Suburbs are a Scam: A Case Study of American Cities

Are Suburbs a Solution or a Scam?

American cities are well-known for their reliance on automobiles. After apple pie, baseball, and soul-crushing traffic, that's probably one of the first things most people connect with America. However, this was not always the case. American cities do not have to be expansive just because the country is large. And they weren't until the Second World War. They were as compact as most cities have seen elsewhere. However, after the 1940s, America launched a new pattern of growth and embarked on its great suburban experiment. But herein lays the problem: this American style of growth creates areas that cannot sustain themselves financially. And the only reason they remain is that American cities are a Ponzi scheme.

If you are unfamiliar with the term "Ponzi Scheme," it is a type of fraud in which a scammer provides a fictional investment opportunity with a high return on investment. Investor A arrives and makes an investment. Now, the scammer does not have the funds to reimburse investor A if he wants his money back. So he hires another investor, B. He utilizes money from investor B to pay investor A while keeping a bit for himself. But how does he pay investor B? He just brings in investors C, D, E, and so forth. This works out well for our con artist. But when that growth ceases, he has a major problem. In the end, all Ponzi Schemes fall; it's simply a matter of when.

Since World War II, cities in the United States and Canada have been created exactly according to this concept. Growth is essential for American-style suburbia to remain financially viable. Everything begins to come apart the moment these cities cease developing, whether due to a financial crisis, a fundamental change in the labor market, or any of several other circumstances. Unlike financial fraud, the generation that initiated this practice did not do it on purpose. America was an affluent country after WWII. With low-cost vehicles accessible, it appeared that every American might buy their own house on their own plot of land, and the American Dream was created.

This got so ingrained in American mentality that practically everyone in the country accepts the notion that "suburban expansion leads to wealth." The same is true for Canada. Part of the issue is how suburban development is funded. When the suburbs first appeared, cities were granted large sums of money from the federal and state governments to expand their suburbs. This is still going on today. For example, when a city wishes to build a new road or expressway, it normally provides less than a fourth of the financing. The Department of Transportation and other higher levels of government are responsible for the vast majority.

They collect taxes from new projects built around that infrastructure, and those payments are used to fund future upkeep. A significant issue arises when there is insufficient tax income to meet the infrastructure repair expenditures. That is precisely what has occurred in car-dependent suburbia. Because car-centric sprawl is quite costly. Consider a new suburban house development on the outskirts of town. In this situation, the developer pays for the entire roadway and passes it over to the city for upkeep. The inhabitants move in and begin paying taxes. This could not be a better situation for the suburban municipality. This is fantastic: free development, free roads, and a deluge of fresh tax income.

In this situation, the municipality would set aside a little sum of money for road upkeep. So, how would this play out in an American suburb? Initially, roadways do not require much upkeep. They may require minor repairs, such as crack filling, but new streets are often inexpensive, thus the suburban city's cash flow looks somewhat like this. Everything appears to be in order until the conclusion of the street's life cycle. Because all streets and roads require resurfacing at some point. If the city were only this one street, it would be bankrupt already. Cities, on the other hand, are made up of hundreds of streets and separate projects.

Assume a new development every other year, with future developments offsetting the cost of previous ones. As you can see, expansion covers the problem, and the city is now financially solvent. That's fantastic! Let us continue to build! Lots of asphalt and free parking for everyone! However, after a few generations, the maintenance commitments of the past begin to catch up with you. Because when you lose money on every advancement, you don't make it up in volume. It's vital to emphasize that this is an ideal example, as this model implies near-constant growth.

In actuality, cities go through times of expansion and phases of decline, and the issue is exacerbated since these expanding infrastructure liabilities tend to appear precisely as a period of growth is coming to an end. Many Americans dismiss this by stating that cities do receive adequate tax income, but that it is all lost due to corruption, inefficiency, unions, or whatever. However, most American suburbs barely earn a fraction of the tax income needed to fund their extensive infrastructure. A city's costs extend far beyond roadways, including sewer and water systems, walkways, treatment systems, pumps, water towers, and stormwater pumps. As well as the operational expenditures associated with running a city, such as police and fire agencies. You can't just wave your hands in the air and shout, "Inefficiencies, inefficiencies, inefficiencies."

Canada does not lag behind. According to Halifax regional government research, the cost of maintaining and servicing an urban home is less than half that of suburban property. However, in most North American cities, suburban homes pay less in property taxes. As a result, car-dependent suburbia receives an effective subsidy. Don't get me wrong: our cities desperately need affordable housing. But the solution is not to fund the city's least efficient and least sustainable developments. As a result, car-dependent suburbs are not financially viable. The amount of taxable income generated by the suburbs does not meet the expense of infrastructure replacement.

So suburban communities get hooked to expansion, any type of growth, including second-rate taco eateries, merely to bring in enough tax money to pay their maintenance commitments. But we've got several generations of this suburban crap. Several life cycles of road, water, and sewer replacements. Suburbia, however, persists. So, how do car-dependent suburbs survive? Why is this still a thing? And what has kept it afloat all these years? The solution is debt. Heaps and lots of debt.