Why American Cities Are Broke - The Growth Ponzi Scheme [ST03]

[Music] welcome to the third video in my strong town series if you have no idea what strong towns is about you might want to watch the first two videos but it's not strictly necessary american cities are famous for car dependent sprawl that's probably one of the first things most people associate with america after apple pie baseball and driving and soul crushing traffic but this wasn't always the case american cities don't have to be sprawling just because the country itself is big and up until the second world war they weren't they were just as compact as cities found almost anywhere else but after the 1940s america started on a totally different pattern of development and began their great suburban experiment but herein lies the problem because this american pattern of development builds places that do not financially support themselves and the only reason they're still there is because american cities are a ponzi scheme if you don't know what a ponzi scheme is there are many videos on youtube but the very quick explanation is as follows a scammer offers an imaginary investment opportunity offering a huge return on investment investor a comes along and invests now the scammer doesn't actually have the money to pay investor a if he wants his money out so he takes on another investor b he uses the money from investor b to pay investor a pocketing a little for himself of course but how does he pay investor b easy he just brings on investors c d e and so on this works out great for our scammer but the moment that growth stops he has a very big problem in the end all ponzi schemes fail it's just a matter of when one of the key insights of strong towns is that the way that u.s and canadian cities have been built since world war ii follows exactly this model american style suburbia is dependent on growth to stay financially solvent the moment these cities stop growing because of a financial crisis a radical change in the job market or any one of a number of other factors everything starts to fall apart strong towns calls this the growth ponzi scheme now unlike financial fraud the generation who started this process didn't do it intentionally after world war ii america was a prosperous country and with low-cost automobiles available it seemed possible that every american could own their own house on their own piece of land and the american dream was born this became so central to american psychology that the idea that suburban development provides prosperity is taken as fact by almost everyone in the country and the same goes for canada too part of the problem is how suburban growth is financed when the suburbs began huge amounts of money from federal and state governments were given to cities to build out their suburbs this still goes on today for example when a city wants to build a new road or freeway usually less than a quarter of the funding comes from the city itself the overwhelming majority comes from the department of transportation and other higher levels of government so cities don't have to pay very much to build new infrastructure but they do get a big influx of tax revenue from the new developments that spring up this brings us to the first problem it encourages cities to build lots of new developments even if they don't make any financial sense of course all this new cheap infrastructure comes with a very important catch the city may get it built for cheap but the city is ultimately responsible for paying to maintain that infrastructure forever on the surface this is fine governments want to invest in their cities because they are the engines of economic growth and for the city this should be fine too they collect taxes from the new developments that spring up around that infrastructure and those taxes go towards future maintenance the big problem begins if there isn't enough tax revenue collected to cover the replacement cost of the infrastructure and that is exactly what has happened with car dependent suburbia because car centric sprawl is horrendously expensive to explain this problem further i'll use the example of a quote ideal development that is often used as an example by strong towns imagine a new suburban housing development on the edge of town in this case the developer completely pays for the street and turns it over to the city for maintenance the residents move in and start paying tax revenue this couldn't get any better for the suburban municipality free development free road bunch of new tax revenue this is awesome now the municipality in this case would put a little bit of money aside for the maintenance of that road so what would this look like in an american suburb well at first streets don't need a lot of maintenance they may require some minor repairs such as filling cracks but in general new streets are pretty cheap so the suburban city's cash flow looks something like this everything looks pretty great until the end of the street's life cycle because eventually all streets and roads need resurfacing so suddenly the graph goes like this if the city were just this one street it would already be bankrupt but cities aren't just one street they're made up of hundreds of streets and individual developments so assuming a new development every other year a real growing city's cash flow would look something like this with new developments covering the cost of past developments as you can see growth covers the problem and the city is financially solvent again yay this is great let's build more lots of asphalt and free parking for everyone but when you get a couple of generations into the suburban experiment the maintenance obligations of the past start to catch up with you suddenly your suburb's finances start to look something like this because when you lose money on every development you don't make it up in volume now it's important to note that this is an ideal case as this model assumes near constant growth in reality cities have phases of growth and phases of decline and this situation is made even worse because these growing infrastructure liabilities tend to show up just as a period of growth is over many americans like to brush this off by claiming that cities do actually collect enough tax revenue but it's all lost to corruption or inefficiencies or unions or whatever but the reality is that most american suburbs collect only a fraction of the tax revenue required to actually finance their sprawling infrastructure strong towns has several case studies about this such as this example of a suburban road that needed resurfacing in order for the residents to cover just the cost of their own road the city would need an immediate 46 increase in property tax and there are so many other costs to a city beyond just roads such as sewer and water systems sidewalks treatment systems pumps water towers storm water ponds as well as all the operational costs of running a city such as police or fire departments you can't just brush this off by waving your hands in the air and saying the efficiencies efficiencies efficiencies efficiency worst case scenario have no problem with parking taxes no efficiency i'll link to this and other cases by strong towns in the description and canada is not much better an analysis done by the halifax regional municipality found that the cost to maintain and service an urban home are well less than half that of a suburban home but in most north american cities the suburban home pays less property tax this leads to an effective subsidy for car dependent suburbia now don't get me wrong our cities need affordable housing but the solution is not to subsidize the least efficient least sustainable developments in the city but that topic deserves a lot more explanation so i'll talk about that in more detail in a future video so it's clear that car dependent suburbs are not financially sustainable the amount of tax revenue collected by the suburb does not cover the replacement cost of its infrastructure and so suburban cities become addicted to growth any kind of growth even second-rate taco joints just to bring in enough tax revenue to cover their maintenance obligations but we've had several generations of this suburban garbage several life cycles of road water and sewer replacements but somehow suburbia is still there so you might be asking yourself how are car dependent suburbs still around why is this still a thing and what has kept it afloat all these years well the answer is debt lots and lots and lots of debt but i'll explore that in the next episode of this series on strong towns i'd like to thank my supporters on patreon who pay me to copy strong town's homework if you'd like to donate to strong towns visit strongtowns.org membership or if you'd like to support this channel and get access to bonus videos visit patreon.com not just bikes you

Channel: Not Just Bikes

Views: 3,028,750

Keywords: urban planning, american cities, american suburbs, municipal finances, bankrupt cities, bankrupt cities in america, the growth ponzi scheme, strong towns, strong towns growth ponzi scheme, canadian suburbs, bankrupt canadian cities, suburbia, american cities vs european cities, american cities are falling apart, american cities in decline, Charles marohn

Id: 7IsMeKl-Sv0

Length: 9min 39sec (579 seconds)

Published: Mon Jan 11 2021

Reddit Comments

[u/[deleted]]

great channel. America's policies are good at milking the value of cities without investing into them

[u/Owahwee]

I agree, great YouTube channel

[u/Owahwee]

Sub to this mans Channel it is amazing!

[u/[deleted]]

How do the size of roads and houses in the suburbs affect finances? Some places are obviously not cost effective, but what about suburbs with smaller yards and closer spacing? Or what about inner suburbs? What about even denser places like Japanese suburbs?

[u/Kerguidou]

It's definitely a problem we have in Québec. Cities have almost no power. They don't have powers to raise the money the need, but they have tons of responsiblities. They are also not allowed by law to have a deficit. And the provincial government can swoop in at any moment and make decisions for the city.

So, we do see a lot of what this video describes, for exactly the same reason. The single family home suburbs can only survive and fulfill their obligations by adding new developments.

[u/ragggaerat]

Three words . Bond rating Agencies

Edit

Also 3 companies due to monolpoly

[u/SerBreezy]

I found this sub after these videos peaked my interest in the topic. Funny seeing things come full circle

[u/Blog_15]

Just discovered not just bikes too! His strong towns series is great, the rest is great too if you can get over the amsterdam circlejerking.

[u/ram0h]

damn that is a good point