Bitter Legacies: Big-Box Bribes Meet The New Normal

Credit: Shannon Albert

Hundreds of communities across America have paid out major bribes to Wal-Mart and similar big box retailers in a misguided pursuit of sales tax base and low-paying jobs. Most negative externalities big-box development introduce (greater congestion, infrastructure requirements from traffic lights to road expansions, decimation of non-subsidized competitors) are borne by the local and state taxpayers. I presume I can pause here since this story is already familiar to everyone?

Over the past decade we’ve learned that consumer preferences have shifted strongly to online purchases, local consumerism and (for some) buying less in general as they seek less fleeting experiences and more self-improvement/edification.  Obviously this is bad for most retailers from Target to JC Penney’s.

Now we are learning the hollowing out of the great American middle has made its way into retailing with a bottoming out of much of the middlebrow fare. Sears, JC Penney’s, and now Wal-Mart face worsening conditions as their higher-income shoppers are poached and their lower-income shoppers find themselves less able to afford the fare at these stores along with the added challenge of being unable to drive.

Competition is more fierce than ever from below with Aldi, Marshalls, and the long litany of dollar store chains taking market share from the incumbents with a mix of better service, selection and prices. The dollar stores and their slightly more upscale pharmacy counterparts (Walgreens, CVS) merit special attention though.

Boasting smaller footprints and lower setup costs, they can afford to meet nearly every unmet market sector of a municipality. Where a municipality can support one Wal-Mart supercenter, these chains each can compete successfully with three to five stores. For the growing number of Americans without steady access to an automobile, the income to support and maintain auto insurance and maintenance costs, the health (vision, reflexes) to drive or the legal eligibility to drive, these chains offer a closer and similarly priced option.

These chains, especially the dollar stores, also usually feature superb location geography. They set up in more economically downscale areas, depressed street corners and strip malls with lower rents, and in areas with some degree of pedestrian infrastructure unlike the Wal-Marts and other big boxes that are adjacent to massive thruways much further away from residential areas.

In other words, Wal-Mart and many of its brethren expanded across America in the heyday of retail free lunch as communities foolishly competed in a race to the bottom they never understood or envisioned beyond increased sales tax receipts. They depended upon customers being able to drive to their locations built in greenfield development far away from most housing, a foundation that is now collapsing as more Americans are unable or do not desire to drive.

Its competitors building much smaller footprint stores more rapidly and cheaply are now meeting that demand while higher-income customers choose to upgrade. Wal-Mart tried for the past decade to be all things to as many people as possible. That is no longer feasible.

Bloomberg retail analyst Joseph Brusuelas says that in effect, their customer base is trending downward the economic ladder.

Think about that in terms of planning and economic development. Countless municipalities bet the farm on what amounts to a losing horse and are stuck with the long-term costs of that bad bet as big box stores empty out, consolidate to larger, more productive municipalities or get smaller (Wal-Mart’s neighborhood markets may end up replacing aging or underperforming main store locations, stores like Best Buy are shrinking, another economic recession is expected to eliminate another 5-7 major retailers).

These should be harsh times for bureaucrats betting like Vegas novices with precious taxpayer money. Yet there will be no accountability as many of them have left office, been promoted or already voted out. Only debts and legacy obligations….

End of the Suburbs Book Discussion Pt.1

While critical of her argument(s), there is compelling material in Leigh Gallagher’s book worth discussing.

I wanted to unpack this core summation of hers:

“The new homes and communities being planned for the next phase of our development will be better suited to our needs. They will factor in the mistakes of the past to make things better for our future. They will reduce our dependency on the car. They will be developed around places where people can naturally interact with one another. They will be located closer to where we work and closer to the things we need, which will give us more time with our families and friends and more time to pursue all of the things we like to do. These changes won’t happen overnight, but they will ultimately lead to more choice, more freedom, and richer lives. And that will be a happy ending for everyone.”

They will reduce our dependency on the car.

Living conditions that deny people the freedom to choose how they get around are falling out of favor. People may want to bike to a park or work or walk to church, restaurant, school or a neighborhood store. In most suburban subdivisions this is simply not possible, especially those without sidewalks and those with single-use zoning.

They will be developed around places where people can naturally interact with one another.

Again, if everything around your home is other homes, there are precious few options for public interaction, so-called ‘third places’. However, if you live in a traditional suburb (pre-WW2), you often can walk three blocks to a series of corner restaurants or shops, a local library or community hall.

They will be located closer to where we work and closer to the things we need, which will give us more time with our families and friends and more time to pursue all of the things we like to do.

Gallagher emphasizes how time is the most important commodity for more people, especially free time. Free time obviously takes many forms, but one type previously mythologized (solitary driving with the radio on/off, windows down/up) is no longer popular, especially with the young and the old. People desire time with friends or family, time for themselves to concentrate on a podcast or song, time to reflect and relax. This time is gobbled up by long auto commutes to work and shopping. 

The Older Suburb Advantage

As mentioned in my review, its hard for Gallagher to proclaim the suburbs are ending while she rightly qualifies that older suburbs are in so many ways better suited to emerging market changes and varied demand. Even better, older suburbs can respond without requiring new greenfield development or massive new housing developments that incur large legacy infrastructure costs or necessitate tax hikes. 

They naturally allow for mixed-use development and recasting, connected street and transportation networks, and meeting multiple housing needs and preferences. In the many cities and towns I have visited in the past decade from Washington State to Kentucky, I have observed those areas responding to market demand in ways that typical suburban subdivisions simply cannot*.

 

*My latter discussion will focus on how typical suburban subdivisions can escape this trap.

The End of the Suburbs (Book Review)

Leigh Gallagher’s book, The End of the Suburbs, desperately needs a more serious title.

At least it could be recast as ‘the end of the suburbs as we know them’, a prediction on stronger footing that also captures best the often hysterical over-reaction of people to books like this.  Gallagher presents a middling case for why the suburbs are in trouble that is ultimately oversold, under-supported and guilty of hasty generalization.

Yet… what she is reporting is not entirely out of Left field. Joel Kotkin and those who parrot him on this topic can misdirect and sneer all they want, but a mountain of home value and market performance evidence Gallagher brings forth suggests that they are as guilty of oversimplifying the issue as their urbanist rivals.

This is even more obvious considering the changing demographics of the country and its housing markets, change that Gallagher ably profiles by focusing on the incredible shift in market emphasis by national homebuilders. She details their redirection from decades-long portfolios of 90% suburban single-family housing/10% other to 60/40 and 50/50 range offering many more housing choices.

These changes are spearheaded by the crystal clear demographic realities driving these often lucrative new market strategies. Most prominent among these are families with children becoming a minority of households in this country, the rise of singles and the aging Boomers.

The basic takeaway from these market changes is that people in the 21st Century want choice. They will not accept for long any system that denies them it.

She is strongest in reporting the facts behind suburban growth since the 1940’s. By most serious estimations, its a government rigged and subsidized Ponzi scheme for newer suburbs afflicted by the limitations of single-use zoning fundamentalism. She ably explains the shackles on market adaptability and economic development single-use zoning imposes on these communities.

She smartly elaborates on the Ponzi Scheme critique by using a profile of conservative Charles Marohn of Strong Towns about suburbs that must continue expanding at all costs or face the collapse of a house of cards (legacy infrastructure costs, aging populations, weak property tax bases). For older suburbs, its a different story altogether and one she is forced to continually hedge on. Its clear from early on she is mostly addressing the fate of newer suburbs, not their older counterparts.

Her account of modern suburban development failings is best seen as the government imposing “One True Path” on its home-buying citizens for decades.

  • The FHA tightly controlled many aspects of home building from setback length to minimum lot size. This forced most lending activity and growth into suburban housing at the expense of other options.
  • The very design of many of the new suburbs and the government subsidies driving economic development of new corporate campuses and office parks far away from municipal centers forced people to have to drive, whether they wanted to or not.
  • The IRS subsidized homebuyers to purchase larger houses they could not possibly afford otherwise. This drove up housing costs and sizes alike, again forcing people into bigger homes by making them feel like suckers if they bought anything less.

She finishes the book with her vision of a ‘survival of the fittest’ among suburbs, a change supported best with her detailed contrast of older, streetcar and inner-ring suburbs that existed prior to the boom of single-use zoning in the 1940’s with most suburbs that grew up afterward. The design advantages of those older suburbs that allowed for mixed-use areas, smaller lot sizes, and connected street networks today provide walkability, enduring property value, and entrepreneurial opportunity with little additional effort or expensive policy changes.

Indeed, she carefully clarifies that most of the complaints about suburban life, design and economic feasibility are in fact about those newer suburbs, hastily thrown up in boom times after WW2 and with little consideration of the need for adaptability and change in the future. Government interference was strongest in those suburbs and it remains so to this day, imperiling their ability to adapt to changing market conditions and resident demands. These means there will be real winners and losers in this process of suburban change.

For instance, one expert she interviews touts smaller cities as the big winners in this changing suburban geography. These are places that enjoy both a neighborly and local community feel within their high quality of life and networked, urbane lifestyle. Such cities enjoy the presence of migrating elders, working professionals, blue collar natives or migrants and youngish families alike in a careful balance of affordability and proximity most larger cities can’t touch and small towns lack the scale for. With medium densities in certain residential and mixed-use areas along with viable commercial activities within neighborhoods that attract visitors and residents alike, their property tax intake and reduced infrastructure and services burden create an attractive financial picture.

Whatever her book’s failings, part of suburban America is changing dramatically with demographic shifts it is uniquely unprepared for. Higher poverty rates are now an undeniable trend and most suburban municipalities are woefully prepared for this, not for the least because their ability to react is constrained by government regulation, poor overarching design and tort concerns that impede creativity and will to act. The government and Wall Street are still ruining the housing market. This leaves the areas with less economic productivity and appeal to suffer the most from housing value declines, most of which are single-use zoning defined post-WW2 suburban locales.

The future of America is in its citizens having many housing purchase options with more than ever before choosing ‘urban suburban’/’suburban urban’ neighborhoods , whether of an older home in a tree-lined inner-ring suburb or of a town-home in a redeveloped greyfield or brownfield site of a smaller city like Nashville or Columbus. The days of the government forcing people into one viable housing purchase choice are over and the country will be far stronger for it. This is a reality homebuilders, business owners and local government officials (from planners to mayors) are happily internalizing as they enter the second half of a momentous decade of freedom expanding across the country in the form of greater housing market choice.

Yet,  even as Shyam Kannan’s observation that overall real estate emphasis is transitioning from ‘location, location, location’ to ‘access, access, access’ is strongly reflected in the market as demand for housing that features this is exceptionally high, serious obstacles remain that should concern those invested in America’s economy getting its footing back. Unfortunately, while demand for such diverse housing choices is growing ever higher, its supply is constrained by burdensome zoning, NIMBYISM and other forms of government interference that help contribute to a financing drought as creditors nervously eye legal and procedural costs. Gallagher and other prophets of suburban change would benefit their reporting and their readers by better examining solutions to these artificial barriers.

This book rates a B- overall. 

Gas Stations, Food Trucks and DIY Districts (FTF II)

This series, Forward the Future, will intermittently consider the future of commercial activity within U.S. municipalities.

Our food choices are expanding, not only with the accelerating globalization of American food culture and dining choices, but new delivery platforms. While the classic fast food industry faces immense labor challenges, new entrants are presenting unprecedented opportunities for municipalities to create, revitalize or enhance community and economic development in local neighborhoods. Most prominent among these are gas station eateries and food trucks.

The Washington Post profiles the booming business of fresh gas station cuisines (Thai, Korean and Mexican instead of three-day old hot dogs and stale donuts):

“The Gorees invested thousands of dollars in the restaurant, instead of the hundreds of thousands it would have taken for a standalone place. They have no debt. The tables and chairs are from Ikea. They buy local food. The flowers on the tables are from the farmer’s market.”

The ‘new normal’  assumes many forms and foremost among them is the creative use of existing, under-utilized space. So-called “ugly” spaces, whether a run-down strip mall or a corner gas station, are being transformed not by major government development initiatives or big banking schemes but local elements. These local forces include both expansion-minded entrepreneurs and cost-conscious civil society elements, only the former of whom I will discuss today.

The most unproductive spaces of all within many municipalities are government mandated, free market abridging parking spaces. Most of these spaces exist because of maximal parking requirements that are a major drag on municipal productivity. They drive up construction costs, waste infrastructure taxes, harm the environment via impervious surface runoff and inflict many other ills well-documented by Donald Shoup in “The High Cost of Free Parking“. Recently, some of these spaces have been smartly used by food trucks.

Food trucks though face enormous regulatory hostility from local governments.

Even as their popularity has spread from major urban centers (SF, Portland, Boston) to smaller municipalities (Cary, Everett), the barriers to entry and stability have been almost uniformly erected by local governments. Bureaucratic inertia (rules written in the 1980′s), protectionist cartel mobilization (restauranteurs unreasonably view food trucks as existential threats), and complex, even conflicting regulations from different departments (Transportation, Public Health) continue to exact a heavy price from food truck operators. While they have organized and even crafted inventive solutions to common problems such as renting a private lot and offering transparent food safety assurances, their efforts in every city will only be successful if common citizens unite with uniquely qualified individuals and organizations such as the Institute for Justice to uphold free market principles and consumer choice.

Nevertheless, unless they are strangled in most locales by a noxious mix of government and incumbent businesses, food trucks are part of a changing work culture that meets an emerging market need.

“We’re knee-deep in the era of 15-minute lunch breaks and work days that extend far past our dinner times. The reality of ever-longer hours has cut across class lines. “

In the best case for a municipality’s development, food trucks and gas station eateries can even be a part of a DIY district, where inventive repurposing of existing space revitalizes under-performing areas of a municipality. A common thread of these larger projects is the removal of onerous government regulations, such as parking requirements and strict Euclidian zoning separation of land-uses, that greatly raise the cost of startups and impede synergies that develop from multiple combinations of “live-work-play-meet” market demands.

Most intriguingly for local or smaller businesses competing with their often subsidized competitors in national and regional chains, this is part of a longer trend since the Recession of what UNC  entrepreneurship professor Ted Zoller describes as:

“People, craving a genuine product, are turning to homegrown businesses and moving toward destinations that provide a sense of belonging to a community and the opportunity to be part of the scene…”

Spare Parts

Crony capitalism receives more prominent attention via the Atlantic’s October issue. Gregg Easterbrook takes aim at one of the grandest corporate thieves, the tax-free NFL and its legions of public welfare needy owners.

Considering the public fiascoes in Miami over the Marlins stadium, Minnesota’s nearly half a billion dollar gift to the Vikings and other continued flagrant violations of public interest, I will not hold my breath for any actual progress.

I do love this proposal though:

The NFL’s nonprofit status should be revoked. And lawmakers—ideally in Congress, to level the national playing field, as it were—should require that television images created in publicly funded sports facilities cannot be privatized. The devil would be in the details of any such action. But Congress regulates health care, airspace, and other far-more-complex aspects of contemporary life; it can crack the whip on the NFL.

If football images created in places funded by taxpayers became public domain, the league would respond by paying the true cost of future stadiums—while negotiating to repay construction subsidies already received. To do otherwise would mean the loss of billions in television-rights fees. Pro football would remain just as exciting and popular, but would no longer take advantage of average people.

The ‘next big thing’ obsession of municipalities and regions is often central to these public treasury abuses, as they seek the next big thing that can restore, revamp or just further entrench their status among counterparts in America and the world. Nor rarely can the ‘white elephant’ complex  be far behind as governments chase the highly improbable.

Not for the last time, may I add that civic spirit does not exist in modern America?

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Meanwhile in my new home of Raleigh, we have a classic one-sided “woe be the inner urban poor” story.

So it’s clear to Johnson and her neighbors that someone wants them out – their apartments knocked down and replaced by something more profitable.

The potential sale of 245 apartments for lower-income people has reignited long-simmering fears that downtown Raleigh’s rebirth will crowd out poorer neighbors to the south and east, swallowing up blocks suddenly turned valuable.

For most communities, the obsession by some on the Left for housing equality access taking precedence over infill development is terribly misplaced.

Raleigh’s struggles to overcome its own underutilized urban core are only intensified by these theatrics which accomplish little and undermine much.

Maximizing the productivity of core areas with excellent development potential is an act of social justice in itself, improving countless vital metrics across the board from tax revenues to public service provisions (transit, policing, schools). Concerns that people will be pushed out are valid but ultimately far less consequential than the benefits that accrue from that process.

The brutal truth is that we are in a time where the government (federal, state or local) does not have the means nor the will to subsidize people to live in prime urban real estate at a great discount and at the expense of long-term societal improvement via revitalizing downtown cores in suburbs, cities and towns.

The valid concerns about this process can be addressed by (not a conclusive list):

  • improving transit service (including adding more flexibility into the system) in suburban areas,
  • reforming discriminatory zoning codes in suburban areas that tilt multi-family development away from broad appeal and greater income accessibility,
  • revitalizing and in some cases creating new foundations of non-profit support of the working poor and the fixed-income elderly

Certainly, I have much more to say about this, especially regarding that above list. That is for another time…

Disassembled Watch I

The first in a continuing series of posts on America’s governments going broke or something close to it….

“Here’s a feature of Obamacare you probably don’t know about: A transfer of hundreds of billions of dollars in liabilities to retired public employees from state and local governments to federal taxpayers.”

Via Josh Barro, who is a ruthless critic of the GOP while brokering little tolerance for the stunts of Democrats, here is evidence of a serious backdoor bailout of irresponsible state and municipal governments. Federal taxpayers take the hit for this if its successfully implemented.

Why do I find this important?

Urbanist critics on the Right have scoffed at the prevailing narrative on recovering cities with some accuracy that cities have unique fiscal vulnerabilities related not only to badly managed public pension systems but overgenerous public sector retirement compensation. This represents nothing less than an absolute game-changer on that charge.

Workers were promised significant retirement health benefits that start upon retirement and transition into supplemental coverage after age 65. Very little of these benefits were pre-funded and their expense alone was enough to torpedo municipal budgets in the coming years.

With this policy, Pres. Obama has altered that ominous backdrop dramatically. Local and state governments can now transition public workers from these expensive plans to cheaper ones provided on the relevant ACA exchange. Recall these plans are subsidized by the government for all but the wealthy.

Hundreds of billions of dollars in liabilities disappear off municipal and state accounts within the next two to three years. Worse, the amount is far greater because local governments are among the biggest offenders of underfunding liabilities and unlike states, we have little research on how much exactly they owe.

If we accept the narrative that we are going broke, one way or another, for one set of reasons or another, this is a damning ‘nail in the coffin’.

Absolute transparency in municipal budgeting gains more urgency with this development. The money saved at the municipal or state level should be returned to the taxpayers who will inevitably pay higher federal taxes as the federal deficit increases.

Of course, if we believe that will happen….

The Good Schools Property Value Bubble?

The first of an ongoing series about the ‘future foundation’ of our land-use patterns…

The spread of charter and magnet schools, online education and personalized albeit remote tutoring capacity has left me thinking: ‘what happens to land value premiums assigned to ‘good school districts’ if ‘the ‘spatial relationship’ that most home-buyers account for no longer matters as much?

When successful charter and magnet schools widen availability to counties at large or even metropolitan areas (multiple counties), what will that do for families who have bargained away income security for a home in the better school districts? This was always a high-risk, high-reward choice, one Dr. Dan Abbott rightly uses to enrich Elizabeth Warren’s (in)famous “two-income trap” theory.

Dr. Abbott:

The bidding war for good schools, along with the breakdown of widespread sexual discrimination, encourages both men and women to work, and use the excess income to buy housing near a good school. This means that if the husband loses work for whatever reason, the wife cannot temporarily increase the family’s income by taking additional part-time work. Further, in the event of a medical emergency in the family, the wife cannot act as a “free” caregiver. In both cases, America’s two-earner encouraged by our bad schools increases the financial risks of families, and thus increases domestic violence, divorce, and economic ruin.

I am not claiming that the current model prevalent from the metropolitan areas of Boston, Chicago, Dallas, etc., will suddenly halt overnight, leaving wealthier families who bought homes in the best school districts on the outside looking in as poor kids come streaming into formerly exclusive or nearly-exclusive schools.

However, the charter school movement may yet move beyond its current restraints and experience a string of tangible, lasting successes. Magnet schools will proliferate further, as will vocational schools such as those in FL incubating the industry-specific educations of fledgling medical professionals.

Besides, I can see a storm on the horizon that threatens to gore many sacred cows, including that of public education’s unique claim on public resources re: property taxes, about which I will have more detailed thoughts forthcoming.