Is the New Urbanist Agenda the Efficient Direction?

The New Urbanist agenda is clear. Proponents wish to see a denser city, where less land is used for housing and more land for open space. The ideal city would be one where reliance on the automobile is reduced and where walking and mass transportation are substituted for cars. The perfect city would be one where residential, commercial and industrial activities are close to one another so that shopping and commuting are easier.[1]

Is this really the right way to go?

Most people have a love/hate relationship with the city. Cities have always been a bit chaotic, seemingly dirtier than the small towns in the country. Cities have also been the center of crime in society. However, for the last century, the city has been the focus of economic activity, too. As industry grew more dependent on complex energy sources, on large quantities of labor and on a steady supply of raw materials, the city became the place to locate because only it could provide that combination of capabilities. Bringing all the participants in production close together paid off in rising productivity and lower costs. But there are initial indications that these economic benefits of urban life are being dissipated because of excessive suburbanization.

Recently, I completed a study of costs of urban sprawl in the Memphis MSA. Memphis is an interesting metropolitan area for two reasons. First, Tennessee has a fairly liberal annexation law; so, the city of Memphis has been able to annex many suburbs as they are developed. Second, the rapid suburbanization of the Memphis MSA did not occur until the 1980s and the early 1990s.

Memphis is a service-based town, one known for its logistics capability. Transportation from river barges, railroads and trucks to the planes of Federal Express—has defined the economy. The Memphis MSA has almost twice the jobs in transportation and a quarter more jobs in wholesaling than the typical city does. And while there is evidence elsewhere of the movement of jobs to the suburbs, transportation and warehousing in Memphis tend to remain separate from residential and retail commercial parts of the city. Consequently, as recently as 1996, two-thirds of the jobs in the Memphis MSA remained in the city.

But the metropolitan area is changing. Comparing 1984 and 1996 housing characteristics in the Memphis area points to a city that already has changed dramatically. While the owner-occupied stock of housing rose almost 8 percent in the city (partly due to city growth through annexation), the owner-occupied housing stock grew by almost 61 percent in the rest of Shelby County.[2] As is typical of many cities, the division of the city and suburbs reflects an increasing spatial separation of new homes and middle-class living environments from the commercial/industrial segments of the economy.

The key component of infrastructure needed to facilitate an automobile-based sprawling city is a complex road system. Roads make commuting possible.[3] They facilitate the construction of new subdivisions. While the purchase and use of the car is largely a private decision with large private costs, the road system is clearly a social good, paid through local, state and federal taxes. In 1990, the Memphis MSA had 3,107 miles of roads. Most of these roads were local, neighborhood roads (2,415 miles or 77.7 percent). But most of the driving was done on the 72 miles of Interstate highway and the 716 miles of arterial and collector roads.

Since 1990, millions of dollars have been spent on new road construction in the metropolitan area. Data on road construction and maintenance are sketchy at the local level. In addition, funding of road projects varies dramatically from year to year. But data from 1990 to 2000 are available for the urban three of the five counties in the Memphis MSA. From 1990 through 2000, Shelby County spent $977 million, Crittenden County spent $88 million and DeSoto spent $219 million.[4]

The construction of roads is expensive, particularly where the population is small. In addition, rapid development puts a particular strain on road building. Per-capita costs of road building are ameliorated partly by a large population. Since the 1999 populations of DeSoto (102,000) and Crittenden (50,000) still remain small compared to Shelby's (871,000), the per-capita costs of road construction naturally are smaller in Shelby. But attention needs to be paid to the high road-building costs in DeSoto County, where, during the 1990s, the dual expansion of the Memphis distribution/warehouse industry into Mississippi and the new highway infrastructure required for the gambling industry in Tunica County led to a lot of county road construction (but almost no maintenance).

The major difference is between construction and maintenance of roads. In Shelby County, the ratio of construction to maintenance is more than 5-to-1. While the ratio is less in Crittenden and far greater in DeSoto, the key here is that repair is less expensive than building—even where there is a large current inventory of roads (as in Shelby County) that need repair.

These costs of road construction and maintenance, like many others in the public sector, are hidden from public examination. If made explicit, these costs would add an incentive to increase efficient use of the road construction and maintenance funds. For a high-population area, such as Shelby County, the numbers are not large, but the cumulative effect is significant. First, road building and repair are only part of the social infrastructure. When everything is calculated—law enforcement, fire protection, schools, roads, etc.—the price citizens pay for sprawl is quite high. Second, the fact that taxes are not levied for specific activities—even the gas tax is levied on energy, not actual road construction or use—contributes to misplaced price incentives that may encourage sprawl.

In addition to the road building and repair that support commuting, the additional social infrastructure required for a sprawling area also may be contributing to the inefficiency of the city. For example, a key issue in the expansion of any city is the drainage of wastewater. When Memphis was a smaller town, there was a tendency for drainage to move toward the Mississippi River. Drainage facilities were not easy to build, but the flow was in the correct direction. With the city now covering all of Shelby County and spilling into the rest of the MSA, constructing proper sewers and drainage has become more complicated.

In fiscal 2000, there were almost 60 subdivisions under construction in suburban Shelby County, most of them outside the city of Memphis. The developers of these residential areas spent $4.75 million in new sewer pipe, which they laid for the homes in these subdivisions. That pricetag amounts to $5.46 per capita for the Shelby County population. These are private costs that are added to the prices of the new homes; however, once the new developments are finished, the maintenance of such sewer pipes becomes part of the public infrastructure.

Like road costs, the price of construction and maintenance of sewers varies dramatically from year to year. But from 1991 to 1999, costs per capita averaged $2.47 per year in the city, while the suburban public sewer costs averaged $10.30 per year, more than four times as high.[5]

But the cost differences do not have an immediate impact on policy. Like road costs, the absolute costs are small. The payment of the costs is spread across the entire county population, not just across the segment of the community that uses the sewers. In addition, the costs of development are hidden inside the larger costs of building new homes.

Overall, the key to the economics of urban sprawl is that incentives for a denser, less automobile-dependent society are not in place. While there is clear evidence that the costs of running a suburban sprawled city are higher—and may be rising—relative to a compact city, currently the inefficiencies are hidden in the private and public costs. Until individuals recognize the higher price being paid by sprawling communities, they have little incentive to choose an alternative.

The views expressed in this article are those of the author and are not necessarily the official opinions of the Federal Reserve Bank of St. Louis.

Endnotes

1. Two recent papers that are available on the Internet summarize the New Urbanist argument well. They are: (1) Bruce Katz and Jennifer Bradley, "Divided We Sprawl," The Atlantic Monthly (December 1999), www.theatlantic.com/issues/99dec/9912katz.htm and (2) The Sierra Club, "Sprawl Costs Us All," 2000,www.sierraclub.org/sprawl. For two well written attacks on the whole concept of urban sprawl, see the articles by Edwin S. Mills and Edward L Glaeser in Papers on Urban Affairs 2000 edited by W.G. Gale and J.R. Pack, The Brookings Institution, 2000. [back to text]
2. Shelby County is the home county of the city of Memphis. The MSA also has four other counties: Tipton and Fayette, Tenn.; Crittenden , Ark.; and DeSoto, Miss. In addition, Tunica County, Miss., is closely integrated into the regional economy as the site of the local gambling industry. [back to text]
3. For a review of the costs of commuting in the Memphis MSA, see my article in the Winter 2000-2001 issue of Bridges, "The Costs of Urban Sprawl in the Memphis MSA." [back to text]
4. These data are subject to interpretation. They include local, state and federal expenditures, but they exclude some engineering and right-of-way purchases. Also data for DeSoto are missing in 1991 and 1995. Note the data in the Winter 2000-2001 Bridges article are based only on city and county government expenditures. [back to text]
5. The averages are computed by dividing public expenditures for sewers by city population and by county population outside the city. If the private developer costs of sewers in new subdivisions were divided by only the population outside the city, costs per capita would rise from $5.46 to $12.84 in fiscal 2000. [back to text]