Strong Towns: A Bottom-Up Revolution to Rebuild American Prosperity

by Charles L. Marohn Jr.

Our modern development pattern – a continental-scale social experiment – was established during a period of unprecedented abundance after World War II. We were not only the sole economic superpower that wasn’t devastated by war; the biggest players in the world were indebted to us. We held the global reserve currency, we had the greatest amount of easily accessible oil and coal resources, and we had a generation of motivated young people culturally unified by shared hardship and common enemies. All the systems that launched this massive experiment, from the new financing mechanisms to the highway and infrastructure programs, were developed at a unique period of time when we could dream big and accomplish anything. For a moment, our vision was not constrained by our reach. For complex systems, an abundance of resources destroys the need for adaptation. It renders the complex merely complicated. This effect is described by Neil Johnson in his book Simply Complexity: Why is competition for limited resources so important in real-world systems? The answer is simple. In real-world situations where there is no competition, it matters little what decisions people actually make. In other words, if there is an over-supply of desirable resources, then it doesn’t matter very much what we decide to do since we will still have enough of everything we need, and more. In such situations, we could each go around acting in whatever way we wanted, either cleverly or stupidly, and yet still e...

Take a tentative step in the dark. If you do not run into something, you just gained knowledge. If you hit a wall, the incremental nature of your advance gives you wisdom without much lost. Now take an abrupt leap in the dark. The gain may come at a more rapid pace, but the risk of breaking your nose is far greater. Even if successful, it is unlikely you can repeat this trick many times without serious calamity. When there are an unknowable number of variables and feedback loops that react to and ultimately impact what we do, and when calamity is not an outcome we are willing to risk, the way to probe uncertainty is through incremental change.

Modern city-building efficiently creates pods of static, monoculture development. As ecosystems, monocultures are inherently fragile. The fragility of the American development pattern is amplified by the unnatural stasis imposed: the inability to adapt to changing circumstances.

The homes were all built at the same time; they will all reach the end of their life cycle at the same time. Within the lifetime of the mortgage debt for the home, the homes in the neighborhood will simultaneously start to fail.

Building a neighborhood all at once, instead of incrementally, merely ensures that all the inevitable pressures of decline will occur simultaneously across the entire neighborhood.

And because the neighborhood is built to a finished state, because no higher use is anticipated or even allowed on the property, the only available options are stagnation and decline. In the best-case scenario, the buildings will be maintained as they are, regardless of the cost or return on investment for doing so, and the neighborhood will stagnate, not improving but not getting worse. The more likely scenario is that, as the signs of decline start to become apparent, the more affluent in the neighborhood will move.

As the block of pop-up shacks is developed, as those small investments are growing into a place, the land underneath each of those shacks increases in value. Simultaneous with the rising land values, the shacks themselves are declining. The owners of these shacks, which were hastily constructed of rather marginal materials anyway, must put resources and energy into maintaining them if they want them to retain their value. If they don’t make those maintenance investments, their buildings will start to decline. This condition – rising land values and declining improvement values – accelerates redevelopment pressure.

The original vision for America’s highways was for them to function as connections between established places, to augment the wealth creation mechanism of rivers and railroads. Had that been done, it would have reinforced existing development patterns further entrenching the stifling nature of high land values. Instead, all levels of American government coalesced around policies that destroyed the underlying land values of core cities. The mechanism is simple: Running a road through the center of an established neighborhood to the edge of town opens land up for development. With the automobile and the new road, comparatively massive amounts of raw land is now reachable. From a simple supply and demand standpoint, flooding the market with cheap land drives down the price of land. Instead of connecting places, highways primarily became a mechanism for land development around our cities. Policies were established at the state and federal levels focusing on auto-commuting patterns. Highways were run, not around cities, but through the middle of established neighborhoods. Cities adopted regulations and practices – such as high design speeds on local streets, parking requirements for private property, and anti-walking campaigns – that privilege distant auto-commuters over local land owners. Over time, mitigating traffic congestion became a top public policy priority.

In the subsequent decades, buildings of astounding grandeur in our core cities were razed to make room for parking lots. It wasn’t because parking provides great value – it doesn’t – but merely that the cost of maintaining and repairing the structures could not be justified with collapsing land values.

Consider a dinner party where each invited guest brings more food and beverage than they themselves consume. With each person that shows up, there is a wider selection of food and drink, the conversation grows, and the party simply gets better. The logical thing to do as host of this good party is to open the doors as wide as possible and invite more people in. The more the merrier! What about a party where each invited guest consumes more food and beverage than they themselves bring to the party? With each person that shows up, the supplies are dwindling. This is rapidly turning into a bad party. As host, the logical thing to do is to bar the door and not let anyone else in. Traditional development patterns were a good party. While each neighborhood began modestly as a collection of small investments, each new arrival simply made things better. Not only did new construction improve underlying land values in a virtuous cycle of growth, stagnation, and renewal, but it improved the capacity of the neighborhood to take collective action. Get enough people and you could start a bucket brigade. Add some more and you can afford to put in a water line. Even more and those gravel roads could be paved. Keep growing and you could staff a police department or a library. In a good party, private growth provides collective benefits. Modern development, where the public sector leads and everything is built to a finished state, is a bad party. When someone buys that new house on the cul-...

By constructing city hall in the manner in which they did, they took a building that would otherwise be merely functional and transformed it into something that radiated wealth to the community. Others would now want to be in proximity to this great building, either next door or along the street that it terminated. Land values would go up, the virtuous cycle of redevelopment continued.

At the time, my wife and I lived in a single-family house on a cul-de-sac with a paved road. When the road was surfaced, the city paid half the cost while my neighbors and I paid the other half. I ran the numbers; it would take 37 years of my neighbors and I paying taxes for the city to merely recoup the cost they had initially put into building the road. That was longer than the road was going to last.

For me, the evidence was pointing to a conclusion I found difficult to believe, yet impossible to ignore: The more our cities build, the poorer they become.

For local governments, it actually becomes quite simple: New growth provides local governments an opportunity to receive additional cash in the short term in exchange for taking on unpayable, long-term liabilities. The mechanism is stunningly simple.

The growth creates an illusion of wealth, a broad, cultural misperception that the growing community is become stronger and more prosperous. Instead, with each new development, they become increasingly more insolvent. When a city loses money over the long term on every project it does, it doesn’t make up the difference in volume. The more time that passes, the more downward pressure there is on the budget (Figure 3.3). Continuing to grow in this pattern only buys time. And time only makes the urgency to grow even greater.

And if our cities could somehow come up with the money – for example, if the federal government tried to bail out every city struggling to maintain cul-de-sacs, frontage roads, and water loops – they would only be doubling down on a wealth-destroying series of public investments, buying time in a race to the financial bottom.

Yikes.

We can somewhat let the broader American public off the hook. It’s not their job to manage our infrastructure; they don’t have the spreadsheets of the cash flow, a tally of the cost of maintenance, the present condition of these systems, and all the other blinking red lights on the dashboard of America’s cities. Polls have shown that Americans want infrastructure maintained more than they want these systems expanded.7 What should baffle us, however, is how professionals and decision-makers are so possessed by faith in infrastructure spending. Cities with a mind-boggling backlog of unfunded road maintenance routinely go out and build new roads.

Somehow building a new frontage road so the Walmart on the old frontage road can be relocated is assumed to be efficient. The same with building a new highway interchange so a few hundred homes can be built an hour away from the regional employment center.

Economists like to argue that, in times of economic hardship, if we pay someone to dig a ditch and then pay them again to fill it back in, we’ll stimulate the economy in helpful ways. The case for infrastructure spending is an extension of that logic: If instead of digging and filling a ditch, we spend the money on concrete, steel, and asphalt, we’re actually better off because we’ve built something useful. What is obvious but not acknowledged in that narrative is that, with the ditch, we ultimately end up back where we started. No long-term liability. In contrast, when we build a road or a bridge or a mile of pipe, we’re left with an eternal maintenance obligation.

Transit projects are generally subjected to more financial scrutiny than highway projects, but that’s still a very low bar. The most commonly cited financial benefit of transit comes from freeing up congested highways, an assumed effect never witnessed anywhere in human history.

transit is often cited as an investment in social equity because it is seen as a benefit for the poor. As with highway investments, there are all kinds of calculations made to show the financial benefits for the disadvantaged of having improved bus or rail service. In other words, the Infrastructure Cult argues that it’s a positive economic benefit to have a development pattern that spreads everything out as far as possible; then they argue that there’s even more economic benefit to provide a marginal transportation option to the growing number of people who can’t afford to live in that very expensive, spread-out development pattern. I find this incoherent.

The latest fad is to tout a project’s carbon-reduction benefits as a contribution to fighting climate change. For example, with all seriousness, project supporters will make a series of intellectual contortions to calculate the amount of carbon saved on a congested freeway, under the assumption that their capacity-building project reduces the amount of stop-and-go driving. They conveniently ignore the more obvious and intuitive...

the gas tax tells us nothing about the viability of a specific project. At best, it’s more of a referendum on the public’s perception of the value of the overall transportation system. A more direct and actionable form of feedback would be a toll, yet, in the handful of instances where infrastructure projects have included tolls as their funding mechanism, the data suggests that humans value their time differently than Infrastructure Cult models suggest they should.

Beyond tolls and usage charges, we could extend our infrastructure funding approach to include value capture. This is the approach public and private developers for centuries have used to pay for their projects, from Augustus in Rome and Napoleon in Paris to the trading companies given land charters in the New World. It’s largely how Japan has funded its acclaimed high-speed rail system.

there’s another approach that cities use all the time: the general assessment. If the local government does an infrastructure project that improves the value of a property by $10,000, they may levy an assessment on that property for up to $10,000. There’s dual logic to this: It protects property owners from arbitrary taxation by requiring a real improvement in value for the landowner, and it protects the public by having a mechanism preventing public dollars from enriching individuals.

It’s one thing for the federal government to play this game, but it’s quite another for local municipalities. Whether they should be believed or not, there are at least economic theories for national governments to run perpetual deficits, print money, and shun savings. There are no credible approaches, or even potential mechanisms, for cities to operate in this way.

Key distinction

What the efficiency-obsessed development experts didn’t appreciate was how fragile their consolidation strategy would make life for the peasant farmers. Instead of being ignorant, the peasants understood a spooky wisdom, insights gained over many lifetimes of trial and error experimentation. The farmers who didn’t scatter their plots died. Those who didn’t have enough plots also died. The farmers who survived had lots of scattered plots, a strategy for survival they passed on as traditional wisdom.

One economic denomination believes that recessions are healthy. Like periodic forest fires or floods are necessary for a healthy ecosystem, the cleansing of a downturn strengthens the economy in the long run. The other faith, the one more aligned with Keynes’ views, believes that collective action can minimize – or even eliminate – economic hardship, and that not doing so causes needless loss and unnecessary suffering.

The Great Depression’s housing crash is a classic deflationary spiral, where collapsing prices – in this case, homes – push otherwise solvent, productive people and businesses unnecessarily into default. This is the kind of unforeseeable event that prompts peasant farmers to spread their plots, and to forgo growth and efficiency for stability. In a modern economy, if there is an obvious case for a Keynesian intervention, this is it.

Large suburban tract homes qualified for the secondary market, but the frugal house with the small attached shop didn’t. Anyone who wanted a resilient housing style, one dating back to the streets of ancient Pompeii and beyond, would essentially need to pay cash, a financial handicap that made such investments largely unfeasible. Any neighborhoods deemed “at risk” also didn’t qualify for government support, the left hand of government policy destroying urban land values while the right hand kept people trapped there – at this point, largely economically stressed minority populations – from sharing in the spoils of new growth.

A period of prolonged stagflation set in, something that baffled economists. All conventional economic theories suggested that prices rise and unemployment falls during economic expansions, while during recessions the opposite happens; unemployment will rise and prices will fall. Stagflation is a simultaneous rise in prices and unemployment, as if both sides of a see-saw are moving in the same direction in contradiction of the laws of physics.

If we worried about the national economy and didn’t care about what it meant for cities, local businesses, or families, we’d just pick a few random cities to destroy each year and reap the economic benefits of rebuilding.

In the system we have evolved, the ideal citizen creates growth, not by saving and investing, but by consuming beyond their means. It matters little that this is ruinous to the individual, that such financial insecurity creates enormous levels of instability. Individual avarice is necessary for our national GDP to grow. Savings is punished with artificially low returns while debt is subsidized. Our individual value to the whole is based on our capacity, even our desire, to consume.

If a solution requires that we maintain every road that has been built, that we rehab every leaky pipe, that we hold on to all the neighborhoods that have been developed – and in most places today, these are prerequisites for any conversation – then there is no viable solution. Our cities are going to contract geographically; we will have fewer lane miles, fewer pipes, and less urbanized land in three decades than we do today. This is built into the math, shifting the situation we face from problem to predicament.

We’re not going to keep and maintain every cul-de-sac, interchange, or frontage road that has been built. It’s not possible and, even if it were, propping up these places is a poor use of our resources. In a very real sense, many of our infrastructure systems are going to completely fail, whole neighborhoods will be abandoned, and cities will shrink geographically. Some of what has been built in the past two generations will be salvaged for reuse, but I suspect that much of it will simply rot in place.

Simultaneous with the rise of suburban poverty is the gentrification of urban neighborhoods. As well-located urban land values rise once more, the value of the improvements on those properties also goes up. This is a mechanism that historically created new wealth, but it no longer works that way. Zoning codes established for the rapid replication of the auto-oriented development pattern were also applied to urban neighborhoods. These codes do not allow neighborhood evolution; their central feature is to “protect” existing property owners by locking the current development pattern in place. For example, a neighborhood of single-family homes must remain a neighborhood of single-family homes. The person living there is unable to turn higher property values into a redevelopment opportunity that expands the number of units. With demand driving land values up and the neighborhood pattern sealed in regulatory amber, the most likely outcome to bring the Improvement to Land Ratio back into balance is to demolish the existing home and build something equivalent, only at a high-end price point. This is commonly called a “scrape off” and the net effect is to dislocate the existing population.

Complex systems maintain order at the macro level only because they have some chaos at the fractal level. Ecosystems do not become stable by suppressing volatility but by experiencing it regularly at levels designed to make the system stronger. This is the core of Taleb’s antifragile insight.

I’m not a fan of the density metric. My sense is that density, at best, is a byproduct of success, but never the cause. I’ve seen horrible developments built with optimum density, but terrible design and site location. I’ve also seen beautiful, low-density construction that was financially viable and well integrated into the community. Success may correlate with density but building density does not cause success.

This ratio is important because we’re done adding infrastructure. Any community serious about their own financial stability is going to take the obvious first step and stop adding more liability. There is no reason for any North American city to build another foot of roadway, or put in another length of pipe, to serve any new property anywhere. Our infrastructure is maxed out; we’re done expanding and, in fact, I anticipate nearly all our cities contracting their obligations to some extent. Our challenge now is not about expanding our infrastructure networks but making better use of what we’ve already built. We must put meat on the bones, so to speak, a shift in focus to building more wealth within the framework of our current investments.

The traditional development pattern – even when blighted and occupied by the poorest people in our communities – is financially more productive than our post-war neighborhoods, regardless of their condition. Across North America, our poor neighborhoods tend to subsidize our wealthy neighborhoods. Generally, the places this doesn’t hold true are communities where the poor have been displaced out to the edge.

When we did the research, we found that the newest neighborhoods out on the edge were the most financially insolvent. However, everything there is relatively new – they are in the Illusion of Wealth phase of their development cycle – and so, until something must be maintained, these edge neighborhoods are cash-flow positive. In contrast, the core neighborhoods – those neighborhoods that are very poor and blighted but also very profitable over the long term – have suffered from decades of decline and neglect. The infrastructure there is falling apart; the neighborhoods are desperately in need of investment. They have generated plenty of cash to pay for their basic maintenance, but it has been squandered in other places, largely subsidizing new growth out on the edge. For the dispassionate observer, it’s pretty clear what needs to happen: The free cash flow from the edge development needs to go to shoring up basic infrastructure in the core neighborhoods. When the edge developments require maintenance, those should be the places where the public obligations are wound down.

Lafayette is a municipal corporation. If it were run like a corporation, this would merely be a necessary shifting of resources from a failing division to a profitable one, a way to strengthen the overall corporation. We don’t generally run our incorporated municipalities like corporations, however. It’s hard to imagine the affluent – in their newer homes on large lots paying substantial taxes out on the edge of town – voting for local government officials that promise to intentionally abandon their cul-de-sac to free up the cash needed to make substantial improvements to the high-crime, poor neighborhoods.

Let me state the obvious: Every personal preference comes at a price point. I prefer lobster to hamburger, trips to Europe over camping at the state park, box seats over sitting in the outfield upper deck.

Since the end of World War II, public policy at every level of U.S. government has focused on subsidizing the purchase of single-family homes. If the government were willing to subsidize lobster to be cheaper than hamburger, I’d continuously dine on lobster. More to the point, I’d express a strong personal preference for lobster. The longer this subsidy went on, the more entitled my expectations for lobster would become.

The “reservoirs untapped by imagination” are everywhere in our cities. In fact, for the typical American city, the amount of underutilized space is mind-numbing. Most Americans don’t experience it because they interface with human habitat through the windshield of an automobile. The empty space is difficult to perceive when speeding past at 15 to 30 times the speed our ancestors would have experienced. Get out and walk, however, and the number and size of the gaps are overwhelming. All that space – the space between buildings, all the buffers and ditches, all the parking lots and redundant access roads – represents nonperforming assets costing the community enormous sums of money while producing next to nothing in return.

Planners often call this process infill, but I intentionally don’t use that term. Modern infill projects are done with the same destructive mind-set that has undermined the financial health of our cities: that new development should be done in large increments and built to a finished state.

Planners like to describe neighborhoods with both homes and neighborhood-friendly businesses as mixed use. Our ancestors would have simply called them neighborhoods. Little has done more to atrophy our neighborhoods than the planning profession’s fixation on a building’s use instead of its architecture, style, or form. Likewise, planners often refer to single-family homes that are less than 1,000 square feet as “tiny homes.” Again, these were just “homes” to the people who came before us.

It is critical that every neighborhood in America be allowed, by right, to evolve to the next level of development intensity. That means empty spaces need to be allowed starter homes, even small houses, on footprints that can be expanded over time. It also means that single-family homes must be allowed to add accessory apartments, or convert to a duplex, without any special permitting, approval of neighbors, or added conditions. To become more financially productive, we need our neighborhoods to thicken up. Allowing all neighborhoods to evolve to the next increment of intensity is essential to creating positive feedback loops. No neighborhood can be kept under glass, prevented from changing over time, without doing damage to the entire community. Stagnant, frozen neighborhoods are the deepest dysfunction the post-war development experiment has created. Even so, the next increment of development must be allowed by right, but no more. Neighborhoods need to evolve, but I’m now going to make the case for some prudent constraints on that growth.

In contrast to Milan, there are hundreds of buildings greater than six stories in San Diego. I’ve been there many times and I’ve found the development pattern confusing to the point of being disorienting. The pockets of intense investments follow no discernible pattern. It is a common experience in San Diego for a street to have a series of one- and two-story buildings, then a 20-story tower, then go back to one- and two-story buildings. In a world where there is a rational relationship between the value of the land and the value of the improvement on that land, this kind of random pattern should never happen.

In the case of San Diego – and many cities in North America – it is the third explanation I find most compelling. Developers can be induced to do many dumb things, but they will not repeatedly overbuild on cheap land. The land has tremendous value. The reason the one- and two-story buildings aren’t redeveloping isn’t demand; it is due to the way the properties are regulated. There are a unique set of incentives that is inducing cities like San Diego to evolve in ways different than Milan, to end up with random jumps of intensity instead of smoother increments of change.

This is key. The market won't create 20 story buildings near single family homes in the absence of zoning distortions.