BATTLECALL GUEST EXPERT: Robert J. Abalos, Esq., InvestingInLand.com

Smart Growth land planning is the latest attempt by government and anti-sprawl advocates to regulate development in and around urban areas. The effort certainly cannot be faulted since low density single use development has led to urban migration and suburban sprawl that has left both the cities and the suburbs suffering from the unintended but nevertheless negative effects of new commercial and residential development. The bottom line question for land investors and real estate developers is simple:

"Is Smart Growth good for me?"

What is "Smart Growth"?

Everyone essentially agrees on the problem confronting land use planners. The migration of the middle class out of cities over the last fifty years has continued virtually unchecked towards the suburbs. There is a small reverse trend among young singles, retirees, and others who are leaving suburban life for the action and nightlife of the cities but the overwhelming trend is that traditional cities are losing population at the expense of the newly created suburban belts surrounding them and all available demographics suggest this will continue into the future. It really is simple to understand. Married couples with or expecting children want to purchase their own single family homes in communities with low crime rates and good school systems, something few old cities can offer them.

But the migration to suburbia is causing many problems of its own. Suburban sprawl caused by unclustered single use low density zoning means the automobile is a necessity to go anywhere and the resulting traffic jams are a daily nightmare. Suburban roads filled with endless miles of fast food restaurants, car dealerships, discount stores, and strip malls separated only by traffic lights every few hundred yards is certainly a form of blight no less ugly than classic urban decay. Suburban communities are forced to build roads, schools, fire stations, and all the other infrastructure to welcome these new residents meaning a spiral of higher property and other taxes to pay for these improvements. Anyone who has been to the suburbs around Washington, D.C. or Seattle, Washington or Los Angeles (among many other places) knows you could double the number of roads and the tax base used to build them and little would improve. More cars from more new subdivisions would fill these new roads faster than they could be built. And, of course, environmentalists protest against the loss of "green spaces" around cities and all the smog and pollution automobile traffic brings as well as the loss of family farms, historical sites, potential parkland, and other facets of natural life.

Enter the idea of "Smart Growth."

Smart Growth is intended to more or less balance the needs of urban and suburban planners, developers, and environmentalists. The basic tenants of any Smart Growth Land Use Planning program are:

• To encourage mixed-use suburban development and infill development in cities wherever possible, including the improvement of brownfield sites and the redevelopment obsolete buildings like warehouses and factories.
• To make it easier to permit new development near existing and underutilized public infrastructure.
• To permit UNSUBSIDIZED new suburban development outside selected development zones, therefore not bringing a "no growth" scheme to an area but just eliminating financial incentives towards suburban growth that may currently exist .
• To concentrate suburban development into new town centers near existing transportation facilities.

All the dogs at the table seem to get a bone. The city and suburban government officials get new development but managed at their level to meet their needs, namely preservation and expansion of their property tax bases, managed population control, and avoiding the need to build new infrastructure by taking full advantage of whatever already exists. Developers get streamlined and permitting certainty in some targeted areas BUT are also free to develop outside these targets if such projects are economically viable without direct or indirect public subsidies. Environmentalists get a de facto regulation of new projects in current green spaces since developers will face higher and unsubsidized costs by building outside targeted areas and many will not choose to bear these costs without public financial help and simply abandon these projects since the numbers make them no longer profitable or viable to investors and bankers.

Does Smart Growth Work?

It sounds too good to be true. Well, of course it is.

When trying to balance the mutually exclusive needs of FOUR groups, many sacrifices need to be made. Depending on the area, it is usually the developers coping with the most serious pain.

In theory and in limited practice, Smart Growth makes total sense. Infill development is a great way to make money as a developer, especially when it is subsidized and the permitting process greenlighted by city officials. The same is true with the redevelopment of brownfields or obsolete buildings like warehouses, abandoned schools, or derelict factories. No one is going to argue that old buildings that could be put to viable uses should remain decaying or that empty lots that could hold new apartments or offices should stay vacant. The same is true of taking full advantage of existing infrastructure. Why not permit higher densities near existing subway stops or along underutilized roadways? This is all common sense and should be the basis of all land use planning.

BUT Smart Growth ignores other basic and essential issues in its drive to achieve a universal solution to regional growth. The reason people leave cities for the suburbs is not because of the lack of affordable housing (something infill development seeks to ameliorate). They do so for quality-of-life issues like lower crime, better schools, more public parks and recreation. Smart Growth is a band-aid attempting to stop or slow down suburban development as a way of forcing people to stay where they do not want to live now. Wouldn't improving the schools or making the streets safer be another common sense alternative? There is also the inevitable problem that people want to own single family houses, it literally is the American Dream. Cities can't compete here, there just isn't enough land or space, especially when the trend is towards higher densities not lower ones.

Permitting unsubsidized (and expensive) suburban development in non-targeted areas maintains the "smart growth versus no growth" fiction but in reality these projects will get built, continuing to eat away at the green spaces the environmentalists fight so hard to protect but there will be one inevitable difference. Since the costs of these developments will be higher, the projects will cater more toward the wealthy than the middle class. The financial disincentives against new suburban development and towards urban infill will keep many middle class residents in the city where they might not want to be but the wealthy will go wherever they want to live. This just further exacerbates the current trend of poor cities surrounded by wealthy suburbs.

Smart Growth should not be considered a failure. What it does do is embrace the obvious, that available city land with lots of infrastructure should be put to use before new virgin land in the suburbs is cleared. To the extent it accelerates new development at lower costs for more residents wanting to live in the city it is successful. But it ignores reality on many levels. Most people do not want to live in mixed-use communities. In other words, most employees do not want to live in the shadow of their office building. Some might want to for the sake of convenience but most want some distance from the people and place they work at all day long, even if it is just a few miles. Most people want to live in their own detached homes with backyards for cookouts and volleyball games. Many people are willing to return to city life but most people aged 25-50 do not, especially if they have children or want them soon. Old fashioned town center development sounds like a solution and for many it is. But people have grown up with their cars and telling residents a supermarket is a ten minute WALK away from their homes is not a real solution. It's the little things that doom these sorts of communities to novelty status, like the fact no one wants to walk ten minutes in hot and humid July weather with bags of groceries when a Food Lion or a Kroger's is a short drive away. Is the only reason to shop at a store is because it is close to your home or in the same community as your office? Of course not, people will still drive and use their cars, perhaps a bit less but the difference isn't worth all this effort.

Smart Growth does not eliminate the need for new roads, or avoids the building of new low density subdivisions, or ultimately preserves greenspace that would otherwise have been turned into fields of gray asphalt. What it does is slow things down and makes infill and redevelopment projects that looked great on paper even better in reality but at the expense of middle class people who get priced out of suburban homes they currently want to own and can buy under the status quo.

Being a Land Investor and a Developer in a Smart Growth Area

The bottom line is simple. You build wealth and profit by exploiting the investment and development opportunities available in front of you, whatever they are. As I have previously written, infill development is a great way to make money. When you have your city willing to greenlight your permits and even subsidize your projects with low-interest loans or tax abatements, you have an ever better way of making money. Why not exploit it? The capital of land investors should flow, just as my Course teaches, to the land that will permit the FASTEST and MOST CERTAIN development to maximize profits over the shortest period of time. Where in a Smart Growth area do you think that would be?

Developers need to think beyond their expertise and towards the opportunities available all around them. For example, I know many builders who do nothing but single family home construction. Fine, but when building that type of housing becomes increasingly expensive under Smart Growth why not learn how to build other types? Even better, why not learn how to build other types of housing NOW should Smart Growth come to your area?

For investors and developers, Smart Growth offers many new profitable alternatives for profit that previously did not exist but it does close down others which may have been relied upon for years. The optimist will look at all the new money to be made, the pessimist will cry about all the old money they could have made but never will. Anytime the government decides to make the lives of developers easier or offer subsidies of any kind I want to be the first in line to see if I can figure out how I can make a profit using this largess. I do not stare a gift horse in the mouth, I reach in and start grabbing every free horse I can find. Maybe I can figure out a way to profit under some new government program or initiative, maybe I can't. Maybe I'm giving up opportunities I had in the suburbs for newer ones in the city. What do I care? The goal of a land investor or developer is to make money and build things WHEREVER they can be profitably done in your local area. Why recognize county lines when money can be made just over the imaginary border?

Additional Resources on Smart Growth

Smart Growth is no panacea and even communities that have tried it admit its not the perfect solution they wanted. The State of Maryland is currently the Smart Growth leader and you can visit its Smart Growth website by clicking here.

Utah has a Smart Growth program under the Utah Quality Growth Act of 1999 and a program called Envision Utah. You can read more about Envision Utah by clicking here and the Quality Growth Act by clicking here.

Both Maryland's and Utah's notions of Smart Growth are fairly representative of what is out there on the public level. Lots of communities have Smart Growth paradigms. They are quite common although many will be called by other names than Smart Growth. When the goals of the program look like Smart Growth as described above, it is one regardless of the name it is given. If it quacks like a duck and walks like a duck, it isn't a dog or a giraffe.

Want to see what a planned community built under Smart Growth looks like? Orenco Station in Portland, Oregon is a 190-acre community in the western suburbs of Portland that has won much praise for its town center based development. Click here for the community's website.

For an EXCELLENT article on another Smart Growth community, Prairie Crossing in Grayslake, Illinois and how it was built, click here. There is lots of information in this article useful to developers on how to build these sorts of communities.

Developer and author David O'Neil has done a great deal of writing, research, and community outreach on the subject of Smart Growth, especially in conjunction with the Urban Land Institute. He has written a super book for community activists and government officials called THE SMART GROWTH TOOL KIT (ISBN 0874208424) published in February 2000 by the ULI which offers developers a look at all the techniques used by activists when attempting to create Smart Growth paradigms.

The ULI itself has many, many articles on Smart Growth in their archives and you can search for them by clicking here.

Got an opinion? We want to hear from you. Post your thoughts or comments here in our Mortgage Warrior Forum. Come join the conversation and say hello...onward mortgage warrior!

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