Deferred in the ‘Burbs

There is a the long-term–and completely undiscussed–problem U.S. suburbs face:

Something that’s lurking in the background of the U.S. economy, and which will erupt with a fury in ten years or so is the need to replace suburban infrastructure: underground wires, pipes, and so on. This is something new that most suburbs, unlike cities, haven’t had to confront. A suburb that was built in 1970 is long in the tooth today, and time only makes things worse. No suburbs that I’m aware of ever decided to amortize the future cost of repairs over a forty year period–that would require an increase in property taxes. In fact, many suburbs never even covered the expenses of building new subdivisions, never mind worried about expenses decades down the road….

Once suburbs start having to repair their infrastructure, it’s going to get very expensive to live there…

The problem we will face is how to keep suburbs economically viable, both in terms of infrastructure and quality of life. Part of that will have to involve increasing ‘urbanization’ of the suburbs, while other suburbs will be left to decline. But this, not gentrification (which can be reduced with progressive taxation) is a much more difficult problem. Not only will there be resistance by homeowners to changes, but the very, well, infrastructure of the suburbs doesn’t lend itself to increasing density.

It appears Charles Marohn beat me to the punch (boldface mine):

Marohn primarily takes issue with the financial structure of the suburbs. The amount of tax revenue their low-density setup generates, he says, doesn’t come close to paying for the cost of maintaining the vast and costly infrastructure systems, so the only way to keep the machine going is to keep adding and growing. “The public yield from the suburban development pattern is ridiculously low,” he says. One of the most popular articles on the Strong Towns Web site is a five-part series Marohn wrote likening American suburban development to a giant Ponzi scheme.

…The way suburban development usually works is that a town lays the pipes, plumbing, and infrastructure for housing development—often getting big loans from the government to do so—and soon after a developer appears and offers to build homes on it. Developers usually fund most of the cost of the infrastructure because they make their money back from the sale of the homes. The short-term cost to the city or town, therefore, is very low: it gets a cash infusion from whichever entity fronted the costs, and the city gets to keep all the revenue from property taxes. The thinking is that either taxes will cover the maintenance costs, or the city will keep growing and generate enough future cash flow to cover the obligations. But the tax revenue at low suburban densities isn’t nearly enough to pay the bills; in Marohn’s estimation, property taxes at suburban densities bring in anywhere from 4 cents to 65 cents for every dollar of liability. Most suburban municipalities, he says, are therefore unable to pay the maintenance costs of their infrastructure, let alone replace things when they inevitably wear out after twenty to twenty-five years. The only way to survive is to keep growing or take on more debt, or both. “It is a ridiculously unproductive system,” he says.

Marohn points out that while this has been an issue as long as there have been suburbs, the problem has become more acute with each additional “life cycle” of suburban infrastructure (the point at which the systems need to be replaced—funded by debt, more growth, or both). Most U.S. suburbs are now on their third life cycle, and infrastructure systems have only become more bloated, inefficient, and costly. “When people say we’re living beyond our means, they’re usually talking about a forty-inch TV instead of a twenty-inch TV,” he says. “This is like pennies compared to the dollars we’ve spent on the way we’ve arranged ourselves across the landscape.”

By comparison, urban gentrification is an easy problem (one, of several solutions, to prevent price asset inflation among high end goods is more progressive taxation). Some suburbs will have to be left to die. Others will become impoverished. Others, the fortunate ones, will figure out ways to increase density.

This is going to be really ugly.

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8 Responses to Deferred in the ‘Burbs

  1. harrync says:

    Actually, there is a really simple solution: just raise the property taxes on those suburban homes enough to cover infrastructure repairs. The problem is that any substantial tax increase will lower the value of the home, and thus be political unpopular – maybe politically impossible. Sort of like the global warming problem – no one wants to pay what it will cost to fix a problem that has to be fixed.

  2. kaleberg says:

    It’s worse than that. Poorer people are living in the suburbs while the better off have been moving into the city. Now, they’ll not only lack decent bus service, but decent roads as well.

  3. Reminds me of William Gibson’s early novels: many scenes of decaying suburbs. He saw this coming decades ago.

  4. Pingback: Some suburbs will have to be left to die | Smash Company

  5. e abras says:

    doesn’t the existence of 70 year old suburbs on long island falsify this ?

  6. Blissex says:

    The strategy is the same as almost everywhere in the USA. the UK and other anglo-american culture countries: asset stripping by the middle classes of their own government, in complicity with builders and Wall Street, and eagerly supported by the Fed and Treasury that delight in pushing leverage ever higher.

    The net effect of the story is this: suburban property prices are much higher than they ought to be, and this is because local governments are being loaded with long term debt and liabilities to keep low property taxes on low density properties, which are very desirable to the middle classes as mini-manors and vehicles for highly leveraged speculation. Low-tax, low-density, ever rising in price, mini-manors: an amazing combination, which sounds too good to be true :-).

    It is also a story of amazing levels of bribery: sure the middle classes vote down every local government that dares to raise property taxes instead of increasing debt and cutting services, but also builders often pay large “fees” to local government planners to charge them as little as possible for service installation on their new speculations. Bribery in USA (and also but less so in the UK) local governments is famously very, very common, and local government are far more corrupt that Congress or the military.

    The USA (and UK, etc.) middle classes strongly believe in “F*ck YOU! I got mine”, and David Frum put it in a more elegant form with a Republican (the Democrats are not that different in this) perspective:>
    «Rather than workable solutions, my party is offering low taxes for the currently rich and high spending for the currently old, to be followed by who-knows-what and who-the-hell-cares. This isn’t conservatism; it’s a going-out-of-business sale for the baby-boom generation.»

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