings are valued high enough, then they will support the property taxes that are needed to maintain the greater burden. Some low-density or sprawling neighborhoods represent a severe burden for a city while others may be a net contributor to municipal coffers. It all depends.

When Sprawl Might Matter: Right Side of Town

A sprawling neighborhood becomes a problem for municipal finances when there is insufficient demand for those communities. The condition of the overall metropolitan or citywide market and specific submarkets make all the difference. On the macro level, metropolitan areas face different degrees of demand by households and businesses. This can depend on the health of local businesses, amenities and levels of services among other things. Cities with less overall demand will have a harder time supporting a lot of higher cost suburban development. Cities in high demand will find it easier.

Within an urban area, the location of the neighborhood can make a great difference in overall demand. The problem is that in most metro areas, only a fraction of the neighborhoods are in high demand. This has been referred to as the favored quarter concept.

The idea is that the high-demand, and hence, high-value neighborhoods tend to be all on the same side of the traditional downtown and they then to be clustered into about 1/4th of the overall city. In Dallas, this quarter is on the north side. In Houston, it is to the west of downtown. In Fort Worth, it is on the southwest side. A series of interesting maps showing favored quarters across the U.S. is found here.

For individual suburbs it can make all the difference in the world where they happen to be located. One group of former farming communities will inherit the good fortune of being in the path of the ever-expanding favored quarter. These suburbs will have an easier time, overall maintain infrastructure and services because of their higher-demand properties. Sprawl may be sustainable for some of these cities indefinitely. That is, if they are not someday passed by for even newer communities further out in the favored quarter. Sprawl has the most devastating impact on suburbs that are on the “wrong” side of a metropolitan area. They may not be able to sustain their existing suburban infrastructure and municipal services once their original neighborhoods begin to decline in value (become less appealing on the market.)

For central cities, they generally include the full spectrum of these suburban neighborhoods. It is an empirical question whether the central city’s favored quarter can support the infrastructure and service needs of the entire city. This often motivates cities to attempt redevelopment projects that increase demand for lower-end neighborhoods. Gentrification often follows.

When Sprawl Might Matter: Density

There are also degrees of sprawl. Across the nation, there is a clear difference in residential density in the suburban parts of cities. Generally, the further west one goes, especially in the sunbelt, the denser the neighborhoods are. This reflects the changing climate across that vaste region. In the Southeast, there is more leap-frog development with large open spaces maintained between subdivisions and larger lot sizes. In the Southwest, home lot-sizes are much smaller in relation to house size. Suburban densities are four times higher in cities like Phoenix or Los Angeles than they are in Atlanta or Raleigh. Texas cities have suburban densities that are somewhere in between. All things being equal, these different densities require different amounts of infrastructure to serve. This means there will be differing costs for these regions at least when it comes to infrastructure There is not a lot of data on differences in service costs when we have different types of suburbanization.

A final fact to consider is that we have examples across the country of failed neighborhoods with every type of residential land use: high-rise tenements, brownstone row houses and single family home neighborhoods. All these having fallen into decay and abandonment, usually for some of the macro-level market conditions we listed above. For that reason, we need to look beyond the simple arguments that suburban sprawl is unsustainable. It certainly is less sustainable, but that relative qualifier makes all the difference for specific cities.

Next week, we take a slightly different angle on the costs of sprawl by considering the economic benefits cities give up when they switch from more urban to more suburban neighborhood patterns.

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