A common retort you will hear from sprawl defenders is that our built environment is shaped by the free market. They believe that the single-family tract home developments we are accustomed to today are the result of consumer preference, and if people wanted more apartments or townhomes, they would already exist. Therefore, smart growth must be propped up by Uncle Sam to be successful. On its face, this makes sense; why would we have sprawling subdivisions if there was not incredible demand for these communities? To be sure, the demand is quite real, but what most people don’t realize is that this demand is artificially created by the government through tax breaks, subsidies and federal real estate programs. That doesn’t sound like a “free market” to me. While sprawl defenders are quick to trumpet free-market principles when justifying sprawl and damning smart growth, it turns out that the suburbs owe their entire existence to the generosity of the federal government.
Sprawl was created by government programs
In the mid-1900s, two government agencies—the Federal Housing Administration (FHA) and the Department of Veteran Affairs (VA) — fundamentally changed our country’s growth patterns. During the Great Depression, the FHA was created to stabilize the country’s housing market by providing government backing to home loans. With a government guarantee, purchasing a home became much more affordable, with standard down payments lowered to 10% (down from 30 to 50%). Mortgages were also extended for longer periods to the typical 30 year mortgages we are used to today. Before the FHA, long-term mortgages averaged just 10 years. With this new government policy, mortgage payments now made more financial sense than paying rent. Of course, those who preferred to rent instead of own did not receive the same generous government assistance for their housing preference.
Because the FHA was also created to stimulate the home building industry, the FHA would only back new construction. Existing homes and neighborhoods were considered too risky, so if you wanted an FHA-backed mortgage, you had to buy a suburban home. Not only did this policy proliferate sprawl, it also marginalized poorer neighborhoods where no new construction was taking place.
Look at it this way. If you had a choice between a new car paid for by the government, or a five year old car that you had to finance on your own, you are probably going to buy the new car. This is exactly how the FHA drove the market for suburban homes.
A second sprawl-inducing federal housing policy was enacted after World War II when the VA provided veterans with assistance to purchase homes with no money down. Much like the FHA, VA’s homeownership program only provided backing to new, suburban construction on the edges of cities. With two huge government programs available for suburban houses, but nothing available for existing neighborhoods or renters, the suburbs boomed, leaving American cities behind.
Sprawl continues to be propped up by government today
While the FHA and VA kickstarted sprawl, other government programs today continue to tilt the housing market towards suburban-style housing. The biggest example is the mortgage interest tax deduction. Today, this tax break provides around $400 billion a year to homeowners, the overwhelming majority of which reside in the suburbs. If you live in a city, you are more likely to be renting, and therefore you get no such tax deduction.
Overall, the federal government spends about $450 billion annually on real estate development, according to research from Smart Growth America. SGA’s analysis of federal programs concludes that the bulk of this money is geared toward single-family housing.
Sprawl needs highways, which are heavily subsidized
Sprawl defenders are always quick to point out that walkable communities need public transit, which is a product of government subsidies. While this is not an inaccurate statement, it is deeply hypocritical. While cities need public transit, suburbs are entirely reliant on highways and interstates which are entirely paid for by state and federal governments. While suburban developers will oftentimes foot the bill for surface roads, they don’t pay a dime to construct or maintain the highways and interstates that are vital to their success. This amounts to nearly $200 billion a year in subsidies. If developers had to help cover these costs, low-density single family homes would become much less lucrative.
So who actually pays for highways? Taxpayers. The federal gas tax used to cover the costs of highways, but because the tax is not pegged to usage or inflation, only about 50% of the costs are actually paid for by drivers. Instead, the remaining cost is picked up by the taxpayer, whether you use the highway or not. On top of that, the price of gas is heavily subsidized. Without cheap gas, a car-dependent lifestyle is much harder to maintain. While we have seen spikes in gas price in recent years, some experts peg the actual price of gas at anywhere from $5 to $15 per gallon. And here we are complaining whenever we hit $4 per gallon.
Growth patterns are dictated by zoning codes and ordinances
Many deride smart growth by claiming that the government is telling you where you can live. Not only is this an inaccurate characterization, it ignores the fact that the government is already telling you where you can live through single-use zoning codes and ordinances. In most cities, and especially in Stockton, the mixing of uses is not permitted under law. This “Euclidean” zoning (named for the 1926 Supreme Court case which essentially institutionalized single-use zoning) dictates what land owners may build on their own land, regardless of what people actually want.
For example, even though demand for walkable communities is on the rise, building a neighborhood with local shops and stores is generally prohibited under single-use zoning laws. Because commercial areas prohibit residential development and vice cersa, the kind of quaint, nostalgic main street-type development we idealize is actually illegal in Stockton. Instead we are left with hulking strip malls surrounded by parking lot moats, miles away from where people actually live.
Back when cities were bastions of industrial blight, this kind of zoning made sense. You don’t want a chemical waste facility next to an apartment building. But as cities today are experiencing a resurgence, single-use zoning is a barrier to developers who want to rebuild existing neighborhoods. As a result it is much easier for a developer to build tract housing on farmland.
A free market needs uniform competition to truly be considered “free.” Unfortunately for sprawl enthusiasts, the market has been rigged for decades by government subsidies and policies. Only recently have officials realized how lopsided these programs are, and still only small steps have been taken to correct this imbalance. Many federal policies show no signs of changing any time soon, so states and municipalities are leading the way on “sprawl reform.” Some cities are adopting form-based codes, encouraging mixed use development instead of single use zoning. Many cities are also demanding more money from suburban developers to cover the costs associated with their projects. States are raising gas taxes and promoting alternative means of transportation. As our housing preferences evolve, so should our housing policies.