Aaron Renn writes about how economics and suburban sprawl intersect:
I’ve long argued that the real reason sprawl, or suburban development as we’ve been practicing it, is a problem isn’t because it’s ugly, environmentally damaging, racist, or some other form of evil. The more fundamental problem is that it’s a long term financial loser. The numbers just don’t add up over the long term when you take a lifecycle view of it.
I wrote an entire series on building suburbs that last, but one thing is clear. You have to at least build the infrastructure up front if you wait to have any hope. Because if you want to provide basic streets and arterials, etc. until later, then you’re not going to be able to afford it. If your development can’t support the cost of full infrastructure, that’s a powerful market signal that it’s not viable. This is a government concern because it’s the government that’s forced to come in after the collapse and pick up the pieces – or try to anyway. Of course, that would be the same government that got us into this mess in the first place.
The most tragic thing about all this? Despite the ample evidence of the catastrophe that awaits, Indianapolis is still doing more of the same. Right now in Franklin Township, one of the few places inside the city limits that is still a greenfield from a development perspective, the city is approving and permitting out vast tracts of low-grade sprawl there. We are building tomorrow’s addition to our pile of problems right now. And nowhere in any city initiative that’s currently ongoing is there any hint of changing that. The same is true all over America. I might suggest the old adage applies: if you’re in a hole, first stop digging.
I would also add that much suburban sprawl (though not all) is in fact also ugly and anti-social. Add those qualities in to the financial equation, and that's why the future is frankly a little frightening for a lot of our suburbs. People will not stay and fight for places that are expensive to live in, serve with infrastructure AND have no redeeming qualities like our old cities had.
Here’s how it works. City leaders identify a redevelopment zone, and issue a number of bonds to be sold to developers at auction. The bonds entitle the developers to build bigger buildings than the law would normally allow. Revenue from the bond sales are invested back into housing, roads and other infrastructure in the same redevelopment zone.
Developers don’t seem to mind bidding for these bonds, at least in areas such as Água Espraiada where there is tremendous demand for new construction. And the auctions have yielded the city a massive windfall. In 12 years, São Paulo has raised about R$ 4.5 billion, or close to $2 billion in U.S. dollars, through these sales. About three-quarters of that total came from the Água Espraiada area alone.
In discussing the ramifications for the US, he quotes longtime CNU member Scott Polikov:
In the Dallas-Fort Worth area, a proposal to build a 62-mile rail transit line linking 13 cities, the international airport and multiple existing light-rail lines would rely on value capture to pay for a significant amount of the project. The plan calls for a transit-oriented development district along the corridor with dense but walkable neighborhoods around the stations. Landowners would contribute some of the upfront rail construction costs, while other revenue sources captured within the special district would provide funds to pay back the financing.
“Value capture is not a magic bullet,” says Scott Polikov, a value-capture enthusiast and founder of Gateway Planning, a Dallas-based consultancy working on the project. “It’s a way to fill a financing gap when there’s a gap. But you still have to have a large proponent of the public infrastructure on the public-sector side. Value capture will never fully close the gap.”