the size of the building and lot. How to travel to and from the property (bike, walk, transit, car) is also an integral part of the decision. Though many factors may come into play, in the end these are, fundamen- tally, choices regarding land use and transportation. Ultimately it is these deci- sions, multiplied thousands and thousands of times that signifi cantly shape urban form and how our cities grow. In making these land use and transpor-
tation choices, the relative price of alternatives is a critical factor. Taking resi- dential construction as an example, this includes not only the price of the property and the house itself (purchase price, taxes, insurance, mortgage costs), but consider- ation of ongoing costs too, such as property tax, transportation (vehicle costs, insur- ance, gas, parking, transit), and the cost of services, such as electricity, natural gas, cable, or telephone. The problem arises because the property itself and these related services—let’s call them collectively “urban goods and services”— are invari- ably mispriced in a way that encourages choices of sprawl and discourages choices of sustainable, effi cient communities.
HOW DOES MISPRICING OCCUR?
It is well-accepted that urban form factors such as density, distance, land use patterns and neighbourhood design aff ect costs of many kinds. These include the hard infra- structure costs of linear and network services like roads, transit, water, sewer, electricity, gas, or cable, and the costs of services like postal delivery, snow clear- ance or garbage pickup.3 But prices don’t generally refl ect these
urban-form related cost variations. Take water rates as one example. Charges for water are typically either a fl at rate, or more recently, moving toward prices based on the amount of water used. Yet even usage-based prices do not refl ect the fact that infrastructure costs are higher for more distant or less dense properties. It is estimated, for example, that a doubling of lot sizes increased water infrastructure costs by 30%.4 Where costs vary with urban form but
prices don’t, some customers will pay more than the costs they impose on the system, while others will pay less. As more effi cient (e.g., denser, mixed-use, centrally located,
transit-accessible) urban forms tend to be the lower cost-to-service ones, they also tend to be the ones that are systematically overcharged, while the less effi cient urban forms or more distant developments pay less than the higher costs they incur. In short, where prices ignore form-related cost variations, cross-subsidies occur. Figure 1 shows actual development
charge costs estimated for the City of Ottawa in 2004.5
The bars show actual
costs as they vary by location, while the solid line shows the level at which a city- wide charge would be set ($15,575). Had the City adopted a city-wide charge, it would have been overcharging development within the inner zone by about $5,000 per unit, and undercharging suburban develop- ment by amounts between about $1,500 and $10,000 per unit. An average cost- based city-wide charge would have meant that development in the inner zone was subsidizing suburban development by these amounts. (Ultimately, the City adopted one charge for the inner zone, and one for all suburban areas.) These cross-subsidies invariably favour
ineffi cient development at the expense of effi cient development. As I show in my book, the mispricing related to some com- mon fi nancial instruments uncovered instances of the following types of cross-subsidies:
> those who live on small lots subsidize those living on large lots;
> smaller residential units subsidize larger residential units;
> those who don’t drive or drive less sub- sidize those who drive most;
> land uses that generate fewer trips sub- sidize uses that generate more trips;
> those who live in less expensive-to-ser- vice areas subsidize those who live in more expensive-to-service areas;
> those who live nearer the centre of the city subsidize those who live farther from the centre; and
> urban dwellers subsidize rural dwellers.6
In other words, if land uses were cars, the Smart Car owner would subsidize the Hummer owner. This variety of mispricing stems from
the use of average costs as the basis for establishing prices, for urban goods and services in which costs in reality vary with urban form. There are several other com- mon sources of mispricing. For example, while clearly having signifi cant costs attached to it, parking is often “free” to the user. In this case the issue is a complete lack of pricing. But what all varieties of mispricing have in common is that prices do not refl ect actual costs, as those costs vary with location and urban form.
Figure 1: Area-Specifi c vs. City-Wide Development Charge Costs
$30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0
17
City-wide, average cost-based charge
Inner zone
Suburb 1
Suburb 2
Suburb 3
Suburb 4
p l an c ana da | summe r · étÉ 201 1
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