Sprawl is not a product of the free market

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.

There is already enough single-family housing to meet demand through 2050, according to recent market research

There is already enough single-family housing to meet demand through 2050, according to recent market research

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.

Data shows that fewer Ame

Sprawl defenders usually forget that highways are paid for by Uncle Sam. That doesn’t sound like a “free market” to me

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.

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Categories: Smart Growth

Author:David A. Garcia

David A. Garcia created SCL in March of 2012. Garcia is a Stockton native with a background in urban policy and planning, holding a Bachelor's Degree from UCLA as well as a Master's Degree in Public Policy from the Johns Hopkins Institute for Policy Studies. He currently serves as the Policy Director at the UC Berkeley Terner Center for Housing Innovation. David was also COO at Ten Space, a real estate development firm focused exclusively on Downtown Stockton, and continues to advise on their projects. Prior to that, he worked three years as a researcher/analyst for a Congressional research agency in Washington, DC. The views expressed on this site are entirely of the author's

8 Comments on “Sprawl is not a product of the free market”

  1. Jon Seisa
    October 8, 2013 at 12:22 pm #

    When I have time I will have to read this more thoroughly; but I truly believe community housing can be far more creative and inclusive of other overlooked elements. A better balance with more versatile options must be employed with shared community spaces and private spaces in complimentary integrated design. But this area of sardine-packed design, both urban and suburban, is extremely dehumanizing.

  2. John Holtzclaw
    October 9, 2013 at 3:44 pm #

    Another way of measuring if people really prefer sprawl to cities, as we are told by sprawl backers, is to measure what we are willing to pay for housing in either one. That assumes we trust the free market.

    I compared two middle class areas: sprawling San Ramon, just east of the Oakland Hills, with the North Beach-Russian & Nob Hills-Chinatown area of San Francisco. I used the 2002-3 housing prices per sq ft supplied by the Real Estate Association. These “before the bubble and burst” prices reflect the stable market. San Ramon sales prices averaged $295 $/sq ft, compared to $1,858 in the North Beach area, http://www.sierraclub.org/sprawl/articles/campusprogress2006.pdf. North Beach was over 6 times higher, a very strong indication of preference for it.

    John Holtzclaw

  3. Garlynn
    October 16, 2013 at 10:52 am #

    “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.” I’m not sure that this statement is true.

    According to the Stockton Zoning Code (http://qcode.us/codes/stockton/view.php?topic=16-2&showAll=1&frames=on), the following zones allow for mixed-use development:

    1. CO (Commercial, Office) District. The CO zoning district is intended to be a transitional area between residential and general commercial uses. The primary uses in this district include offices, incidental retail and/or residential in conjunction with an office, and other compatible uses. Allowable densities for residential units in conjunction with an office may be up to 29 dwelling units per net acre. Other residential density may be up to 17.4 dwelling units per net acre; minimum density is 8.8 dwelling units per net acre. The CO zoning district is consistent with the administrative-professional land use designation of the General Plan.
    2. CN (Commercial, Neighborhood) District. The CN zoning district is applied to small-scale, limited retail and service areas that are designed to provide for the daily needs of the residents of the immediate, surrounding neighborhood. Allowable densities for residential units may be up to 29 dwelling units per net acre; minimum density is 17.5 dwelling units per net acre. The CN zoning district is consistent with the Commercial land use designation of the General Plan.
    3. CG (Commercial, General) District. The CG zoning district is applied to areas appropriate for a wide variety of general commercial uses, including retail, personal and business services; commercial recreational uses; and a mix of office, commercial, and/or residential uses. Allowable densities for residential units in a multi-use project may be up to 29 dwelling units per net acre. The CG zoning district is consistent with the commercial land use designation of the General Plan.
    4. CD (Commercial, Downtown) District. The CD zoning district is applied to the downtown commercial area of the City. The intent of the CD zoning district is to encourage a mixture of high intensity uses to create a lively, pedestrian-friendly environment, with high visual quality. Appropriate uses include large scale commercial offices and office support uses, high-density residential development, tourist and lodging oriented uses, and governmental facilities. Residential densities are allowed up to 87 dwelling units per net acre. The CD zoning district is consistent with the commercial land use designation of the General Plan.
    3. MX (Mixed Use) District. The MX zoning district is intended to apply to large properties of at least 100 acres that can accommodate a wide range of land uses. A master development plan is required for each MX zoning district to identify specific allowable land uses and development regulations. The MX zoning district is consistent with the mixed use designation of the General Plan.

    David, perhaps you could clarify what you meant? Is there not ENOUGH land in Stockton zoned for mixed-use development? Are there other reasons why mixed-use development could not be built, even when the zoning ostensibly allows for it?

    I’m absolutely sympathetic to the message of this article, but want to make sure that we’re having a discussion grounded in the facts.

    • David Garcia
      October 17, 2013 at 1:31 pm #

      Hello Garlynn,

      While the city does have multiple zoning designations allowing for mixed uses, you will notice that a large majority of land in Stockton– particularly in the north– is zoned for single-family, low density. (sidenote: large swaths of land in the northwest corner appear to be zoned “mixed use,” but nothing is built in these areas yet. I suspect the “mixed-use” designation is just a placeholder until developers decide what they want to build there, and given the surrounding communities, I would guess that it will be mostly SFH).


      To your point about the amount of mixed-use zoning, it’s fair to say that there is not enough, but even where zoning allows for mixed-uses, you won’t find developers building true mixed-use communities. For example, the area around I-5 and Eight Mile Road is zoned “mixed-use,” even though what was built was a strip mall, a commercial building and some apartments that are all completely car-dependent. While there are a mixture of uses here, they are strewn about a long several hundred acres and are not connected at all. Similarly, most areas zoned “commercial, general” have no residential components, even though they are allowed.

      It should also be pointed out that developer projects have historically driven zoning decisions in Stockton. Developers come to the city with a green-field project, and the city goes ahead and zones it accordingly. Local developers have not shown an interest in anything other than traditional suburban development, which drives zoning decisions.

  4. August 25, 2015 at 2:56 am #

    Reblogged this on Talking Southern Auckland.


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