by James A. Bacon

If planning and regulation were the answer to sprawl, then the Toronto metropolitan region ought to be a smart growth paradise. Toronto has a sophisticated, multi-tiered planning process, starting with an regional plan, plans for 30 upper-tier municipalities, and plans for 241 lower-tier municipalities (towns and townships, mostly). Yet outside the city of Toronto itself, which is undergoing a condo boom, there isn’t much to show for it.

The various municipal plans, which are comparable to Virginia’s comprehensive plans, define urban boundaries, control densities and show where growth should take place. The goal is for 40% of all new residential units to be built in already-urbanized areas. “That’s not happening,” says Pamela Blais, a city planner and principle of Toronto-based Metropole Consultants. “All the plans said all the right things. … [But] the regulatory approach isn’t sufficient to bring about the change.”

The failure of regulation to halt sprawling, auto-centric development was the basis for Blais’ 2010 book, “Perverse Cities: Hidden Subsidies, Wonky Policy and Urban Sprawl.” She had researched and written the volume to figure out how the planners’ plans had gone awry. If smart growth made so much sense, and if planners had the power to bring it about, why weren’t developers and home builders doing what they were supposed to do? Something else had to be going on, she reasoned, something that was not commonly recognized.

As she delved into the subject, Blais found that real estate development is guided by massive hidden subsidies that shift costs from inefficient, land-intensive development to efficient, compact development. These invisible subsidies work at cross purposes to the regulations. As it turns out, developers follow the dollar.

Blais describes herself as a pragmatist. “It’s not an ideological argument I’m making,” she told Bacon’s Rebellion. “I’m interested in getting better cities. I’m happy to talk to everybody on the whole spectrum.” But her approach to urban development is one that fiscal and free-market conservatives can appreciate. The system for pricing public goods such as roads, water, sewer, electricity and public services bears little relationship to the cost of providing those services, she argues, with the result that a tangled skein of hidden subsidies incentivizes low-density development.

“Everybody thinks [sprawl] is the the invisible hand of the market. It’s a highly distorted market,” she says. “I’ve been arguing, let’s remove the distortions and take it from there. Remove the distortions and you’ll get a different development pattern. That should be the starting point.”

That is very much the argument that I have made in Bacon’s Rebellion, based largely on the work of EM Risse in his work, “The Shape of the Future” and essays published on this blog several years ago. Risse argued that charges do not reflect their “location-variable costs,” a succinct phrase that captures the spirit of Blais’ argument. In my reporting, I have focused mainly on one set of costs — transportation — but Blais carries the analysis to charges for utilities, municipal services, housing, parking and development charges as well. In “Perverse Cities,” she exhumed an impressive body of research to document her thesis across the board.

When you subsidize sprawl, you get more of it. When you penalize smart growth, you get less of it. To achieve smart growth objectives, Blais argues, what the United States and Canada need is not more regulation, which can create distortions of their own, but prices that reflect the underlying costs of development. 

Blais doesn’t oppose all subsidies. But she thinks they should be transparent and a subject of public discussion. “Right now, we’re not even having those discussions. People aren’t aware those cross subsidies are happening.” Here is a sampling from her book of how hidden biases are built into the system:

Water-sewer. Water-sewer charges typically are applied uniformly across a service area, regardless of how much it costs to provide the service. Sometimes charges vary by the volume of water; sometimes they do not. But charges rarely vary by the capital cost of extending water-sewer pipe longer distances to serve scattered, low-density housing, nor the operating cost of pumping water those greater distances. As a consequence, homeowners living in compact urban areas where the service is inexpensively supplied wind up subsidizing homeowners living in low-density areas where it is more expensive. Those subsidies could be avoided by breaking water charges into two components: a charge based on the volume of water consumed and a location-based charge that reflects the cost of building and maintaining the pipes.

Electricity. Electricity charges are similar to water-sewer, varying by the volume of electricity consumed. But it is more expensive on a per-house basis to extend transmission and distribution lines, with attendant transformers and substations, to low-density settings. Again, those subsidies could be avoided by breaking the electric charge into two components: one based on the volume of electricity consumed and a location-based charge reflecting the cost of building and maintaining the grid.

Natural gas, land-line telephone service and Cable TV follow similar patterns. Other location-variable costs include postal service, garbage collection, recycling, snow clearance and broadband Internet.

Mortgage policy. Banks evaluate mortgage loans based on the debt incurred by the buyer as a percentage of household income. Loan standards do include car loans as debt but do not take into account automobile operating costs, which can amount to $4,500 per year over and above debt payments. Households living in neighborhoods with transportation alternatives like mass transit often enjoy lower transportation costs than other households and tend to have more income that could be dedicated to higher mortgage payments. Thus, the system is biased against those who live in compact urban communities served by mass transit in favor of those who don’t.

Parking. Most municipalities mandate a minimum numbers of parking spaces per unit of housing or per square feet of retail or office space. Hundreds of millions of parking spaces across the U.S. have a significant cost, including up-front capital expenses for construction and the ongoing cost of maintenance, lighting, landscaping, snow clearance, security and insurance. Except in central cities, the people using the parking spaces do not pay for them directly. The cost of parking is shared among all consumers and citizens who pay indirectly through higher overhead built into the charges for building rents and leases. Thus, drivers are subsidized by non-drivers (or light drivers).

Property tax. Property taxes are based on the assessed value of a house or commercial building, bearing no relation to the location-variable cost of maintaining infrastructure and municipal services. Some municipal services have location-variable costs, such as the maintenance of local roads; schools (if busing is required); and fire, police and rescue (whose response times vary by distance). To the extent that the tax charges for those service are mis-priced, compact development subsidizes sprawl development.

As Blais concludes in her book:

All of what we might call the “true” causes of sprawl fall squarely into the real of public policy: mis-pricing with respect to public-sector financial instruments or of publicly regulated prices, public policy mis-inventives, and mis-regulation of land use. … It may be troubling to think that the problem of sprawl — one that governments have been struggling to solve for decades — has, in fact, been largely created by those same governments, however inadvertently.

It’s been four years since “Perverse Cities” was published. “The reception has been very positive,” Blais says. “I haven’t had anyone say they disagree with the analysis.” But she concedes that in terms of actual practice, not much has changed. It takes a long time to reshape the way people look at the world, and even longer to alter the way they behave. But word is spreading. The environmental community has picked up her work, she says, and so has one Canadian free-market think tank. “It’s starting to gain some traction.”

So far, American conservatives have largely ignored Blais’ book. You don’t hear her ideas discussed at American Dream Coalition conferences or read about them in the op-ed pages of the Wall Street Journal. Conservatives are missing a tremendous opportunity to re-frame the debate over growth and development in line with the principles of fiscal responsibility and free markets. It’s never too late to change.