Academic journal article Contemporary Economic Policy

Housing, Sprawl, and the Use of Development Impact Fees: The Case of the Inland Empire

Academic journal article Contemporary Economic Policy

Housing, Sprawl, and the Use of Development Impact Fees: The Case of the Inland Empire

Article excerpt

1. INTRODUCTION

This article is concerned with the economics of excessively large and socially costly suburban expansion and attempts to summarize and organize the main economic arguments associated with sprawl due to single-family residential home construction. The topic is of interest not only because the social costs of sprawl may be high but also because what seem like fairly clear economic issues have been at least partially obscured by the debate over sprawl. This has led to obfuscation to the point that well-accepted economic notions have not been able to fulfill their clarifying potential and standard economic instruments to internalize externalities remain on the sidelines.

This article presents some of these confusions and debates for review. We also apply standard welfare economics and price instruments to the issue of suburban sprawl in order to suggest ways in which economics can participate in and inform the debate. The article uses the Inland Empire, which includes the valley regions of San Bernardino and Riverside Counties in Southern California east of Los Angeles, as a case study.

The Inland Empire is very large, with a population of about 3.8 million. Indeed, though dwarfed by Los Angeles County if the region were a state, it would be larger than exactly half the U.S. states (California Department of Finance Web site; Husing, 2005). The region is a good one for the purpose because key policy issues related to property rights, housing affordability, and externalities closely associated with housing choices that are of nationwide interest are being debated particularly actively in the region. Part of the reason sprawl and its effects are so much in the fore-front in the Inland Empire is that the region has experienced an enormous building boom during the past 10 yr. In 2004, there were 36,000 single-family housing building permits issued in the two-county region, which represented 25% of the total new permits in the State of California and placed the Inland Empire third in the nation (behind Atlanta and Phoenix) in terms of number of building permits issued by a standard metropolitan statistical area (SMSA) (Berkman, 2004; Wilson and Kelley, 2003). In the first 9 mo of 2005, a whopping 52% of all new homes constructed in California were built in the Inland Empire (Husing, 2005).

The next section presents various definitions of sprawl that have been used in the literature. Section 3 lays out a standard economic definition of sprawl and discusses critical measurement issues. Section 4 delves more deeply into the three main negative externalities associated with sprawl--road congestion/air pollution, loss of open space, and demands on public infrastructure--using the Inland Empire as a case study. The argument has been made that these externalities should be given lower weight than housing construction because there exists a housing shortage in California. Section 5 therefore examines this notion from a theoretical and empirical perspective and concludes that such claims should be viewed with caution. Section 6 moves the article into the policy arena through an examination of price instruments such as fees, which are often used for controlling pollution externalities and in some cases also sprawl. The section also presents some key barriers to using these instruments in the United States. The final section concludes the article.

II. DEFINING SPRAWL

For many reasons, sprawl has proven to be a difficult issue to define, much less examine from an economic perspective as we attempt to do in the following section. Wassmer (2000) and Burchell, Downs, and Mukherji (2005) note that the term "sprawl" has been used by urban planners, environmentalists, and others with contempt and disapproval, but also note that sprawl is not synonymous with metropolitan growth. Instead, it is a dysfunctional style of growth. Hess (2001) simply notes that "sprawl has become the term people use to describe anything they do not like about American cities. …

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