Strong Towns

 1 week ago
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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:
    1. A few people build shacks together in a new area.
    2. More people join them and build more shacks nearby.
    3. The land becomes more valuable because it has more buildings clustered together.
    4. Redevelopment pressure pushes some owners to renovate their shacks into better structures.
    5. The nicer buildings have incentive to invest in shared infrastructure like roads and fire protection.
    6. 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.
    1. A single-family home worth $200k
    2. A vacant lot
    3. 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.

Subsidiarity 🔗︎

  • 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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