Urbanists often justify their anti-suburban policies based on a fairness issue. They argue that cities subsidize the suburbs and this shift of resources robs cities of their tax revenues and that leads to a decline in their quality of life. It’s odd for a movement that eagerly supports public subsidies for, say, transit systems, parks and affordable-housing complexes to suddenly get upset about tax subsidies. Hypocrisy aside, what do the numbers suggest?
The suburban-subsidy argument takes a variety of shapes and forms, some of them nonsensical and others more or less accurate. The first argument is simple and wrongheaded. It goes like this: Low-density suburban development requires costly infrastructure to sustain it. By contrast, high-density living requires fewer roads and sewer lines, so general public revenues are misallocated by supporting single-family neighborhoods and sprawling commercial developments.
Here’s how one urbanist, Kōrero Wellington, puts it:
Suburban areas aren’t just lower intensity in terms of homes and land-uses per hectare, they’re also lower revenue for their city. But they still need all the pipes, power, roads, footpaths, culverts, streetlamps, retaining walls and so on – all paid for by the city (i.e., the public – that’s all of us). All the same costs, for many fewer people living, working, doing stuff per hectare. Suburbs are being propped up by the densely-populated, multi-use areas in the same city jurisdiction. It seems obvious when you think about it, but we generally don’t.
We can easily see the problem with this common argument based on the author’s own words, as suburbs are “propped up” by the densely populated “areas in the same city.” Most American suburbs – at least the ones in California – operate as independent cities. In my suburb, taxpayers are paying for our infrastructure the same way as taxpayers in the neighboring big city pay for their infrastructure. There’s no city-to-suburb subsidy here.
In fact, suburban tax rates often are lower than urban ones, as we have more efficient services thanks to less bureaucracy, fewer social-service programs, more-limited public spaces and less-powerful municipal unions. In some cases, suburbs – especially smaller, wealthier ones – have higher tax rates than neighboring cities, but the cities aren’t subsidizing them. The suburban residents are paying them. Cities are sometimes net exporters of tax revenue to the state, although sometimes they are the recipient of more than their share. Suburban Orange County, for instance, has long been a donor county.
More sophisticated urbanists are forthright about the subsidy situation. Writer Chris Bradford spells it out in Smart Cities Dive:
There’s not much direct subsidy of suburban subdivisions – developers pay for all interior roads and sidewalks, sewer and water hookups to city lines, and drainage and water retention facilities. They pay steep fees for city reviews and inspections. Depending on the size of the project, the city might require the developer to build on-site facilities like wastewater treatment plants. The city charges impact fees on top of these costs, and also can make developers pay the cost of off-site improvements that are roughly proportionate to the development’s impact.
Bradford’s complaint is a reasonable one. He takes issue with the billions of dollars that county residents spend in bonds to fund arterial roads that support far-flung developments. However, every kind of infrastructure costs money, with the costs rarely paid fully by users. Wherever we live, we need to get around. Increased urbanization is predicated on the construction and expansion of transit systems. Users never pay the full freight for those.
Writing for the Cato Institute in 2018, Randal O’Toole argues that, “(W)e should end subsidies to highways as well, though those subsidies are much smaller – 1.5 cents per passenger mile vs. nearly 90 cents for transit.” So if subsidies are the urbanists’ problem, we should look at who pays what for whom and recreate a tax system based on the principle that the user pays the costs. I’m guessing that with all costs considered, suburban residents would come out ahead.
That reality leads urbanists into a more fanciful definition of subsidies. Grist writer Ben Adler details one major federal “subsidy” for suburbia, the mortgage-interest deduction:
The nominal purpose of the deduction is to promote homeownership. What it actually does is promote the over-consumption of housing relative to other forms of spending, savings and investment, because it taxes a dollar spent on housing less than a dollar put elsewhere. … And that’s not all. Over the same five-year period, homeowners wrote off $106 billion in federal income tax liability using rules that allow you to deduct state and local property taxes from your taxable income.
Sorry, but I refuse to concede that allowing Americans to keep their own money is a subsidy even if, say, overall lower tax rates are generally better than targeted deductions. The mortgage and other tax deductions apply to any homeowner, including ones who purchase homes or condos in big cities. Urbanists also like to trot out supposed subsidies in the form of environmental externalities. In other words, the general public pays x for the health impacts of car dependency. Yet those imprecise numbers are generally a means to gin up costs to arrive at their pre-ordained conclusion. Anti-suburb types rarely insist on accounting for the environmental costs of transit and urban living.
In a 2017 American Conservative article, “How we subsidize suburbia,” Devin Marisa Zuegel expands on the argument that federal policy drove suburban development: “By making long-term, amortized loans with low down payments the norm, federal policies made it possible for millions of people to buy single-family homes. These homeowners enthusiastically moved into the new mass-produced subdivisions to the west.”
Now tell me why this is a bad thing? It’s not exactly a subsidy, either, by the common definition of that term. Of course, urbanists are right that other government policies, such as zoning and federal highway construction (paid for largely but not entirely by drivers through user fees), helped create the modern suburb. It was not, as some of suburbia’s defenders claim, a miracle of the free-market system.
Zoning in particular is a government prior restraint on development, which is why effective urbanists are committed to reducing zoning restrictions so that developers can build whatever consumers want. But it’s wrong – and generally inaccurate – to pit city residents against suburban ones by making it seem as if the former are subsidizing the latter. Simply put, urbanists would have far more success implementing the constructive aspects of their agenda if they described the situation accurately: Loosening building restrictions will lead to more choice and better outcomes for everyone. There’s no need to make suburbs the scapegoat.
Steven Greenhut is director of the Pacific Research Institute’s Free Cities Center.
