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I found it eye-opening in terms of understanding how municipal governments work in practice and how perverse incentives lead to poor community outcomes. It had a huge impact on the way that I think about where to live and what policies I support in local government.
This book complements Happy City in that both books explore what characteristics of a city make it attractive for residents to live there but also how legislation often yields the opposite results.
What I Liked 🔗︎
- I learned a lot about how municipal policy affects everyday life in American cities.
- It changed the way I think about what local government policies to support and what to look for in city government.
- It made municipal government interesting and engaging, which is quite difficult.
What I Disliked 🔗︎
- There were lots of careless grammar and spelling errors.
- Marohn uses a non-standard format for citing sources, which made me question his research methods.
- I wish there was a better representation of objection to his ideas.
- The way he presents it, all of the policies he advocates for are a no-brainer, and the reason towns haven’t adopted them already are inertia and stubbornness.
- I have to imagine that there are stronger objections that he’s not presenting.
- The book is heavy on hypotheticals and light on case studies where towns actually adopt these policies.
- Marohn introduces a metric for evaluating a town’s financial health: tax revenue per acre.
- He says that according to this metric, blighted towns are often healthier than affluent towns.
- The observation made me question the metric, as blighted towns struggle more to pay for public services, so the metric doesn’t seem predictive.
Key Takeaways 🔗︎
Pompeii as a model city 🔗︎
- Author visited ruins of Pompeii and found building that was an ancient equivalent of a fast-food restaurant.
- The restaurant was in a two-room building where the back room was a living space and the front room had a serving counter facing the street.
- The restaurant had many characteristics that made it adaptive to different conditions.
- Living quarters mean that parents can attend to children while working
- One parent can work. elsewhere while the other mind, the shop,
- Restaurant is on the edge of town, so the restaurant owners (and all shopkeepers) have incentive to help the town as a whole grow because an expanded city increase value of their business
- Shared walls with neighboring businesses meant lower heating costs.
- Close neighbors means better security.
- The building had a simple structure.
- Owner could convert it to something else if the restaurant folded
- Owner could expand the building if the restaurant flourished.
Complex vs. complicated 🔗︎
- Cities are complex, not just complicated.
- Complicated systems can have simple behavior.
- e.g., a mechanical watch is complicated but predictable.
- Cities are both complicated and complex.
- They contain interrelated systems that are difficult to predict.
- Complex systems are fragile and need flexibility to adapt in order to survive.
Zoning manages complexity poorly 🔗︎
- People traditionally manage cities with zoning for ease of legislation.
- Zoning is too crude a tool for managing something as complex as a city.
- Zoning laws prevent the city from adapting naturally to new conditions.
Evolution of Brainerd, MN 🔗︎
- The author found photos of Brainerd, MN (his hometown) in its early days.
- In the earliest photos, there are a set of makeshift stores but no real road.
- 30 years later, there were roads, and the makeshift stores were replaced by well-constructed to buildings two or three stories high.
- 30 years after that, they replaced wood structures with buildings made of stone.
- First generation: pop-up shacks, no sewage or sidewalks
- Second generation’. Two-and three-story wood buildings, sidewalks, gravel streets
- Third generation: Brick and granite buildings, concrete sidewalks, asphalt streets.
Private investment should precede public infrastructure 🔗︎
- Through most of history, most cities developed like Brainerd, MN did.
- Businesses would make small bets on a new area, then incrementally build more as the area succeeded.
- Importantly, private investment came first, then public investment (e.g., roads, police) followed.
- When private investment starts a city, the private sector bears the risk of the city folding.
Modern city planning invests backwards 🔗︎
- Modern city planning makes big bets on the public side.
- The public makes huge investments in infrastructure before private businesses move in.
- We build public infrastructure to a finished state instead of fostering adaptation and incremental improvement.
Stagnation of residential homes 🔗︎
- Houses are also built to finished state due to the friction involved in modifying a house.
- Prior to the 1920s, houses were mostly simple boxes, and they were built to make it easy to add on to them if conditions in your life changed.
- Several factors prevent houses from evolving:
- There are legal obstacles to converting a single family house into a multi-family house or a business: zoning laws, land covenants, building regulations, property associations.
- Building regulations increase the cost, time, and difficulty of modifying a house.
- Building everything in a home all at once means that important components all need replacement or maintenance around the same time.
- Developing a house incrementally means maintenance requirements are smoothed out.
Property value = Building value + Land value 🔗︎
- The amount you’d invest in a building is a function of the value of its underlying land.
- If a building in Manhattan costs $10m to build, the result is worth far more than $10m because land in Manhattan is so valuable.
- If you spent $10m to build a building in outer Detroit, the result would be worth less than $10m, which indicates the land has negative value.
- You’d never buy land in Manhattan to park a mobile home because there are much more lucrative structures to put on such valuable land.
- When building value is high relative to the land, it drives up the value of the surrounding land.
- e.g., a fancy hotel makes the surrounding area more valuable.
- When building value is low relative to land value, there’s redevelopment pressure.
- e.g., if a small home is in an expensive neighborhood , it’s profitable to tear it down or expand the building.
Natural evolution of cities 🔗︎
- The property value equation guides the natural growth of cities:
- A few people build shacks together in a new area.
- More people join them and build more shacks nearby.
- The land becomes more valuable because it has more buildings clustered together.
- Redevelopment pressure pushes some owners to renovate their shacks into better structures.
- The nicer buildings have incentive to invest in shared infrastructure like roads and fire protection.
- The infrastructure increases land value, incentivizing more redevelopment.
- The flaw in this pattern is that it limits social mobility.
- As a town is growing, poorer residents can grow with it.
- Once a city reaches maturity, land is only affordable to the entrenched elites.
Public and private investment 🔗︎
- Today in the US, public investment precedes private investment.
- The government takes on most of the risk in developing cities.
- When private developers make initial investment, the government often finances the deal and assumes the risk if development fails.
- The government also assumes long-term maintenance responsibilities in cities.
- When development is built to a finished state instead of growing organically and incrementally, early residents have incentive to constrain growth.
- Every new neighbor is another person with whom you have to share limited resources like roads, parks, and libraries.
Cities must profit 🔗︎
- A city must earn a profit in the long term to continue existing.
- A city that runs a long-term deficit will eventually fail to provide necessary services because there will be no money to pay for them.
- Cities must make investments that earn a positive return.
- e.g., if a city invests $1m in repairing a street, the street must generate at least $1m over its lifetime for the investment to be worthwhile.
Government buildings as an investment 🔗︎
- Traditional cities invested heavily in government buildings like city halls.
- An opulent city hall increased the value of the surrounding land.
- This created a positive return on investment, as a prosperous neighborhood increased the tax revenue the town could collect.
- Current strategy in the US is to build city hall in a cheap office building with lots of parking.
Infrastructure does not cover costs 🔗︎
- In the author’s role as engineer, he began calculating return on investment for various projects his firm was involved in.
- In almost every project, the city planned to spend more on the project than it would recoup in taxes for the next 20-40 years.
Jobs don’t benefit a city 🔗︎
- Infrastructure proponents often cite job creation as a reason to take on infrastructure projects.
- Creating jobs for infrastructure projects don’t really benefit cities that create them.
- Income taxes go to the state, not local government.
- Thought experiment: Job City vs. House City
- Imagine two cities: Job City and House City.
- 1,000 people live in House City, and nobody lives in Job City.
- Every day, every resident of House City commutes to Job City to work for the day, then return at night to House City.
- Even though Job City has all the jobs, it would have nearly zero tax revenue because only House City collects taxes from the homeowners.
Growth-driven city financing 🔗︎
- Suppose a city accepted a land development from a private investor.
- An investor puts up all the money, but the city is responsible for infrastructure maintenance.
- Cash flow will be positive for first 15-20 years as city collects tax revenue from new residents.
- As soon as the development requires maintenance (e.g., road repair, sewage repair), cash flow goes severely negative because infrastructure built around the same time will require repair around the same time.
- Cities try to solve the cash flow problem by soliciting new development, but that just delays and intensifies the problem.
- Case study: Detroit
- Many see the downfall of Detroit as a result of government corruption.
- Author sees Detroit’s failure as the same that will befall most US cities.
- Detroit was the first city designed around cars.
- Detroit spread residents out to the suburbs and ran roadways through cities,
- This created more infrastructure maintenance costs than the city could afford.
- When wealthy people saw the city start to collapse under growing maintenance costs, they fled to cities that were still in the growth part of their lifecycle.
- The loss of tax revenue from residents leaving accelerated the collapse.
The infrastructure cult 🔗︎
- Investing in public infrastructure is popular politically, but it’s often irrational.
- Cities spend millions on new roads while they’re struggling to maintain their existing roads.
- Failure to Act report
- In their 2011 report, Failure to Act, the American Society of Civil Engineers (ASCE) made illogical claims about America’s need to invest in infrastructure.
- The report claimed that weaknesses is infrastructure would cost $1T over the next 10 yrs.
- The report recommended that the US spend an extra $220B/yr to prevent infrastructure from deteriorating,
- i.e., the US should spend $2.2T to avoid a loss of $1T.
Infrastructure projects exaggerate their returns 🔗︎
- When planners estimate that a new road will generate $X of value, they calculate something like:
- Road will save drivers an average of 30s per day.
- 100k people drive on the road per day.
- Road will save 30 x 100k = 3M seconds per day (833 hours).
- Median wage in the area is $25/hr.
- Therefore, road generates 833 x 25 = $20,825 per day or $7.6M per year.
- Flaws in this logic.
- Ignores time it costs drivers due to construction and maintenance.
- People don’t necessarily use an extra 30s to work more.
- They might sleep in longer.
- They might move farther from their job.
Irrational municipal accounting 🔗︎
- Cities have balance sheets listing assets and liabilities.
- According to generally accepted accounting principles, infrastructure is considered an asset.
- This makes no sense because a city can’t sell a road and it doesn’t directly earn revenue from it.
- Even though the city earns revenue from properties in its city, the tax base does not count as an asset.
- Cities add infrastructure because it makes their balance sheets look stronger.
- In reality, infrastructure drains money.
Postwar period corrupted city management 🔗︎
- Postwar WWII wealth screwed up city management.
- The US had an abundance of wealth, so we stopped designing cities with financial constraints in mind.
- It was a period of rapid suburban expansion.
- Prosperity changed urban planning.
- Cities could expand without caring about costs because so much money was flowing into the economy.
Automobiles’ impact on cities 🔗︎
- Cars influenced urban design in the 50s with the idea that connecting two places with roads and highways would increase the value of both.
- A more connected city is more valuable.
- Instead, it drove down land prices because suburbanization meant people could live much farther from city centers.
- Tons of new land opened up for housing.
- Cars upended the traditional pattern for growing and sustaining cities.
- As land values in city centers dropped, there was insufficient tax revenue to pay for maintenance.
Funding growth through debt 🔗︎
- After the economy slowed down in the 60s, cities took on debt as a way to fund growth.
- This only works if the economy grows in the future, as infrastructure investments rarely earn a positive return.
- Cities get stuck in a cycle of relying on debt to pay for infrastructure, then needing even more debt to survive.
- Case study: Lafayette, LA
- Between 1949 and 2015, infrastructure growth far outstripped income.
- 1,000% increase in pipes per capita.
- 2,140% increase in fire hydrants per capita.
- Only 160% increase in average inflation-adjusted income.
Old and blighted vs. new and shiny 🔗︎
- In author’s hometown, there are two similar blocks close to each other.
- Old and blighted: a series of pop-up shacks built in early 1900s that include a pawn shop, a bankruptcy attorney, and a local restaurant.
- New and shiny: a franchise restaurant that moved in and added its own parking lot, allowing the city to eliminate street parking in favor of supporting more traffic.
- Comparing the two blocks by taxable revenue:
- Old and blighted: total taxable value of businesses: $1.1M
- New and shiny: $620k
- Old and blighted generates 77% more revenue for the city.
- Comparing impact on community:
- Businesses in the old and blighted block hire employees locally and use local vendors for things like accounting, sign making, and legal services.
- New block’s franchise wouldn’t disclose information to the author, but they likely created fewer full-time jobs and use out-of-state vendors for most services.
- Tax incentives
- The franchise restaurant already had a location in town three blocks from the new location,
- The franchise built the additional location because the city offered them a tax rebate to redevelop a blighted block.
- In effect, the city paid the franchise to tear down a block that likely generated more revenue than the franchise would ever generate.
- The city can’t even start collecting taxes from the new block for 20+ years due to the rebate.
Big box stores vs. downtown businesses 🔗︎
- In author’s town, a big box store along the highway is the largest single taxpayer in the city.
- The store consequently wields significant political influence.
- The city built the infrastructure to attract the big box store using large federal grants, but the city is still responsible for long-term maintenance of that infrastructure.
- If the big box store vacates the location, the replacement will likely be something that generates lower tax revenue (e.g, warehouse, church), but the city stil bears the high maintenance cost.
- Comparing the big box location to downtown businesses, the businesses collectively generate similar revenue but require less infrastructure to mantain.
- If one business closes, it’s easy to replace it with a similar business.
Value per acre 🔗︎
- The common way to evaluate a municipal project is to calculate return on investment.
- Author advocates using value per acre as an approximation for return on investment.
- He claims it’s a lot faster to calculate and usually correlates with the result of a more rigorous ROI analysis.
- Comparing a Walmart in Asheville to a downtown building, the downtown building generates 100x more property tax per acre and 76% more sales tax.
- Urban3 did a large study of value per acre in different cities across the US and found several trends.
- Older neighborhoods outperform newer neighborhoods (especially neighborhoods that formed before 1930 vs. after 1950).
- Poorer neighborhoods generate more value per acre than wealthy neighborhoods.
- Areas close to the “core” of a neighborhood generate more value.
Budget for maintenance 🔗︎
- Most cities prioritize maintenance based on age of infrastructure and how severely it needs maintenance.
- Most cities run at a deficit, so they can’t really maintain all of their infrastructure.
- Author argues that cities should spend all of their maintenance budget obsessively maintaining areas with highest value per ace.
- “Obsessive” like how Disney World maintains their parks.
- Rationale: Invest in areas that are profitable so that maintenance is sustainable.
- Residents will respond to public investment with private investment because they have more confidence the city will continue investing in them.
- Infrastructure will fail in low value per acre areas, causing those neighborhoods to contract.
- This is a calculated loss, as most cities sprawl unsustainably.
- Cities have to shed some infrastructure and concentrate the population into an area that generates enough tax revenue to sustainably fund infrastructure maintenance.
Why is a 20-story building next to a one-story building? 🔗︎
- US cities often have wildly different building types next to each other in ways that seem irrational.
- e.g., a 20-story building will be next to a one-story building.
- Thought experiment: three lots are in a row and are the same size.
- A single-family home worth $200k
- A vacant lot
- A 20-story building worth $10M
- What is the value of lot (2)?
- A $10M property implies the underlying property is worth around $1.5M.
- The owner of the vacant lot would want to sell to another 20-story developer for $1.5M.
- Actually, it’s a trick question because if a vacant lot is worth $1.5M, then the single-family home’s lot must also be worth ~$1.5M.
- A developer can purchase the house, demolish it, then build a $10M building for a profit.
- In reality, $10M buildings exist next to $200k homes, so how can that be?
- Regulation artifically limits development.
- It’s roughly the same regulatory difficulty to build a 5-story building as a 20-story building, so development is pushed to the extremes.
- Development can’t follow free market forces, so expensive buildings appear, seemingly at random, often due to corrupt connections between developers and regulators.
- It’s roughly the same regulatory difficulty to build a 5-story building as a 20-story building, so development is pushed to the extremes.
- Subsidiarity is the idea that rules should be made by the lowest level of government capable of making the decision intelligently.
- Who should decide whether residents should be allowed to keep chickens in their backyard?
- It would be absurd for the federal government to make this decision.
- The decision only affects a few immediate neighbors around the house.
- The ideal outcome would be if the neighbors talk and make a decision amongst themselves without a formal law.
- The next step up would be local government helps the neighbors reach a decision, but without a law.
- The next step up would be the town passing a law about backyard chickens.
- Who should decide if a regional transit line is built?
- This decision requires more context than a few neighbors, so this should happen at the city or state level.
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