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Local and County Governments
Smart Growth

As communities across North Carolina cope with the challenges of rapid growth in population and economic activity — which are, it should be remembered, far less serious than the problems associated with a lack of such growth — some policymakers are embracing the idea of “Smart Growth.” Unfortunately, this new debate about growth controls, zoning, open space, and housing density in North Carolina reflects too little consideration of the details of Smart Growth policies and market-friendly alternatives.

The Truth About Smart Growth

Smart Growth is a national movement toward greater government control over development, housing, transportation, and consumer choice. Smart Growth typically focuses on four activities: 1) restricting the size of urban areas through growth boundaries; 2) requiring denser development through zoning changes; 3) discouraging driving through higher taxes and less road construction; and 4) increasing funding for mass transit.

A recent poll found that only 18 percent of Americans want the high housing density lifestyle that Smart Growth planners and their political allies offer. Instead of listening to the 82 percent of Americans who want a single-family home in the suburbs, planners use government force to require builders to increase density. In Portland, Oregon, for example, builders are forced to build four 15-foot-wide “skinny” homes on a quarter-acre lot that normally holds one single-family home.

Because the choices of actual families would be subverted, they have little to gain from the new Smart Growth agenda. Smart Growth advocates seek to legislate their aesthetic and economic preferences at the expense of what most citizens desire.

The Role of Excessive Regulation

A 2006 study by economist Randal O’Toole published by the American Dream Coalition demonstrates that home prices nationally have been driven up by Smart Growth urban planning. Cities that have established Smart Growth plans have artificially created housing shortages, in turn driving up prices (see chart, "N.C. Home Prices as a Percent of a Comparable Home n the Median U.S. Metro Area").

That finding largely explains why housing prices in some North Carolina cities have increased rapidly while in others prices have grown more slowly. Asheville and Wilmington, for example, are known for implementing Smart Growth planning and experiencing large increases in their housing prices, while Fayetteville and Hickory have minimal planning and housing prices that have grown much more slowly.

O’Toole documents this relationship by calculating the planning penalty for homes that results when cities implement Smart Growth planning. In North Carolina, Asheville has a planning penalty of $13,901; Wilmington, of $21,675.

The planning penalty is the effect of Smart Growth planning on the price of the average 4-bedroom, 2.5-bath home — it is the amount a homebuyer pays that is above the price the buyer would have paid if the area had no Smart Growth planning.

Other than Asheville and Wilmington, no other North Carolina cities surveyed by O’Toole have planning penalties. In fact, as the graph indicates, many cities in North Carolina have home prices below the prices of homes in the median U.S. metropolitan area. In other words, in many cities in North Carolina, housing is a good buy.

Unfortunately, that’s the end of the good news. Smart Growth advocates are pushing very hard to move all North Carolina’s cities in the direction of Asheville and Wilmington. In 2000 Governor Hunt appointed a Smart Growth Commission, put in charge of finding ways for North Carolina to curb “sprawl” and conserve “open space.” The commission released its preliminary recommendations in 2001, such as requiring all communities to establish a minimum level of planning, creating financial incentives to enact smart-growth planning, and establishing “Research North Carolina,” a network of state researchers and organizations to research growth and development patterns.

Davidson, Charlotte, and even the Raleigh suburb of Knightdale have begun enacting Smart Growth policies. Davidson adopted an anti-sprawl ordinance in June 2001, which forces developers to put high-density housing on one half of the land and leave the other half as open space. Charlotte’s $427 million light-rail plan forces high-density housing development near the 15 light-rail stations.

Knightdale, a suburb of Raleigh, recently adopted stricter building and architectural standards. The town council’s resolution states “new single-family homes should have a minimum value of 85 percent of the average sale price reported by Wake County for the previous year.” That turned out to be $185,000 for 2004, well above Knightdale’s average housing price of $161,000. This blatant move to drive up housing prices also keeps out lower- and middle-income families, many of which are minority families seeking their first homes.

As more North Carolina cities adopt Smart Growth restrictions, they should not be surprised when housing prices soar.

Does “Sprawl” Hurt Taxpayers?

One of the assertions about consumer-led, lower-density growth (called “sprawl” by its critics) is that it is expensive for taxpayers. But a JLF study of growth and taxes in North Carolina communities refutes this assertion. The 1999 report found that:

• North Carolina towns with newer homes, on average, have lower taxes than those with older homes. This result challenges the idea that growth raises taxes by increasing service needs faster than revenues.
• The higher the percentage of single-family homes in a community, the lower the tax burden. The standard argument — that it is more expensive to provide government services to single-family housing — is not supported by existing data in North Carolina.
• The higher the percentage of single-family homes in a community, the lower the tax burden. The standard argument — that it is more expensive to provide government services to single-family housing — is not supported by existing data in North Carolina.

The “Flex Growth” Alternative

A market-oriented approach to growth management, which JLF analysts have termed “Flex Growth,” can help policymakers reconcile the conflicting desires of citizens not only to alleviate traffic congestion and other problems, but also to protect property rights and individual choice. Elements of the Flex Growth approach include: 1) pursuing neutrality by neither subsidizing nor penalizing growth; 2) letting growth pay for itself by adopting marginal-cost pricing for public services (such as connection fees for water and sewer that accurately reflect the full cost of providing service to a development); 3) using voluntary programs such as tax credits and land trusts to protect open space, instead of rigid, costly regulations; and 4) strengthening private property rights so that prices can reflect the most valuable use of land in a local market.

Recommendations

1. North Carolina leaders should embrace a market-friendly alternative to Smart Growth in which consumer choices and prices are given deference over bureaucratic planning and guesswork. Flex Growth tools such as marginal-cost pricing, voluntary open-space protection, and more flexible zoning codes that allow mixed use developments are available without additional state legislation.

To view higher quality graphs, download Agenda 2006 [2.7MB Acrobat].