Tuesday, January 27th, 2009

Building Suburbs That Last #1 – Strategy

The problem of the suburbs is one of the great challenges facing urban America today. Older suburbs across America are struggling with population declines, decaying commercial areas, and increasing poverty. As ever more suburbs start to fall into the aging category, this problem seems likely only to grow more severe over time. Even the currently shiny new suburbs on the edge seem unlikely to hold their allure when they too are full and old, with even newer edge burbs just down the road.

Enormous amounts of time, money, intellectual horsepower, and policy attention have been spent on the problems of the central city, but almost nothing has been done for these suburban areas. But arguably the suburbs need the help more. Because the supply of urban style development is reasonably fixed, this means those who want to live in an urban environment are almost forced to move back to the central city. This creates a source of guaranteed demand for center city living. By contrast, because there is always plenty of new suburban product always available, there’s less reason for anyone to need to turn to a struggling older suburban area.

Today I launch the start of a series on building suburbs that last. That is, how can we create suburbs that hold their allure over the long term, that aren’t abandoned as they start aging? Suburbs that hold their attraction to the middle class from generation to generation. Suburbs that are destinations for commercial development beyond their initial growth spurt.

I teed up a lot of these issues in my review of the book “Retrofitting Suburbia”, which serves as essential background reading to this series. I identified five key structural problems that work to render suburbs obsolete over time. In brief, these were:

  1. The strategic dilemma outlined above that there is always a shiny new suburb on the edge.
  2. The problem of overdetermined form
  3. The 20 year depreciation cycle
  4. The accumulation of unfunded liabilities
  5. The fact that most suburbs are economic shadow cities.

I have ideas on how to address all of these problems. Today we start with the strategic dilemma.

People like to talk about running government like a business. In this view, a mayor is like a CEO, professionally managing the business of the town. When you listen to what most people mean by this, however, you typically hear them talk about things like better customer service, cost efficiency, and operational performance. But those are more properly the preserve of the COO, not the CEO. It leaves out two critical CEO functions that are seldom discussed with regards to cities: strategy and capital allocation.

This is the first place to look to solve the problem. I previously described what a strategy is. I also said that it is critical for cities to ask what type of business they are in. There are two basic approaches: the commodity approach or the differentiated approach. The commodity approach is what most suburbs seem to take by default. That is, they sell more or less the same product as all of the rest of the suburbs in the region, with some gradations based on income levels. The formula is low taxes, good schools, low crime, and new houses and businesses on a suburban pattern design template. They are focused on a very broad swath of the suburban living population.

The problem with being in a commodity business is that to succeed in it, you need to be the low cost provider, because price is what matters. We’ve seen repeatedly that businesses which realized they competed in a commodity market were able to take advantage of that to organize their entire business around a cost structure that their competition couldn’t match. Look at Wal-Mart, who realized that the only thing people care about in consumer staples is price. Or Southwest Airlines, which realized that most personal travelers don’t care about anything except the price of the ticket. Those who did not realize they were in a commodity business were in for a rude of awakening when their more astute competitors put them in a squeeze.

Now suburbs aren’t in a pure commodity market where a single figure like price matters. But they seem to function much like it. Once they start to suffer in one of the important dimensions – notably schools, taxes, and crime – decay starts to set in. Given the accumulation of unfunded liabilities that they have, it is almost a certainty that their taxes and redevelopment costs will go up at some point. This often triggers departures for the edge, or a drying up of new arrivals, that triggers the other negatives of income declines and so forth.

What’s more, most suburbs in their early days focus on managing growth rather than operating a mature system. Making the transition from “grow” to “operate” seems to be an incredibly difficult cutover to make. You see it all the time when retailers saturate a market, and what previously seemed to be an unstoppable juggernaut suddenly turns into a company that can’t do anything right. This is clearly an area that warrants more study, but the economic model of growth appears to be very different from that of operate.

In short, what works as a virtuous growth circle on the way up turns into a vicious decline circle on the way down.

So how do we prevent that? I think one key, both for new suburbs and for older suburban areas looking to reverse decline, is to pursue a more differentiated approach. That is, figure out how to more narrowly target focused resident and business segments. Clearly, towns aren’t like a business. They have to welcome and serve anyone who moves there. On the other hand, they can create environments that cater not only to the generic masses, but to specific types of people and businesses.

I actually think this is right in lines with modern consumer trends. We’ve seen in the last 15-20 years an enormous fracturing of the great American common culture into more niche segments. Where once Americans watched three major TV networks, today dozens of cable channels cater to food lovers, home improvement gurus, or whatever your lifestyle happens to be. Americans used to have a choice of Miller, Bud, or Coors. Today, there is an explosion of microbrews and imports available in almost every town. Almost every product segment it seems has experienced an explosion in the quantity and diversity of choices on offer. Seen in that light, it is actually odd that we aren’t seeing the same thing in our suburbs.

Or maybe we are. A lot has been written about the so-called “Big Sort” phenomenon, where people cluster with those who share the same political beliefs. We’ve also seen the publication of books like “Who’s Your City?” suggesting that you need to find the city that fits what you want out of life. So there seems to be at least some latent market demand out there for a more tailored community experience – be it urban or suburban. There are clearly downsides out there, as big sort type of analysis has shown. But when it comes to creating a suburban strategy, it looks like for now at least, the trend is our friend.

So the first thing I’d challenge suburban leaders to think about is, “Who would want to live in our town? Why would anyone want to live here?” It is hard for those who have deep roots in a city, a state, or a neighborhood to divorce themselves from that to see it as an outsider would see it. Thus you often hear suburban leaders talk about their town’s special “sense of community” or its “real neighborhood feel.” But for people who weren’t raised there, who haven’t lived much of their lives there, never raised their kids there, went to church there, have no friends there, etc. is that really true? From what I’ve seen, most towns have a pretty good sense of community and neighborhood feel. Those things do not differentiate you.

I realize this question of targeting resident and business segments is a difficult one and fraught with land mines, particularly since it can involve things like race and ethnicity that people would rather not talk about. But I think it is absolutely critical to consider the matter.

Let me give an example. I mentioned before this one neighborhood group I’d spoken to. Thinking about their problem, they were in an older area with higher taxes, more crime, and worse schools than the new suburbs on the fringes. It was not a bad place by any means – still quite nice in fact – but on the commodity scale it was not going to measure up. So ask, what can we provide that those suburbs on the edge can’t? Looking at the types of people who normally move to the edge – socially conservative families with children – is there an underserved market segment that might prefer a different environment?

The concept idea I came up with was a brand promise of “sustainable suburban living”. That is, creating an environment for those who, for whatever reason, want to live a suburban lifestyle, but are nevertheless very environmentally conscious. This traded off the “in town” location of the area, the fact that its redevelopment would not encourage sprawl, its location along a proposed rail transit corridor, and the existing mature tree canopy in the area as well as a popular farmer’s market. The idea is to create an attraction for the environmentally conscious resident, as well as to try to lure businesses and organizations that complement it.

Which brings us to the second point: capital allocation. How much money should be invested in the “business”, where does it come from, and where should it go? This needs to support the overall strategy. Of course, most of the money invested in the community will come from the private sector, which is always preferred. Beyond that, let’s principally consider the “where should it go” question.

In our example, some things that might be created would include:

  • Building transit oriented development near the proposed transit stop if it is built.
  • Creating an eco-themed charter school in the neighborhood
  • Establishing clubs or other neighborhood groups with various environmental themes.
  • Extending the local agriculture angle of the existing farmer’s market
  • Working with businesses to encourage LEED certification for new development, potentially including a public policy that no tax assistance will be provided without such certification.
  • Actively market the neighborhood as the center of eco-conscious suburban living, including developing and repositioning things like trash pickup, flower and tree planting, and other beautification programs to support this.
  • Ensure the town’s own operations are on the leading edge of sustainable practice.
  • Create an annual award for the most sustainable project in the city.
  • Try to lure businesses that go with the sustainable practice theme: architects, green building supplies, bicycle shops, non-profits in the space, etc.

That is, don’t just randomly implement project, but rather invest your money in the programs that are going to reinforce the strategy and create an appeal that sustains itself beyond the original growth wave. While it is not a suburb, I’ll use again the example of amateur sports in Indianapolis, where the city literally built a large chunk of its downtown around hosting events. That’s why 35 years after it first launched the strategy, and after an enormous influx of competitors, the city is still considered one of the premier cities for hosting sporting events in America today.

The specific example is not as important as the idea. Find a market niche that your town can serve better than anyone else. Of course, a more specialized focus does render a place open to problems if that area falls out of favor. That’s why a town might want to consider serving multiple segments, and making sure it has a solid general appeal and isn’t overly tailored to a niche audience. And of course a strategy is not a one time thing. You have to continuously keep up to date and revisit in light of new market conditions.

One other thought. Don’t assume a targeted strategy has to involve targeting a specific profile of person as in the eco-conscious example. It might target some type of amenity based strategy where a very diverse group of people who have a common interest might want to live. Examples might be having the best hockey rinks or lacrosse fields or some other type of facility that is not that common in a given area.

Here are some real life examples of places where this strategy-led has been successful. Not all of these were consciously designed that way, but they show the point nevertheless:

  • Carmel, Indiana. This is probably the best example of a strategy led civic development I can think of. However, as the most upscale suburb in Indianapolis, this provides them with a natural market niche: the best stuff for the people with the most money. This has happened by default in a lot of places around the country, but Carmel has been very deliberate about their development. I previously wrote a three part series on Carmel you can read here: part one, part two, part three.
  • Lafayette Square, Indianapolis. This suburban area was brought inside the city limits as part of a city-county consolidation. It is 100% suburban in form. In the last few years, it has become a thriving pan-Asian commercial district and key locus of some of the city’s immigrant communities. This is an area that spontaneously regenerated itself around ethnic businesses. Most other similar areas in the region have not fared so well.
  • Fountain Square, Indianapolis. This is a near downtown neighborhood, not a suburb. Nevertheless, it has carved out a niche appealing to “artists and Appalachians”.

I think it would be useful to compile case studies of this from around the country, to see what has worked and what has not. Unfortunately, when “built to last” is the goal, it takes a long time before you know if something worked or not. Whatever the case, I do believe the time is right for suburbs to move beyond “Generica” and start sharping their strategic focus, along with tailoring their investment policies accordingly. The more differentiated your offering, the more like it is to be sustainable over time as it ages, provided you aren’t victimized by niche exhaustion.

The other thing I think warrants more study academically is how cities can manage that transition from “manage growth” to “sustain the city”. Growth in population reduces the unit fixed cost of government, lures new businesses that probably aren’t getting abatements, and thus contributes to keeping taxes low. But when that logic gives out and the unfunded liabilities catch up with you, watch out. I have some ideas on unfunded liabilities to explore later, but modeling how a town can manage this transition is important. Again, it’s a very hard task – even many private sector, purely for-profit concerns can’t make it easily.

Stay tuned for further installments.

More on the Suburbs

Review: Retrofitting Suburbia
The Future of the American Suburb

Building Suburbs That Last Series:

#2 – New Urbanism and Parcelization
#3 – The Mother of All Impact Fees

Carmel: Leadership in Action – Part One, Part Two, Part Three
Daniel Burnham on the Suburbs

8 Comments
Topics: Public Policy, Strategic Planning, Sustainability

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8 Responses to “Building Suburbs That Last #1 – Strategy”

  1. SpeedBlue47 says:

    I think you can probably guess my viewpoint on this subject. The problem with local governments is that they have little to no direct and immediate feedback from their policies, so that even the “Best Laid Plans” can continue on far longer than market conditions and consumer preferences would otherwise dictate. Even within a small suburb of 25-30,000 people, there are so many competing interests, preferences, and motivations, that no elected official could be able to accurately act upon them preemptively.

    I believe there are two options, allow zoning power to be “privatized” to local neighborhood associations that are directly controlled by the populace so that this invented property right is at least in control of the people it affects most. It would also give development flexibility that governments can’t have ethically(such as selling exceptions to zoning ordinances), that could be locally managed and benefit the community equally.

    The other way would be to find a way to create entrepreneurial opportunities in developing and maintaining these areas. One example would be a conversion of property tax liens into land-lease agreements. These agreements would block certain geographical areas into “subdivisions” that would be managed and developed by private entities that purchase the agreements from the city and pay a reduced property tax to the city to pay for city services not privately provided for(anything from police and fire up to schools). Entrepreneurs are directly keyed into market forces and their survival requires that they form strategies that not only grow their “business” but maintain their current “customer base”. Of course, certain tax laws might have to changed to make this viable.

    There are several examples of very successful land-lease cities throughout the world, mostly in pre World War II England, so why can’t we try it here? It’s about time we drew up some new plays, because it’s apparent that the old playbook is worn out.

  2. Anonymous says:

    Off topic but I had a friend yesterday return from an extending business trip to Minneapolis. I was stunned at his views of that city given the glowing remarks everyone gives it. He described it as dark with a small downtown that was very unattractive. He ask whay is the big deal about that town…I’d much rather live and work in downtonw Indy. Just thought I would share that.

  3. Nicole says:

    Carmel has done so well that everyone is trying to copy it. This is leaving several “second rate Carmel’s”.

    For example, I live in Fishers and they seem to be trying this. And they are missing. Downtown Fishers has tons of chain resturants (ick) and is not as unique as Carmel Arts District.

    They should focus on being a city for young professionals. Where commuting downtown is easy (closer interstates than Carmel) and getting to Noblesville (for concerts and such) is just as easy. They should promote that they are younger overall, and try to get some hipper places in downtown. The proposed commuter rail will help.

    I’ve lived in (pratically) Carmel (I was just south of 96th) and now live in Fishers. I like Fishers much more but think it can come off as bland (thats why I often head to Noblesville). If they fix that, it can become much more sustainable closer to the downtown area (which is aged by suburb standards, my neighborhood is 15 years old).

  4. Anonymous says:

    Anon 3:40

    Your friend would likely say that about any city they might travel to. He/she is afflicted by blindiitis…which means that Indy is superior to every city on the planet. There is no cure

  5. David says:

    If you are interested in a really unique suburb, try Anchorage, Ky.

  6. Anonymous says:

    Anon 3:40 actually, no he speaks very highly of a lot os cities he travels to. He, for the live of him could figure out why people find Minneapolis so attractive and succesful…he had the opposite impression. Give that he is a lawyer I doubt he was in the slums of that city.

  7. thundermutt says:

    [insert tongue in cheek]

    To adopt and reverse the suburban attitude toward the city…

    If I pretend the suburbs aren’t there, why do their problems matter to me?

    [remove tongue from cheek]

    Do you suppose Indiana could go from four times the US “per capita” local government (our situation now: we have 2% of population and 8% of local government units) to some kind of pioneering regional government?

    Unigov 3.0 anyone? (Ballard is already calling the 30-years-overdue full city-county merger, based on Kernan-Shepherd, “Unigov 2.0″)

  8. Alon Levy says:

    I believe there are two options, allow zoning power to be “privatized” to local neighborhood associations that are directly controlled by the populace so that this invented property right is at least in control of the people it affects most.

    This is a terrible idea. Privatized zoning exists, in the form of homeowners’ compact, and leads to rules saying what color you may paint your house, how well you must maintain your yard, and whether you’re allowed to have yard signs.

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