"Suburban sprawl" and "smart growth" issues are at the forefront of public policy. Voters approved nearly 200 initiatives to curb sprawl in the 1998 elections, the Sierra Club has placed sprawl at the front of its agenda, and Al Gore will use sprawl as one of his primary campaign issues for the 2000 presidential campaign. For the most part, these groups believe that the solution to this sprawl comes in the form of government planning such as zoning codes, subsidization and incentive structures, and other means of land use planning. This form of land use planning is nothing new. Only a century ago, all sorts of groups and interests supported zoning codes, regulations and subsidizations just like today. The difference was that during that time period, low-density suburbs and automobiles were seen in a positive light and high-density cities were thought to cause many social problems. Consider this General Motors advertisement in a 1948 edition of Life Magazine:

"It took an explosion to get Bill Jr. out into the wide-open spaces of the suburbs --- not a literal explosion but one that shows up on the maps of our cities. A few decades ago, our cities and towns were largely concentrated clots in which kids like Bill, and their families, huddled close to factories or business districts. But men of General Motors and other companies thought they had something in the automobile. They wanted to produce more and sell more. . . . As cars grew better and more useful, cities and towns changed. They exploded into the countryside, spreading real estate developments, suburbs and smart new neighborhoods all over the map. And so Bill Jr. is gaily growing up where boys can be boys and the breathing's good --- where he has a better chance at health and happiness."

Today, a General Motors television advertisement often takes place in either city streets or in beautiful countryside, but rarely in suburban environments.

This overall change in the perception of population density in cities, from a generally negative one to a positive one, can largely be attributed to the tremendous failure of the land use planning that was brought about by the originally negative view of city density. Highways, FHA mortgages, zoning codes, urban "renewal" schemes, and monopolization of mass transit undermined existing cities which were built at a high density, while regulating all future development to be in the form of low density. Despite the best intentions, the legislation that was enacted produced a myriad of problems in both suburbs and cities. Most American city centers became vast economic graveyards while the newly created suburbs were grid-locked by traffic and unable to deliver many of the traditional advantages that large cities were normally able to provide.

Most smart growth advocates acknowledge the extent to which government policies disrupted cities and suburbs. But rather than support the abolition of these policies and the prevention of government meddling in land use planning in the future, they instead wish to install their own policies, such as urban growth boundaries, in order to stop development on the periphery of cities and regulate all future development to be in the form of high density. Smart growth advocates, as well as the garden city planners and modern day Robert Moses's, overlook several economic laws governing land values and population densities. In this essay I will examine the laws that govern land values, and their effect on population density. I will also examine the consequences of legislating one type of density in favor of another.

Throughout history, residential settlement has depended on two patterns. The first, which partly determines the second, is the fact that the large majority of people must live within a commutable distance from their work. In 15th century Constantinople, when the latest transportation technology of the day was leather shoes, the maximum distance that people were willing to live from their work usually depended upon how much they were willing to walk everyday--which was usually somewhere between a half of a mile to a mile. In the second half of the nineteenth century, rail transportation made its way on to the stage of transportation options raising the maximum distance people could live from their place of work. The twentieth century, of course, saw the rise of the automobile, raising the maximum even further.

The second factor is a considerable economic incentive that acts as a centripetal force, pulling businesses and residents towards a center. Examples of centers would be downtowns or Central Business Districts (CBD). These centers usually begin as depot stations along a logistically important trade route. If trade grows considerably along the trade route, the depot will grow. This is how most cities originate. Whether the logistics have to deal with water transportation, such as points on harbors and rivers, rail, or highways in the modern day trucking industry, a depot is established to accommodate trade in that form of transportation. In its initial phase, development clusters around the strategic point. Empirical evidence of clustered development near logistic spots is evident in every city. There is not a single downtown that is not next to the initial mode of transportation that caused the city to exist. New York's downtown is located on New York Harbor; Toronto, Chicago, Cleveland and Milwaukee's downtowns are all next to their lake ports; Denver, Indianapolis and Atlanta's downtowns are all located near strategic rail crossings and so on. This also applies to cities within cities. Joel Garreau published a book called Edge Cities which identifies mini-downtowns that have been taking shape all over the country in suburban environments. He defined an Edge City as having more than 10,000,000 square feet of office space and 500,000 square foot of retail space. Tyson's Corner outside of Washington in Virginia for example has more office space than all but 12 of the largest downtowns in the U.S. These new centers, however, are no exception to the rule. Most edge cities form at the intersection of two major highways and/or next to a major airport.

As the depot is established, people move into the city to work jobs created by the trade of the depot. When the residences for the people are built, it is most practical to build them around the depot. For example, suppose a port facility is the depot of a settlement. As the population of this settlement grows, would it be more sensible to build the homes of the residents two miles from the area of employment or one mile? Obviously the external effects of the port, such as noise and pollution, could be a limiting factor as to how close development could get to the point. But nevertheless, development will have the tendency to get as close to the area of employment as possible without being so close as to receive the externalities created by the industry. In other words, the rate of increase of the utility of land for people who work at the port tends to be at its highest closest to the logistical point, but then diminishes at a point that begins to be affected by the externalities of the port. If one were to draw a graph of the utility on an x-y axis, the curve would be continually increasing until it reaches a certain point where the rate of increase would either slow or stop altogether and perhaps even decrease.

All else being equal, the utility of land for most people rises, as it becomes closer to their place of work (there are of course many other factors at play here such as the geography of the land. If a location is 15 miles from work, but located on the beachfront, then it is possible that that location would have more utility for person than one located 1 mile from their place of work). In addition, since places of work tend to be located in single concentrated areas near logistic points, or points of trade, we can then say that on average, utility of the land rises the closer one gets to a logistic point. The utility rises for two main reasons. I explained the first reason for the increase in that traveling to work would be more convenient, but the convenience extends much farther than that. Since it is just as convenient for a person to travel one mile north of their place of work as it is travel one mile east of their place of work, development will occur in a radial fashion on all sides of the point. This means in effect, that the logistical point becomes the center of development, and correspondingly, the center of population in that region.

The second advantage that I spoke of comes from precisely this. If a person chooses to live one mile from his work rather than two, not only is he closer to work, but in most instances, he will be one mile closer to the center. By being closer to the center, the advantages of proximity are numerous. This is not really a matter of economics but geometry. Take a circle with a radius of 10. The center of the circle will be no further than a distance of 10 from any other point in the circle. On the other hand, it is possible that a point on the perimeter of the circle would be as much as a distance of 20 from another point on the circle. Also, with intervals of 1, the average distance of any given point from the center is 7.85, whereas on the perimeter the average distance is 15.4. In terms of a city, if there is a metropolitan area with a radius of development of 10 miles, the CBD or center will be on average 7.85 miles from any given point of the metro area while a point on the periphery of the metro area will be on average 15.4 miles from the other points of the metro area. Consider how advantageous this would be to a business. Take for instance a catering company. For a typical catering company, there are three main areas that depend on proximity. One is that the people who work there need to commute there. If the catering company were located near the center rather than the perimeter, there would be about double the housing options within the same radius of two locations. The second area that is crucial to proximity would be the delivering of the catering services itself. If the catering company is in the center of a metro area, using the example above, it can be rest assured that no place would be further than ten miles away. In contrast, if it were located on the perimeter, it would be possible that a place, which they might service, would be as far as 20 miles away. The third crucial area would be the receiving of the differing food supplies which once again, would be done more efficiently if the catering business were to be located near the center.

It should be a general postulate then that, other things being equal, land has more value the closer it is to the center of a city. Not only because it confers advantages of proximity, but also because land near centers will, once again by necessity of geometry, naturally be in shorter supply than land further from the center. Returning back to the hypothetical circle, if you were to measure the total area one-mile from the center, it would be pi times R squared, or about 3.14 square miles. The land area between one to two miles, or in other words, a concentric circle with a radius of 2, the total area would be pi R squared minus the land area within one mile, or about 9.42 square miles. The radius has doubled yet the land area has tripled. As one gets closer to the center, the supply of land decreases exponentially. The combination of these two factors: higher utility and smaller supply, equates to much higher land values near centers. This fact brings us to the crux of the economic purpose of high densities and low densities.

The magnitude of density and the value of land largely operate in direct proportion. We can confirm this empirically by observing the land values of places with different population densities. Almost always, a region with a higher population density will have more valuable land than a region with lower density. The rate of which is similar also. Manhattan is about 10,000 times denser than North Dakota, and the land values are also about 10,000 times that of North Dakota. Theoretically, people use land far more intensively when it is more valuable. This is a classic instance of the marginal utility theory of value at work.

The marginal utility theory of value states that the value of any one good in a given class of goods has value equal to the use-value of the last good or the marginal good. For instance, suppose I have only four gallons of water. In order of importance, I need one to quench my thirst, one to quench the thirst of my dog, one to wash my face and hands, and one to water the plants. The value of any of any one of the gallons of water would be equal to the utility lost if one of the goods were to be lost. In the example above, if I were to lose any one of the gallons of water, I would be losing the utility of watering the plants. So the value of any one of the gallons of water is equal to the watering of the plants.

The marginal theory utility of value applies to land in the same way. People have literally thousands of possible uses for land. Farming, storage, housing, transportation, foresting, mining, trade and exchange purposes, recreation purposes, are all some of the more common uses of land. Among all of these competing wants, and all of the various types of land, how is it determined which uses will occupy different parcels of land? The answer is that, where land has the most utility to people, whether because it is located on a harbor or is on a beachfront, it will only be used for those uses which occupy the least amount of land. This is why we have farming in North Dakota rather than Manhattan. Although farming is an extremely important use of the land, and provides immense utility to us for it sustains our lives, it nevertheless takes place on land that has the lowest value because its function requires a great deal of land. On the other hand, such things as hotels and office buildings, functions that are not as important to us utility wise as is farming, are located on the most valuable of land because they consume very little land. To put it another way, diamonds have far more value than water even though water's utility is greatly more than that of diamonds. But because diamonds are in so short supply and water is incredibly abundant, the value of diamonds is much higher. It should be clear now as to why some place have high population densities and others not. In centers, land is naturally in shorter supply and has greater utility than land that is not in centers. This causes land in centers to be used as intensively as possible. Certainly a person may value having a yard and a great deal of parking, but if that person values advantages of proximity, transportation and communication more so, than they would have to forgo those uses which require a great deal of land, unless of course they just have lots of money.

Problems with this natural relationship of land use occur when urban planners and the like artificially try to create higher densities or lower densities. In the case of prohibiting low density, which is what the smart growthers and the new urbanists advocate, land uses which require a great deal of land will not be able to take place. Many businesses like junkyards and warehouses, economically important activities, will now have to function in valuable high-density land, which will cause them to either raise their prices, thus transferring the costs that they must pay for land unto consumers; or they will simply just cease to operate. In the case of residents, the cost of housing will go up, since housing will no longer be able to be built on cheap land (this has happened quite severely in Portland since they installed the urban growth boundary), and will no longer have the choice of choosing to live on large lots of land. If the smart growth initiatives are severe enough, housing prices, PPI (producer price index) and CPI (consumer price index) of the region will increase dramatically, crippling the regional economy.

In conclusion, economic laws such as the law of marginal utility, create a natural relationship between the occupation of valuable land with the least land-intensive uses, and non-valuable land with more land intensive uses. Unfortunately, when a new fad comes along in the land-use planning field, whether the Garden City movement during the beginning of this century, or the new urbanist/smart growth movement presently, this relationship is disrupted which limits the freedoms of people as well as causing severe economic consequences.

Copyright 1999, Shannon Medlock