Monday, October 22, 2012

Urban Sprawl

There are so many things I want to write about. The political chatter on facebook has reached a fever pitch. Some things people have written have been thoughtful and poignant but overall the medium does not seem to lend itself to a quality forum for discussion. I hope to write a little bit about the political climate soon. In addition, there will soon be posts on the "Liberty and the Market Process" colloquium readings and discussion from last week, however, studies come first. The last midterm for the fall semester is on Urban and Regional Planning and while working through the class notes I thought it was a good opportunity to just post on some topics here. This particular post is on Urban Sprawl (more posts on cities to come!).

What is Urban Sprawl? Why is it considered a problem?

Urban sprawl refers to the "excessive" spatial growth of cities. Urban sprawl is believed to be problematic because it represents market failure. There are three common market failures that are discussed: (1) The positive externality of open space, (2) The negative externality of pollution, (3) The negative externality of millage rates. I discuss each of these in turn. First, open space is valued through the market based on its productive use, but, the productive use does not capture the aesthetic value that urban populations place on the open space. Because new developments do not account for this positive externality open space is under-provided in the market. Second, because people are locating further from their occupations there are longer commutes associated with sprawl. The costliness of these longer commutes is amplified when we consider the congestion of roads which lead to even longer commutes. Third, when housing sprawls further from the city new infrastructure like roads, sewer, electric must be built to accommodate the new structures. But, because property taxes do not fully cover the large up-front cost of this infrastructure this places a burden on other taxpayers.

What does it mean for something to be excessive? That implies there is an optimal amount of city growth. This is somewhat difficult concept to wrap your arms around because first you need a model to tell you what is optimal and second you are going to have serious measurement problems.

What policy prescriptions are associated with fixing Urban Sprawl?
There is a policy prescription associated with each of these market failures. With respect to open space the thought is that developers are not accounting for this aesthetic benefit therefore developers should pay a development tax equal to the cost on society of not having the open space. To handle the pollution caused through commute times one thought is that people could pay time-of-day tolls to alleviate congestion during rush hour. Or people could pay tolls during all the time which would increase the commute cost giving people a reason to drive less. With the millage externality up-front costs can be managed through the implementation of an impact fee where the developer pays a fee equal to the cost of the new infrastructure. This means that property taxes will be able to cover the maintenance of that infrastructure. Finally, the policy often provided by Urban Planners is zoning and urban growth boundaries (UGB). Both of these policies are attempts to restrict "excessive growth". Zoning allows for particular land uses in a given area while UGBs draw a circle around the current land use and do not allow for development past the boundary (until the planners decide the boundary needs to be expanded)

What are the problems associated with these policies? Which policies seem to have the most merit?
All of these prescriptions are wrought with problems but some are better than others. There are significant measurement problems with the valuation of open space beauty.  Even if open space could be "socially valued" you might think that if open space is valuable to city dwellers then they can contribute their money to conservation nonprofits that purchase and preserve land.

With respect to the UGBs there is an arbitrariness in determining the boundaries.  Moreover, to the extent that land at the boundaries have more access to open space and open space is valuable this should reflect in their housing value. However, because UGBs are subject to change this person will likely lose value on their home and engage in rent-seeking behavior to try to restrict growth to maintain their housing values. The existence of a UGB creates a bootleggers and baptists public choice problem where current residents desire to restrict land use to keep their housing prices artificially high while planners and environmentalists like it because it decreases sprawl.

Zoning also has similar problems where it makes land artificially scarce. Moreover, the creation of a zoning bureaucracy as well as the rent-seeking that ensues from the bureaucracy to the state and local governments as well as rent-seeking from developers is a drain on resources that could have been allocated to more productive uses. With respect to urban sprawl and zoning it seems to be a case where the cure is worse than the disease.

The bottom line on UGB and Zoning is that there are possible benefits to society; but, these benefits are difficult to measure. Moreover, these policies are difficult to implement in an appropriate manner that does not perturb market allocations of housing goods too much. To the extent we value the ability for people to have affordable rent or housing these policies are quite detrimental. To say the least, it is unclear that benefits exceed costs. 

The congestion fee and impact fee ideas have some merit because their administrative costs would be relatively low with both. Also measurement of the impact fee should be relatively easy since there is a more concrete idea about how much infrastructure costs. Also, even though congestion as a social cost would be difficult to measure the price can be manipulated to search out what price produces a good flow of traffic (again, there are measurement problems, "what is a good flow?") . . .

I think the post has gotten long enough. I'll post on another Urban topic tomorrow.

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