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Should We Subsidize "Smart Growth"?

Subsidizing "smart" development won't relieve congestion

Chris Fiscelli
May 12, 2003

Despite a widespread mantra for development to "pay its own way," one new trend in the effort to alter current land development patterns is for cities to offer developers a variety of subsidies to build communities that discourage driving. These communities would be transit-oriented, mixed-use, and pedestrian-friendly. Developers of these projects receive various forms of assistance including infrastructure provision, aiding land assembly, financial assistance, a possible reduction in impact fees, and entitlement streamlining. Developers of projects considered undesirable or those that allegedly encourage driving are subject to full (and sometimes questionably high) impact fees, a lengthier, more tangled entitlement process, and no financial subsidies.

The Sacramento Area Council of Governments, for example, will allocate the first $12 million of a $500 million traffic mitigation fund to development projects that are mixed-use, high-density, and pedestrian-friendly. Not surprisingly, the policy has met well with developers who build these types of projects. The financial subsidies alone will allow them to compete at a distinct advantage with their counterparts who must bear the full cost of their development projects.

This approach for reducing traffic congestion poses several interesting policy questions:

  1. Is this process fair?
  2. Will the policy goal of reducing traffic congestion be accomplished?
  3. Are consumers getting the types of neighborhoods and communities they want?

The answer to the first question depends, of course, on how one defines fair. Planners believe this is fair because they think that these new projects will result in more efficient land development patterns in terms of infrastructure use, lower costs to society, and improved social capital. A developer of residential communities, however, may see the issue quite differently. He might see it as a penalty for providing development the markets want rather than what the planners want. After all, if a particular style of development requires subsidies to be built, then clearly consumers are not demanding and/or willing to pay for it at the market cost of its production.

The most important question may regard traffic congestion. It is clear that fewer drivers on the road will mean less traffic congestion, however it is not clear that building more pedestrian-friendly communities will result in fewer drivers, particularly during commute time. These new communities may have more bus stops, a slightly higher density, narrower streets, more retail space, and more sidewalks, but they will not exist in isolation as a self-sustaining community. The residents will be forced to coexist with the surrounding area that will likely require plenty of driving to work, to shop at larger centers, and recreation. Consequently, a few auto trips may be reduced by a walk to the neighboring dry cleaner, but the bulk of driving will continue.

Whether or not consumers get the kind of communities they want is a difficult question to answer. Consumers vote for what they want by what they consumers purchase, but consumers can only purchase from that which is produced. Obviously, planners and some developers believe that there is a strong, untapped market for higher-density, mixed-use, walkable neighborhoods. They believe that people only choose suburbia because they are unaware of better places that are possible. But, if there is an untapped market, one has to wonder why so few of these other neighborhoods get built. The answer may lie in the fact that cities have, in fact, deterred the development of these neighborhoods through outdated zoning codes, poor design review, and onerous subdivision regulations. So, instead of remedying the problem by modifying local zoning ordinances, local governments are now trying to fix their own collective mess by subsidizing the very developments they may have inadvertently discouraged in the past.

Attempts to modify land use patterns to reduce traffic congestion have not met with much success, primarily since cities that try to do this have been largely developed after the advent of widespread automobile use. As such, one has to question the efficacy of such policies that try to reshape land use patterns. If cities want to truly mitigate traffic congestion without preference for a specific land use pattern, they should focus on congestion pricing where drivers will pay the full costs of road provision.

Subsidizing development that embraces "smart growth" principles will probably not significantly ease traffic congestion. It also places local governments in the precarious position of favoring some developers over others, advancing the probability of corruption. Furthermore, most taxpayers are stuck subsidizing the development of communities they don't choose to live in.

Chris Fiscelli is a senior fellow in urban and land use policy at Reason Foundation



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