fedgazette

Coping strategies

Sprawl is often condemned, but most critiques hold no economic water. Still, a few are valid, and policy fixes may exist.

Douglas Clement - Editor, The Region

Published March 1, 2007  |  March 2007 issue

Sprawl signCriticisms of sprawl have proliferated at least since city planner Earle Draper coined the term "urban sprawl" 70 years ago. Among the phenomena blamed on sprawl: declining food production, ugly shopping malls, increasing social isolation and obesity, the rise of "McMansions," deer kills on busy highways, traffic congestion, pollution and ecological destruction, and inadequate financing for infrastructure. Quite a list.

From an economist's perspective, many of the arguments against sprawl are either non-economic or incorrect. Sprawl critics often don't trust in the ability of markets to efficiently allocate resources (especially land), say economists, and they advocate growth restrictions which, like price caps, can lead to market distortions and unintended consequences.

Nonetheless, there are some sprawl criticisms that economists consider valid—those that indicate market failures related to externalities—that is, costs and benefits not accounted for in market prices. They, perhaps, can be addressed with policies such as congestion pricing, amenity development taxes and impact fees.

You got that wrong

A number of arguments against sprawl are flat-out wrong. For instance, some critics worry that loss of farmland to vacation homes and shopping malls is a threat to the U.S. food supply. But, in fact, a very small fraction of total farmland is converted to nonagricultural use each year.

"On average, 2.2 million acres of farmland per year were converted to urban uses between 1992 and 2001," according to U.S. Department of Agriculture economists Cynthia Nickerson and Charles Barnard. They observed that while this conversion occurred at twice the rate of the previous decade, it "represents barely 0.2 percent of the nation's 1.03 billion acres of cropland, grassland, pasture and rangeland, [and] suggests little threat to the nation's capacity to produce food and fiber." In other words, Americans are not about to go hungry.

In fact, another criticism of sprawl is that it leads to obesity. Because of the greater distances among homes, stores and schools in rural and suburban areas, goes this argument, people drive rather than walk or bike. By requiring less physical exertion, sprawling communities spawn sprawling waistlines. The data seem to support the theory. Obesity is more prevalent among both adults and teens in suburbs than in cities. But studies that go beyond mere correlation indicate that suburbs don't cause the obesity. Rather, overweight people tend to like suburbs, for whatever reasons, so they choose to live there rather than in cities. They vote with their feet, so to speak.

Critics have also suggested that sprawl leads to social isolation. Here the idea is that the lower physical density of neighborhoods in suburbs or rural areas leads to less social interaction—fewer encounters on the street, at stores and restaurants or in community meetings. We "bowl alone," in Harvard political scientist Robert Putnam's famous phrase. But a December 2006 study by economists Jan Brueckner of the University of California, Irvine, and Ann Largey at Dublin University Business School tested the link between low density and low interaction and found "that social interaction tends to be weaker, not stronger, in high-density census tracts."

Bad sprawl, bad!

Some criticisms appear to be "more rhetorical than real," suggested economists Thomas Nechyba of Duke University and Randall Walsh, University of Colorado, in their 2004 review of economic research on sprawl. "Other arguments ... seem more like aesthetic judgments, favorable for some people and unfavorable for others, that do not enter an economist's social welfare calculation in an obvious way."

A substantial part of the sprawl controversy appears to involve value judgment, often related to socioeconomic status. "There's social class-ism built into a lot of the sprawl arguments," observed Steven Taff, an applied economist at the University of Minnesota, "a lot of notions that either poorer people don't know what's good for them, or they shouldn't be allowed here to take away our nice views."

And the less-affluent aren't always happy about what rich folk do either. Media mogul James Cox Kennedy blocked access to bridges that cross the Ruby River where it runs through his 4,000 acres in Montana, hoping to protect riparian habitat. But local residents vehemently protested Kennedy's move, citing the state's stream-access law, which declares rivers and streams to be public property. "Class, of course, is an issue here," said Jonathan Weber, editor-in-chief of NewWest.net, an online publication. "Consider the people who are fighting for access to the river: retired miners and schoolteachers and other working folk, some of whom grew up fishing the local waters."

A related concern arises when a community is transformed by the arrival of more-affluent residents. If former residents are displaced from rental housing, for example, because of rising property values, then rural sprawl raises equity concerns beyond those that economists can analyze from a strict efficiency perspective.

People and money

By and large, however, economists who have studied sprawl see it as a reasonable outcome of market forces. As nations grow and prosper, increasing numbers of people with higher per capita income are able to buy and consume the things they enjoy—including land and housing. "Before you say, 'I don't like sprawl,' remember that sprawl is caused by population growth and affluence," observed Gregg Easterbrook, in a 2002 Brookings Institution essay. "And which of these, precisely, do you propose to ban?"

"Overall, it seems clear to us that Americans are better off than they were prior to the rise of sprawling cities," Nechyba and Walsh wrote. "[S]prawl has created opportunities for significantly higher levels of housing and land consumption for most households."

While there are a large number of influences on land supply and demand, including government policies, markets appear to do a remarkably good job of efficiently sorting land's alternative uses. Interference with that fair competition may, like a price cap, lead to market distortions and inefficiency. Zoning laws that restrict development, for instance, may increase housing prices, making housing unaffordable for some.

"If you try to contain sprawl there are going to be some unintended consequences," said Brueckner, in a phone interview. Urban growth boundaries or restrictive zoning can "drive up housing prices, just by supply and demand. And then you have to ask, 'Gee, do I really want to pay higher housing costs as a byproduct of attacking this problem?'" An unintended consequence that's especially perverse is leapfrogging—the tendency of housing developers to jump beyond zoning restrictions that are intended to contain sprawl.

And other government policies not specifically related to sprawl can encourage it without meaning to. Tax increment financing, free land and other subsidies to encourage business growth where it might not occur naturally have led to sprawling development outside the Twin Cities metro, according to a recent report by Good Jobs First, a Washington, D.C., group. Minnesota's Job Opportunity Building Zones (JOBZ) also use tax policy to encourage business development in rural areas, and that, of course, can lead to rural sprawl.

A failure to incorporate

Still, a few criticisms—those associated with externalities, or costs not incorporated into market decisions—may be valid from an economic standpoint, and they, perhaps, can be addressed with policy.

"Three market failures," Brueckner wrote, "may distort the operation of the fundamental forces, upsetting the allocation of land between agricultural and urban uses and justifying criticism." The malfunctions he identified are (1) failure of market transactions to account for the benefits of open space, (2) excessive commuting because markets don't fully account for the social costs of congestion and (3) new development not paying for the infrastructure costs it generates. Nechyba and Walsh generated a similar list.

Markets have a hard time accounting for amenity values such as open space and nature. "Changes in environmental services are hard to put numbers on," observed Taff. Economists have developed tools for measuring people's "willingness to pay" for such things, but applying them can be problematic. "In these amenity areas of the Fed's (Ninth District), people have already made up their minds, so it's not an economics question at all," said Taff. "By and large they make these decisions for non-economic reasons." In other words, Taff suggested, people might not accept what economists told them were actual, accurate prices for amenity values. Because of their own personal beliefs and vested interests, they may well consider them too high or too low.

Nonetheless, to the extent that markets don't incorporate such amenity values, they fail. "As a result," said Brueckner, "the cost of converting rural land is actually higher than is perceived because the market actors are not factoring in the lost amenity values of that open space."

Another failure is associated with traffic congestion. People who drive on a busy road generate an externality in that they slow down other cars. "Even though the effect is slight on a per car basis," said Brueckner, "when you add it up across the thousands of cars on the freeway, it's a significant effect." So there's an external cost to commuting on congested roads, but because the private cost of driving is lower than the social cost, "people are going to be willing to drive farther than they would be if they had to face the full cost. ... Hence, cities will tend to be more spread out than they should." Air pollution and accidents are other car-related externalities that markets don't account for fully.

The third market failure identified by Brueckner is that of insufficient payment for infrastructure. "To the extent that developers don't have to pay for the full infrastructure costs generated by their developments, then, once again, development appears artificially cheap and there will be too much of it," he said. New subdivisions call for new roads, schools, sewers, parks and the like. Payment is often spread over large numbers of taxpayers rather than being borne directly by housing developers. "Under certain conditions," said Brueckner, "this can generate excessive urban growth."

The question then is, How can these externalities be addressed?

To manage the insufficient market attention given to amenity values, economists recommend a development tax for each acre of land converted. "By raising the cost of conversion, the tax retards the development process," Brueckner wrote. That tax would then generate the right amount of restraint on spatial growth—better than guessing at the optimal housing density ratio or urban growth boundary. The difficulty, though, is in setting the price. "Although economists have tried to estimate such values, the results are not sufficiently credible to use as a basis for policy."

Even "if we could actually get agreement on what the true price is," said Steve Taff, that price might well be higher than the land developer wants to pay or lower than the nature lover would set. "And that's why a lot of people are reluctant to go through that exercise. Either they 'know' what the right answer is, or else they're afraid of what it is, and so they don't want us [economists] to go there." Taff has been involved in a number of disputes over amenity values and finds that parties to them are rarely satisfied with economic analysis. "We get hammered from both sides on this."

To deal with excessive driving, economists tend to favor "congestion pricing"—charging drivers a toll for the costs they impose on others. While it may seem difficult to measure those costs, economists are fairly confident that it can be done, given extensive data on commuting behavior and electronic technology that allows tolls to vary according to the level of congestion at any given time. "Unlike the development tax," Brueckner wrote, "the proper magnitude of congestion tolls can be computed reliably." He observed that there's increasing acceptance for the idea, due partly to frustration with traffic gridlock and partly to experience with road pricing policies in effect in London, Singapore and even Minneapolis.

To cope with the public finance distortion caused by sprawl—when developers don't fully pay for the costs they generate—researchers suggest that impact fees be imposed. University of Minnesota geographers John Adams and Barbara VanDrasek, in their 2006 study, "The Urbanization of Minnesota's Countryside, 2000-2025," recommended that the Minnesota legislature authorize impact fees to pay for infrastructure capital costs that are made necessary by new developments.

"Impact fees are currently used in almost half the states of the U.S., but not authorized for use in Minnesota," they wrote. "When development impact fees are an option for local or county governments, then something closer to the full cost that new land development imposes on already-developed communities can be assigned to the direct beneficiaries of the new development instead of being passed on to existing residents."

As Brueckner noted, impact fees that accurately reflect the substantial per house cost of infrastructure depress the amount of forest, lakeshore or agricultural land that housing developers are able to buy and convert. "This in turn slows the development process, limiting the pace of urban spatial growth."

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