A Thousand Hidden Subsidies

17 thoughts on “A Thousand Hidden Subsidies”

  1. So what is the government entity that subsidized this fancy suburb? How was the subsidy justified for them but not the “rural” area?

    1. The subsidies are not obvious. First, a developer constructs a new suburban subdivision complete with paved roads, sidewalks, water and sewer pipes, gas and electric lines, and a lot of landscaped buffers, etc. And don’t forget the endless impact fees. Those costs are then rolled over to the people who buy the homes when they take on mortgages. So far, no subsidies…

      Now let’s go thirty or forty years forward. If the infrastructure is public then the repair and eventual replacement of all that pavement and plumbing is the responsibility of the city or county. Property taxes don’t come close to paying for that. So the required funds are drawn from a larger pool from elsewhere – otherwise known as a subsidy.

      I’ll be curious to see what happens as newer suburbs full of private gated communities age and need to be maintained by private funds. Some will be prosperous and will find the money. Many will make the reasonable decision to go with lesser lower cost options that still get the job done. And others will decline, lose value, and fail.

      1. Fifty or more years ago, my understanding is that at least some of the initial infrastructure cost was borne by government entities. But as budgets tightened that diminished (or disappeared), at least for residential. Hence part of the reason for higher housing costs. Commercial on the other hand, still gets generous subsidies, directly or not, especially retail. Is that correct?

        1. Again, there are a lot of moving parts and long cycles. Commercial buildings have a fifteen year lifespan due to depreciation schedules and such. So the Burger Kings, Walmarts, and office parks are semi disposable as far as the people who build and occupy them. Government often subsidizes new commercial development (with multi year tax holidays and/or infraststructure upgrades) in an attempt to create jobs, etc. But when every town offers ever greater subsidies we reach a point when the buildings and businesses don’t last as long as the sweeteners. Consequently the accumulated supply of older half empty commercial properties need a fresh round of new subsidies to draw in revitalization.

          So the idea that commercial properties off set residential properties… Meh.

    1. As the Strong Towns article points out… People do the thing that works in the short term without regard for long term consequences. If you look to the voting public or government agencies or financial institutions to plan ahead you’ll be deeply disappointed. If you attempt to do the things that will make a town strong on your own you’re in for a world of hurt by the authorities and your neighbors who will come down hard on you. So things are going to fail in the medium term and there isn’t much anyone can do about the macro picture. However, once things do fail noticeably enough and on a large enough scale public opinion will shift and broken institutions will be replaced by new ones. I’ve pencilled in the year 2030 as the most likely point at which things will start to turn around. That’s the precise date when today’s Boomers will mostly be gone and Millennials will be old enough to take over positions of authority.

  2. Reblogged this on small town urbanism and commented:
    This is a great blog post on how infrastructure decisions are made depending on who is paying for them. If they are publicly funded you get one level of infrastructure. If residents have to pay for their own infrastructure, you get a different level. Why do we continue to subsidize suburban development which doesn’t come close to paying for the infrastructure required to serve it?

  3. Showing people the numbers will help. Not all at once, but over time, along with other, more tide-like forces. Anyway, thanks–a great comparison, and great pictures.

  4. That’s what government is for–it’s basically a giant subsidy machine. The truth is that everyone is subsidizing everyone else. Nobody comes off scot-free when you really dig into it.

    My children’s “free” public education is being subsidized by property owners without school-age kids. Workers are subsidizing retirees through Medicare and Social Security. The FDA subsidizes drug companies, protecting them from competition at the expense of sick people. Unions subsidize a subset of workers at the expense of management, other workers, and buyers. It never ends: public employee pensions, Medicaid, unemployment compensation, the national highway system, the national park system, local public parks, local libraries.

    It used to be that there were a lot of subsidies we generally felt pretty good about–we called them “the public good.” They were still subsidies, but we didn’t mind them.

    In general now, nobody can really agree on what the public good comprises beyond the basics at the local level (public parks, libraries, police, fire protection). In the absence of anything in the public good that excites the imagination, the wealthy and politically powerful simply turn their attention to directing subsidies towards themselves, as the suburban development you write about so ably demonstrates. The core issue is a lack of unity and imagination. If all that wealth and power that brought water, electricity and natural gas hundreds of miles were turned to more universally beneficial ends, we’d have a national bullet train system in 5 years that was the envy of the world. Instead, we only spend that kind of money on transfer payments and military boondoggles (like the F-35 Joint Strike Fighter).

    1. We are in broad agreement. Here’s where it gets interesting for me…

      What happens when most new places are built in a way that requires a thousand invisible subsidies while the older more fiscally productive places shrink relative to the overall metro area?

      More specifically, what happens when the older more cost-effective parts of town are actively bulldozed to make way for more shiny new negative-return developments that can’t ever support themselves?

      How does society respond to the fact that it’s built massive amounts of stuff it can’t afford to maintain and there isn’t enough cash to redistribute to keep it all going?

      See also: pension funds, health care coverage, veterans benefits…

      At a certain point the money simply won’t be there and things won’t be paid for. That day is coming. And it’s going to be ugly when all the pissed off folks don’t get what the think they deserve.

      1. I think you’re right about that which is unsustainable not being sustained after a while. The big questions are those of time and pain: how long does it take, and who gets hurt? In the case of pensions, the problem is already slowly solving itself as pensioners die, to put it bluntly. New employees are given defined contributions plans instead, or a vastly diminished pension. Eventually the system will come back into balance. But during that transition time, taxpayers and current employees are still fleeced to subsidize pensioners who receive extremely generous transfer payments.

        The same thing will likely happen to suburbia. People aren’t going to suddenly find their property taxes or water bills have risen by 10,000%. These costs will rise gradually over time and land values will fall as people leave, reinforcing each other. After a while, many of the buildings will simply be abandoned or demolished. Eventually the infrastructure itself will be slowly abandoned. We’ve already seen this play out in Detroit. The parts of suburbia that are close to desirable things will be demolished, to make way for denser developments. It will all take far too long due to the entrenched conservatism of local zoning and planning boards, but it’s inevitable. Can’t stop the rain.

        Kind of gives me a bittersweet feeling about home improvement. How much money and time should I *really* put into my postwar house if it was built out of fundamentally flimsy materials with no redeeming architectural features? I know that it’s probably just going to be bulldozed at some point once densification begins. I walk past abandoned foreclosures every day that have been sitting for years. Having moved into one such house myself, I am quite aware of the herculean feats required to bring these houses back up to modern standards of livability. Has it been worth it? Objectively, probably not. There’s not much worth saving when these houses start to fall apart.

        1. Yes and no.

          Fifty or a hundred years from now we may all be surprised by the places that thrive and the ones that fail. No one in 1960 or 1980 would have imagined that my neighborhood here in the Mission in San Francisco would ever be anything other than skid row. I don’t believe the current tsunami of money will last forever either. We’re just one financial crash, one earthquake, or one well places bomb away from a very different future.

          The destiny of many newer poorly built far flung suburbs is probably decline and abandonment. They were built fast and cheap and were never intended to last. And the wasteland locations of many such places don’t offer any reason to reinvent the buildings beyond the first life cycle. But many other suburbs are in relatively good spots and they will carry on – many in exactly the same form, although people may inhabit the same buildings in slightly different ways in the future.

          I’m actually a huge fan of post-apocalypse Detroit because it’s so cheap and unfettered by regulations. These abandoned Chernobyl style regions are the last really free places in America. There’s something beautiful and liberating on offer there. I’ve said it before, but the worst most miserable suburbs are probably going to be the coolest artist colonies with the best gay bars in a couple of generations. “We’ve just moved in to this amazing historic building we discovered with our friends out in the woods. My great-grandmother used to buy imported Chinese goods there. It was called K-Mart.”

  5. If a person could accurately determine the cost of these subsidies and viewed them as the welfare that they are, we might arrive at a totally different picture of the “takers” in the US. The real Welfare Queen might just live in a gated community and drive an SUV. Time for a steely-eyed Urban3 type analysis of these places.

    1. I’m not a social justice crusader. Showing people the numbers won’t change anything. I’ve learned that by attending many Urban3 and Strong Towns presentations around the country. The bean counters get it. Behind closed doors officials understand it. But then you need to take – gasp – action. Oh… that part is really hard.

      1. The first step in getting justice is to verbalize the truth. You may not want to lead a crusade, but you are sure planting a lot of seeds that might take root.

        Keep writing, your light shining is important. At the very least, we’ll be able to attach the labels where they really belong.

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