In the Statesman yesterday, Michael Rose wrote about an industry-sponsored study of the benefits of home building. Notably, the study appears to omit the costs of key current and planned road projects, and consequently significantly understates the overall cost to serve most new development.
More generally, as you might expect from a piece commissioned to buttress a particular case, the study is much stronger on benefits than costs.*
During boom years, housing subdivisions have mushroomed across Salem. Neighbors, worried about traffic problems and crowded schools, often have raised concerns about growth.
But the home builders study (benefits) and part 2 on costs suggests that Salem residents "should be thanking the building industry" for generating tax revenues and paying fees that help fund city services, [study author Elliot] Eisenberg said.Here's a $500 million project, designed to support new development and other growth, that wouldn't be paid for by tax revenues or fees on new construction.
The economic study looks at the impact of the home building in three phases: the construction phase, the ripple effect and the occupancy phase. It then compared costs of services to support new development, such as education, fire, police, parks and roads.
This is a terrific example of an externalized cost. As new housing is built farther from the city center, requiring longer commutes to employment and longer trips to essential retail, the costs to service those trips are shifted from the new construction, and those who choose to live in it, and spread around regionally for everyone to subsidize. New construction does not capture and incorporate these costs; rather, it externalizes these costs.
Rose cites the City of Salem in defense of the growth:
Growth is a break-even proposition for the city's budget, according to city officials. Increases in property taxes and fees paid by developers are roughly on par with the cost of providing additional city services, they said.But it is difficult to understand how this could be true. The study didn't include the proposed third bridge. Nor did it include the $100 million "Keep Salem Moving" road bond, many of whose projects are not merely inner city maintenance, but rather are substantial road expansion projects designed to support new development on the city's edges.
If all growth was "a break-even proposition," new construction alone would fund the bulk of projects like these.
Not all construction is equal. By itself, new construction and growth can be good or bad. There's smart growth and there's unsustainable and ugly growth. Readers will know I'm a fan of Waterplace and Broadway Commons, for example. Significantly, these are infill and redevelopment projects. (They may also take advantage of urban development subsidies - but that's another topic.)
The Home Builder study is focused on first-time development on the edges of the city. While construction is a central part of the economy and housing starts remains a key index of economic health, centrifugal development on the outer edges of cities is neither sustainable nor a "break-even" proposition.
* Readers with a stronger economics background may have other observations and criticism. In table 1 on the cost side, the report includes: Education, police, fire, prison, water and sewer, health, recreation, general government, electric, and transit. No cost amount for road infrastructure to serve new development. That alone is a significant omission.