How to Make a Resilient City (budget)

The way we build our cities impacts the way the local governments serve them. As planners, we know this quite well thanks to a great new study published by Smart Growth America. [link] Build a city in a low-intensity, sprawling pattern and you’ll end up with inefficient services and strained city budgets. And as I showed in my last article, the core problem for city budgets isn’t one of bad outward growth (i.e., development going further and further away from the core), it’s more an issue of improper building intensity. High intensity development, even on the farthest edge of town, can pay for its costs whereas low intensity development, even when it is near the town’s core, always costs more.

This made perfect sense during the research but a nagging thought kept bothering me:

“Sure, Norm, maybe building intensity is important. But consider the bedroom communities that have wonderful city budgets and are still low intensity.”

Indeed, there is a town just north of mine that has lower tax rates, lower intensity development, and yet healthier city budgets. Why is that?

The reason becomes all too clear when you then look at the property values of my city compared to its neighbor:

Spring Hill Average Home Value: $187,800*

Columbia Average Home Value: $110,000*

*Values based on the most recent estimate from sales during the Feb ’13 to April ’13 timeframe, from Trulia.com

As shown by the data, the most obvious reason Columbia’s budget is in worse shape is due to our very low property values. Lower values means lower assessments means lower revenue and, sadly, the people who make fire trucks don’t give discounts to towns stuck in housing slumps. From this basic fact, we often hear people say that we must protect property values. If we allow bad development to lower our property values, the city will suffer.

But why is that? Why is a city budget so sensitive to the real estate market?

This is where we find one of the more frightening aspects of our low-intensity development patterns. Such patterns make the city’s budget more dependent on property values to maintain solvency. Right now, the market for our neighboring city (Spring Hill) is doing well. But if their market crashed, they would be in worse shape than Columbia. Similarly, every low-intensity suburban community that enjoys great post-recession municipal budgets are still vulnerable, or rather, weak. They are the antithesis of my dear friend Chuck Marohn’s “Strong Towns”.

But when building intensity meets a certain minimum, a city can be much better protected.

In my last article, I intentionally showed how an old strip center has more value per acre than a Wal-Mart. Here is that strip center again:

As you can imagine, this property’s value is quite low. But its building intensity is relatively high (for Columbia). Therefore, it is land-efficient and thus cost-efficient. In fact, there are a lot of low-value properties in town that are surprisingly more cost-efficient than their higher-value, higher-profile counterparts.

Consider the impacts for resiliency.

Even in down markets … even when a property is well past its prime … even when an environment is not attractive or urbane … development can still pay for itself.

Now don’t get me wrong! I am not suggesting that this strip center is an ideal development. Nor am I suggesting that it would be cost-efficient if built on an isolated pasture some 400 miles from the sanitation department. But if everything in my city was built to this modest intensity (0.6 FAR), the property values would have to plummet quite a bit before cost-efficiency is lost.

The less land you use, the less valuable your development must be to meet the city’s threshold for cost-efficiency. For example, consider the following chart:

The chart shows various lot sizes (from one acre to one-fifth of an acre) and their subsequent values that are necessary to maintain a certain value-per-square-foot threshold. This is just basic math but it shows something important for Columbia.

Property that consumes 1/5^th of an acre only needs to command a value of $104,544 to maintain Columbia’s threshold for cost-efficiency. If Columbia's average home was built on 1/5^th of an acre, our current housing slump (where average homes values are currently at $110,000) would not harm our budget! We could still provide services and even reinvest a little bit without raising taxes. That is resiliency.

Conversely, a house on an acre of land must command a value of $522,720 to reach our threshold. Imagine the trouble we would be in if every home consumed that much land right now, with our values as low as they are.

Such is the power of building intensity. It makes a city more resilient to housing slumps, makes development add more value to the land it consumes, and gives strong aid to land conservation.

Indeed, land conservation is another important factor. Consider our local Wal-Mart, as shown here:

Generally speaking, this site has 25% lot coverage (1 million square feet of land and 250,000 square feet of building). If the City upholds a minimum requirement that all development possess 60% lot coverage, the development would either have to add an additional 350,000 square feet of structure …or consume 600,000 less square feet of land.

Notice the trade-off? Either the building expands or the property size is reduced, freeing up more space to be used for other buildings. Just imagine the infill! In this way, building intensity not only ensures cost-efficient development but it also gives strong protection against the overconsumption of land. Lots become smaller, making land more productive.

By the way, in the scenario where the average residential property consumes only 1/5^th of an acre per home, not only would Columbia’s budget be in much better shape, the city’s footprint would be reduced by almost 70%, conserving over 4,500 acres.

So here’s my conclusion: WE PLANNERS SHOULD REQUIRE EVERYTHING TO BE A MINIMUM 60% LOT COVERAGE AND/OR 0.6 FAR. WE SHOULD ALSO LAUGH AT ANYONE WHO DOUBTS THIS IDEA.

Right?

Of course not. I do think a minimum standard for building intensity, based on your City’s threshold for cost-efficiency, is important. From a municipal budget standpoint, such a standard can be a much easier sell than the more common strategies for stopping sprawl (e.g., urban growth boundaries).

What’s the right standard? Floor-area-ratio and/or lot coverage can address building intensity. And yes, such standards don't really help urban form but they do help Smart Growth. And when combined with the right form standards, one can have effective, purpose-driven policy that makes our cities better in many ways.

Author's note: special thanks to Dima Galkin for notifying me about a slight typo; the comparative chart is for properties ranging from one acre to one-fifth of an acre, whereas I had previously written "one-eighth". A simple slip but it makes a big difference!