The Economic Merits of Smart Growth



by Mark Muro and Robert Puentes

A Discussion Paper Prepared by The Brookings Institution Center on Urban and Metropolitan Policy

March 2004


With the collapse of the 1990s stock market bubble and several years of national economic uncertainty, a tense new climate of austerity has sharpened debates over government spending, economic development, and the physical growth of states and metropolitan areas. Leaders in this environment are eager for fiscally prudent ways to simultaneously support their communities and stimulate their economies. This paper makes the case that more compact development patterns and investing in projects to improve urban cores could save taxpayers money and improve overall regional economic performance. To that end, it relies on a review of the best academic empirical literature to weigh the extent to which a new way of thinking about growth and development can benefit governments, businesses, and regions during these fiscally stressed times.

Overall, the review finds that:

* The cost of providing public infrastructure and delivering services can be reduced through thoughtful design and planning. Several studies suggest that rational use of more compact development patterns from 2000 to 2025 promise the following sorts of savings for governments nationwide: 11.8 percent, or $110 billion, from 25-year roadbuilding costs; 6 percent, or $12.6 billion, from 25-year water and sewer costs; and 3.7 percent, or $4 billion, for annual operations and service delivery. School-construction savings are somewhat less.

* Regional economic performance is enhanced when areas are developed with community benefits and the promotion of vital urban centers in mind. Studies show that productivity and overall economic performance may be improved to the extent compact, mixed-use development fosters dense labor markets, vibrant urban centers, efficient transportation systems, and a high “quality-of-place.” Productivity increases with county employment density. Communities that practice growth management realize improved personal income shares over time.

* Suburbs also benefit from investment in healthy urban cores. Finally, studies suggest that to the extent these smarter development patterns foster equity in regions by improving center-city incomes and vitality, they will also enhance the economic well-being of the suburbs as well as the city. City income growth has been shown to increase suburban income, house prices, and population. Reduced city poverty rates have also been associated with metropolitan income growth. In the end, this paper makes the case that during times of tight budgets, more efficient andbeneficial growth strategies make more sense than ever.

As these strategies become more widespread, the challenge for the research community will be to move beyond the obvious fiscal savings and continue to quantify the profound effects on economic competitiveness, equity, and quality of life available through better planning and community design. Ultimately, these issues lie at the crux of what better development is really all about.

Excerpt from the intro:

“Businesses-struggling to restore pre-slump profit levels-are aggressively seeking creative ways to accelerate growth and promote efficiency. For their part, states and local governments- squeezed by record budget shortfalls-are looking desperately to curb wasteful spending. Suddenly, public officials are being forced to consider not just short-term budget cuts but policy reforms that will lead to long-term efficiencies. And no wonder: The states alone faced an aggregate $100 billion in budget shortfalls this year and last, thanks to a “perfect storm” of woes that includes a slow economy that has slammed tax revenues, soaring Medicaid expenses, and huge new security costs associated with the threat of terrorism.1 Only Arkansas, New Mexico, and Wyoming say they will face no budget problems in 2004.

In this environment, it is inevitable that opportunities to rethink how communities grow, and how they invest public dollars, would get another look. And they are getting it. Notwithstanding their mostly rhetorical justifications for action, governors and advocates alike have begun to promote ideas such as the reuse of existing buildings, compact design to reduce infrastructure costs and traffic congestion, and limits on sprawl as a fiscal and economic tonic in hard times. “No longer should taxpayers be forced to bear the burden of new roads, schools, and sewers every time a McMansion is built or a mall is erected,” declared Gov. James E. McGreevey of New Jersey last year, in the most direct gubernatorial embrace ever of smart growth as a fiscal remedy.

And a month later Maryland’s former Governor Parris Glendening, now president of the Smart Growth Leadership Institute, connected the moment and the message in a conference speech. “The infrastructure costs savings associated with smart growth are more imperative as officials are forced to make tough funding decisions,” asserted Glendening, who first popularized a fiscally oriented concept of growth in gaining passage of Maryland’s 1997 Smart Growth Areas Act. “Sprawl is fiscally irresponsible,” Glendening told a reporter.”

Here are more quotes from the report:

“…sprawl…[is] not inevitable but result[s] at least in part from major governmental policies that distort the market and facilitate the excessive decentralization of people and jobs.”

“Nor are these potential efficiencies [for lower public service and infrastructure costs] trivial. Spending on capital and services makes up fully one-quarter of annual state and local outlays…even modest percentage savings from smart growth could save taxpayers billions.”

“…[an urban growth boundary] results in higher housing prices, not due to limits on the supply of housing, but rather from the creation of benefits such as heightened convenience, enhanced public transit, and lower service costs…they also may enhance a regions’ tax bases, create wealth through housing appreciation, and boost property tax collections.”

“…density is a fundamental purpose of cities…clusterings of talented people, or ‘human capital’, represent a prime driver of aggregate economic growth…In a more qualitative vein, the economic development expert Richard Florida (2000) argues that attributes like ’24-7′ urban scenes, subway or light rail systems, and sustainable development spur growth because they appeal to the affinity for such qualities among highly educated, highly mobile ‘knowledge workers’ who ‘vote with their feet’…such workers seek out smart growth attributes and that providing them can enhance a regions’ ability to attract talent and develop high technology industries.”

“…to a measurable degree suburban welfare depends on central-city welfare…To the extent smart growth places a high priority on reinvesting in older established neighborhoods and regional centers as opposed to facilitating decentralization, it will likely tend to improve the region’s economic performance and benefit city dwellers and suburbanites alike.”

“…per unit costs for police, fire, highway, schools, sewer, and solid waste services were consistently lowest in counties whose growth was more concentrated in established areas between 1987 and 1997, and highest in the counties with the most dispersed growth…[households in] Louisville [KT] see their taxes go up by $36.82 every time their sprawling county accommodates 1,000 new residents…[compact] Warren County [KT] can accommodate 1,000 new residents at a cost of $53.89 per household while in sprawling Pulaski County such growth costs each household $239.93.”

“…lot size (or density0 is the spatial attribute that has the most impact on water and sewer costs. [Speir and Stevenson] demonstrated that dispersed large lots at low densities result in significantly higher public service costs than smaller lots closer together…The consensus is clear: All things being equal, governments can save taxpayers more money by channeling development into established areas where services can be provided more cheaply.”

“…smart growth goals like compactness, density, and ‘quality of life’ enhancement seems to support — or at least be associated with — modestly strengthened economic performance. Presumably, this is because such urban qualities improve productivity by enhancing businesses’ access to quality workers…doubling employment density increases average productivity by around 6 percent…workers in the 10 densest states produced $38,782 of value annually while those in the 10 least dense states produced only $31,578 in output — about 25 percent less. Overall, Ciccone and Hall attributed [most of the difference] to differences in the density of economic activity, rather than other factors like the size of the cities or public investment levels there.”

“…[Nelson and Peterman (2000)] found…a positive association between growth management and improved economic performance.”

“…patenting activity [is] a key measure of idea generation and economic vitality…patenting was significantly greater during the decade [of 1990 to 2000] in regions with higher employment density…the number of patents per capita rose, on average, 20 to 30 percent in a metro for every doubling of density…denser places are enjoying significant innovation edges over less-dense competitors.”

“…shoring up older urban centers — as smart growth attempts to do — can build wealth for entire metropolitan areas, city and suburbs alike…targeted efforts to alleviate central city poverty eventually seem to ‘trickle up’ to improve incomes across the whole region…So if suburban interests ask, ‘What’s in it for me?’ the answer seems increasingly clear: Boosting the core helps boost whole regions.”

“…A portfolio of provocative evidence suggests quite strongly that smart growth has the potential to reduce governments’ capital facility costs, reduce their costs of delivering services, and improve regional economic performance as well.”


Full report:

Click to access 200403_smartgrowth.pdf


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