Is Sprawl Really What People Want?

Economic Incentives Spur Expansion

October 9, 2005
By FRED V. CARSTENSEN

Sprawl. The term conjures up images of self-indulgence, indifference, lack of civility. Such images may not be inappropriate when we look at what is happening to Connecticut's landscape, as it is eaten up by residential subdivisions and strip malls.

Some argue that such a pattern of development threatens the famed quality of life that Connecticut has long offered. Others see it as wasteful and threatening to the environment. Still others defend it as simply a lifestyle choice, as a reflection of individual preferences that, as Americans, we have always held in high regard.

Whatever side is right, one thing is certain: We cannot know whether sprawl is the result of individual preferences. We cannot know because the core economic incentives line up to support sprawl. That is, to put it simply, the incentives in the market encourage people to choose sprawl. And thus they do. But these incentives are misleading; they don't correctly reflect economic reality.

Consider: The primary influence on choosing where to live is the ability to get a mortgage. The bigger the mortgage, the more house you can buy. But in qualifying for a mortgage, the primary consideration is what share of household income must go to principal, interest and taxes. The process does not consider what services those taxes pay for. So what if a town with no paid firefighters, no garbage service and no police force has low taxes? A household still must bear the costs of such services; they just don't show up in the mortgage calculation.

And choosing a house far from core municipal services or public transportation means that a family with multiple cars, SUVs or pickup trucks may spend 15 percent of its income on personal transportation, rather than 5 percent or less in a household near town centers. But this cost doesn't show up in the mortgage calculation. And all that personal transportation creates additional wear and tear on transportation infrastructure, increases air pollution and generates other costs largely borne by the community as a whole.

When you add Connecticut's highly fragmented municipal structure, its excessive reliance on local property taxes and the resulting "beggar thy neighbor" development strategies that most towns pursue, you have a perfect recipe for generating lots and lots of sprawl.

Sprawl is not inherently a lifestyle choice. It results from the perverse incentive structure of mortgages, the pressures on local governments and the unwillingness of the people of Connecticut, through their elected representatives, to change the rules.

Changing the rules, and thus the incentives, so that prices reflect true costs is no easy task, even if there is the political will. It would probably require adoption of a coordinated set of mutually reinforcing policies - some of which might be radical.

These policies might include significantly strengthening the role of regional planning organizations and councils of government, imposing higher gas taxes or, much better - given the available technology - imposing congestion cost pricing. We should improve public transportation on several fronts; transit investment garners benefits such as reduced congestion, cleaner air and less energy use.

We should consider having the state pre-empt all local business and commercial property taxes with a uniform state levy, with the revenues redistributed on a regional basis, perhaps by federally defined labor market area. In such a policy environment, individuals would see more clearly the true costs of their choices of location, surely diminishing sprawl. Perhaps more important, municipalities and regional planning agencies would have good reason to work together, strengthening their regions rather than engaging in internecine economic warfare. And that would be an outcome much to be desired.

Fred V. Carstensen is a professor of economics at the University of Connecticut and director of the Connecticut Center for Economic Analysis.