Charles Marohn, founder of the Strong Towns movement, is frequently queried if there is an ideal density for communities of a particular population and size. In “The Density Question,” he uses the question as a springboard to address a topic that really matters, the long-term fiscal sustainability of counties, towns and cities.
Marohn’s answer: Density is a useless metric. Forget about it. “Density is not our problem or our solution. Insolvency is our problem. Productive places are the solution.”
Say you own a $200,000 house. How much would you be willing to pay for all the communal infrastructure — the streets, sidewalks, arterials, interchanges, pipes, treatment plants, traffic signals, water towers, and so on — that adds to its value?
What if I said your total bill was $200,000? Would you pay it? I’ve been asking people this exact question for the past two weeks and have yet to have anyone who didn’t immediately say “no, there is no way.” And, of course, nobody would pay this. If the house is worth $200,000 and my additional cost of maintaining the infrastructure to allow me to live in that house is an additional $200,000, then that’s a really bad investment.
What if the total bill was $100,000? $20,000? Only when the number gets down to $10,000 and below, writes Marohn, are people unanimous in their willingness to pay for supporting infrastructure.
I think this is a reasonable thought process and it points to a powerful conclusion. At a property value to infrastructure investment ratio of 1:1, everybody walks. Nobody sensible is going to invest $200,000 in infrastructure in a property and have it end up being valued at only $200,000. What’s the point? …
If your city has $40 billion of total value when you add up all private investments, sustaining public investments of $1 billion (40:1) is a doable proposition. Public investments totaling $2 billion (20:1) starts to be risky with outside forces of inflation, interest rates and other factors beyond your control starting to impact your potential solvency. …
At the end of the day, we’re talking about building cities that make financial sense. … Let me deliver the tragic news that demonstrates why discussions of zoning, new highways, high speed rail across America, recreational trails, decorative lights and every other fetish of the modern planner/zoner is a sad distraction from our urgent problems. I’ve now done this analysis in two cities – one big and one small – and for a $200,000 house in either of these cities, the once-a-generation bill for your share of the infrastructure would be between $350,000 and $400,000. …
When private investment is exceeded in value by the public investment that supports it, wealth is not being created, it’s being destroyed. The wealth destruction is rarely evident because there are so many subsidies and cross subsidies between federal, state and local government, and so much maintenance is deferred into the indefinite future, that nothing is transparent. But the system is not sustainable.
“Our cities are going to contract in ways that are foreseeable, but not specifically predictable,” says Marohn. “Yet most are still obsessed with growth and the ‘progressive’ among us, with issues of density.”
Bacon’s bottom line: Density is relevant insofar as it shapes the private vs. private investment ratio. As a rule, higher density development requires less infrastructure per unit of housing or business than lower density development. But Marohn is quite right to say that we shouldn’t fixate on density — it’s a means to an end, which is evolving toward a more favorable ratio of private to public investment.
Until we get this basic accounting right, I don’t see how there’s much chance of achieving long-term fiscal sustainability.