Why is Master-Planned Development Less Financially Resilient?

There are two aspects to the Strong Towns critique of America's suburban experiment—the prevailing model of development that we, as a country, embraced in the years following World War II, and that still predominates today.

One critique is that much suburban development is financially unproductive. What we mean by this is that it does not generate enough public revenue to cover the cost of the government services it requires—and, in particular, the maintenance of the infrastructure that serves it.

The other critique of the suburban experiment is that it is not a very resilient approach over time. In our modern, suburban era, development tends to be done all at once, at a huge scale, and to a finished state. This critique applies not only to prototypically "suburban" environments like houses on cul-de-sacs, but also to often much denser and taller urban environments such as a "lifestyle center," "entertainment district," or "manufactured downtown."

The critiques of these two aspects of the prevailing model of development in modern America are separate. They are related, but it's important to understand some key distinctions.

Value Per Acre: An Important Part of the Story, but Not the Whole Story

One way you can analyze the productivity of your city's development pattern is tax value per acre—how much wealth is being generated on a given area of land to pay for the infrastructure and services needed. But it doesn't always tell the whole story. Value per acre is largely a function of the intensity of land use. The more productive economic activity is concentrated in a given area of land, the more that real estate will likely be worth, and the greater the tax revenue it will likely produce.

Value Per Acre Resources:

If you try to compare a master-planned "entertainment district" to a traditional downtown on the basis of value per acre alone, you're likely not to find a stark contrast. In fact, mixed-use districts are sprouting in many American suburbs that are far denser—more residents and/or more businesses per acre of land—than their conventional suburban surroundings. On a pure value-per-acre basis, these projects may look quite good. But that metric fails to consider two things: the costs to the public of pursuing such projects, and their long-term prospects as succesful, productive places.

Why "Entertainment Districts" and Other Master-Planned Developments Fall Short

Some common pitfalls of master-planned development are the following:

1. It's not resilient in the long run. Picture an area of several blocks with a narrow, low-speed street, lined with storefronts and generous sidewalks—a typical walkable urban environment... except that it's completely under the control of a single landlord. In effect, these "lifestyle centers" are not unlike shopping malls, just flipped inside out.

What happens when a major "anchor" tenant leaves? What happens when all of the buildings begin to need major maintenance, like new roofs, all at once? Or when the market shifts and a newer, shinier mall opens up a few miles down the road, and a few popular stores decamp to the new location? Or just when the owner misjudges the market and signs leases with a non-optimal mix of businesses for a particular location and time period?

These places are not very adaptable, because the environment is so curated and controlled by so few hands. By contrast, a traditional downtown may have similar urban design, but it consists of many smaller buildings with different ownership, and often of different ages. When one needs repair, its neighbors likely won't. When one store changes hands, another soon fills the space, and the business district as a whole doesn't usually suffer, because other businesses aren't dependent on the same revenue stream, budget, and set of decision-makers.

In the traditional development pattern, the neighborhood as a whole is resilient because individual businesses within it are free to fail (and often do).

2. It runs the risk of dramatic, early failure. The worst-case scenario for a costly, top-down development project is that it proves a total failure and becomes an embarrassing "white elephant" for your city. Minneapolis's "Block E" is an iconic example of this—Nate Hood's "Pitfalls of Entertainment Districts" article (linked above) mentions it, and here's a good in-depth history of it that helps illustrate exactly what can go wrong with this style of development.

Another classic case study is the Memphis Pyramid, which was built to be an NBA stadium, sat empty for years, and was finally repurposes as a Bass Pro store. Strong Towns has published multiple articles on the pyramid that help illustrate why Memphis leaders might have seen it as a good investment for the city, and (more importantly) why they were very wrong:

3. There's a good chance it received an unwarranted amount of public subsidy to build. This is not true in every case. But large-scale redevelopment of an area of several blocks or more is often something that's intensely negotiated with the local government authorities... and often involves various tax incentives or subsidies thrown in to sweeten the deal.

Tax Increment Financing, for example, is a common arrangement used to jump-start master-planned, mixed-use development. TIF effectively dedicates all new property taxes generated by the development for a generation to paying off the cost of that development—denying that revenue to a city's general fund, where it could be used to pay for maintenance of essential infrastructure.

An ill-conceived TIF deal can easily turn a development proposal from a net money-maker for a city to a net drain.

4. There's a good chance it required an exorbitant amount of new infrastructure. Master-planned development undertaken at a large scale is more likely to occupy a large area of previously undeveloped, or under-developed, land. If this is the case, it is likely to require a slew of new public infrastructure: roads, water and sewer pipes, and other utilities. These can constitute an implicit subsidy for the developer, because even if the up-front cost is covered, the life-cycle maintenance costs often will not be.

Here's an accounting of a master-planned "town center" in suburban Milwaukee and the millions in public infrastructure obligations associated with it:

And here's one in urban Milwaukee that is a financially similar endeavor, despite the different setting:

We profiled a Diverging Diamond interchange in Sarasota, Florida in 2014. This interchange, which is notoriously pedestrian-unfriendly, was built at $80 million of taxpayer expense. What the article doesn't discuss is why it was built where it was: largely to accommodate traffic onto and off of a nearby interstate generated by new retail development around the interchange—a mall and many big-box stores, all developed by a single developer.

Imagine if the area had grown through an equivalent amount of new retail and restaurants in the form of small-scale infill development—dispersed throughout already built-up areas with existing public infrastructure, built by many different developers, and ultimately owned by many different owners. That outcome would cost the public much less money to service and maintain, and would be more resilient to economic shifts.

The "entertainment district" model also often aims to create regional destinations, which generate large amounts of traffic and need a lot of land to be devoted to parking. A Strong Towns approach to development, on the other hand, emphasizes allowing and encouraging businesses that meet very local, neighborhood-level needs and reduce the distance that people need to drive.

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