For release: Oct. 11, 2001
Contact: Charles B. Henderson, (314) 444-8311

Suburbs Growing Faster in Fed's Eighth District

ST. LOUIS -- The 2000 Census reveals that suburbs in the Federal Reserve's Eighth District are growing at a stronger rate than the nation as a whole. If there's widespread concern about urban sprawl, however, the remedies tried so far may be worse than the problem, said an economist with the Federal Reserve Bank of St. Louis.

That estimation comes from economist Ruben Hernandez-Murillo, who studied data from the 2000 Census for the October issue of The Regional Economist, the St. Louis Fed's quarterly journal of business and economic issues. This is the second in a series of articles looking at the census and how the Eighth District states have changed in the past decade.

Using population and housing data from the census, Hernandez-Murillo analyzed the patterns of urbanization for 13 metropolitan statistical areas (MSAs) in the District. He found that the Eighth District is much less "metropolitan" than the rest of the country. In the United States in 1990, for example, almost 80 percent of Americans lived in metropolitan areas. Ten years later that figure was 80.3 percent. In contrast, slightly more than 51 percent of the District's population lived in an MSA in 1990 and just 51.5 percent did so in 2000.

"A good indicator of suburban expansion -- or 'sprawl' as it's called -- is the difference in growth experienced in the central cities and their suburbs between 1990 and 2000," said Hernandez-Murillo. "Among the Eighth District's MSAs, the suburban population grew more than twice as fast as the population in the corresponding central cities. On average, the population in the suburbs grew by 1.8 percent at compound annual rates, and by only 0.8 percent in the central cities. By contrast, the overall suburban population in the United States grew by 1.5 percent annually, compared to 0.9 percent in central cities."

Hernandez-Murillo noted that the highest difference in growth rates occurred in Springfield, Mo., where suburban growth outpaced central growth by 2.7 percentage points. The St. Louis MSA (part in Missouri and part in Illinois) ranked second, with 1.8 percentage points. Tied for third place are Evansville, Ind.-Henderson, Ky. and Louisville, each with a difference of 1.7 percentage points. The Memphis area followed closely with a difference of 1.6 percentage points. In fifth place was Little Rock, Ark., with a difference of 1.2 percentage points.

In two District MSAs, however, the central cities grew faster than the suburbs, but just by a bit. In Jackson, Tenn., the city grew 0.7 percentage points faster, and in Columbia, Mo., the city's growth outpaced the suburbs' by 0.4 percentage points.

In terms of new home construction, Hernandez-Murillo also found that suburban housing growth relative to that in the central cities closely followed the pattern of population growth: Large cities tended to have the fastest suburban housing growth. The exceptions to that pattern were Owensboro, Ky., and Pine Bluff, Ark., both of which had much faster growth in suburban housing compared to their central cities, although he emphasized that they are among the smallest MSAs in the Eighth District.

Hernandez-Murillo discussed the criticism that suburban growth and expansion might not be socially desirable. "Economics tells us that there are actually very limited scenarios where suburban expansion might be a problem, in sharp contrast to what opponents of sprawl usually maintain," he said. "One possibility is that individuals, in making their choices, do not account for all the benefits and costs that society, as a whole, ultimately derives from them. Economists often refer to such situations as 'market failures,' because in these cases the market fails to allocate resources to those activities where they are valued most. In order to consider sprawl a problem, however, the extent of those failures would have to be carefully ascertained."

He also addressed the main concern about suburban expansion-- namely, that it is excessive. Hernandez-Murillo cited one economist who offered three potential remedies: development taxes, congestion tolls or impact fees, all of which are designed to make private costs reflect the full burden of social costs. "Although these proposals are efficient," he said, "they are also politically unpopular."

Another proposed remedy for suburban expansion has been so-called smart-growth policies, which limit the amount and type of building that is allowed within certain geographical borders. Portland, Ore., for example, has pursued a policy like this. "Unfortunately, smart-growth policies tend to be blunt and don't attack the underlying sources of excessive expansion," said Hernandez-Murillo. "Moreover, they can be harmful because they lead to denser cities and restrict access to affordable housing space, especially for the very poor, by decreasing the supply of urban land."

Subscriptions to The Regional Economist are free and can be obtained by calling (314) 444-8809.

With branches in Little Rock, Louisville and Memphis, the Federal Reserve Bank of St. Louis serves the Eighth Federal Reserve District, which includes all of Arkansas, eastern Missouri, southern Indiana, southern Illinois, western Kentucky, western Tennessee and northern Mississippi. In addition to serving as a bank for depository institutions and the U.S. government, each Reserve Bank monitors economic conditions in the District, participates in formulating monetary policy, and supervises state-chartered member banks and bank holding companies to foster safety and soundness of the District's banking and financial institutions and to protect the credit rights of consumers.

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