Associate Professor of History and Urban Studies
Director of the Barnard and Columbia Urban Studies Programs
Author, 20th Century Sprawl

on subsidizing the suburbs

BLUEPRINT AMERICA: Did suburban living just come about in America – there was a demand for it on the part of the public, and so it happened? In a sense, is this outward development just the American way, or did state and federal policies shape the way we grow as a country?

Owen Gutfreund

OWEN GUTFREUND: Most Americans are not aware that the decentralization of the U.S., the decentralization of metropolitan areas – suburbanization, spreading out into places where nobody lived before – was a process that was a combination of individual preferences and incentives provided by government through transportation and housing policies. It was really these two big pieces – housing policy and transportation policy – that encouraged people as they were deciding whether to live in the city center or to move out. These federal policies, mostly, were tipping the scales – encouraging people to move out of cities and move to previously undeveloped areas at the edge of metropolitan regions.

BA: What were those policies?

OG: Well the two pieces in the housing arena of policies included the way the mortgage market was constructed after the collapse of the financial system during the Depression. The way the mortgage market was constructed, it favored new construction, single-family homes in new suburban subdivisions – where there weren’t any retail activities, weren’t any office buildings and were in racially and ethnically homogeneous neighborhoods.

Cities didn’t fit any of those criteria. After the mortgage market was constructed that way during the Depression, and then reinforced in the 40s, it became very easy for developers and for purchasers to get mortgage capital in suburban areas and became very difficult to get the mortgage capital on favorable terms in urban locations.

BA: Are you saying that the Federal government would pay for you to have a house in the suburbs and not in the city?

OG: Well, here we are in the midst of a national mortgage crisis and banking crisis and the last time we were in a situation like this – during the Depression; which was bigger and more serious, but still that’s the last time there was something on this scale – the way the government stepped in to support banks and mortgages was to create a new kind of mortgage that would have a lot of federal support, but they could only do this if the federal government would never have to actually make good on their guarantee.

The way to ensure that they wouldn’t have to make good on their guarantee is to make sure that prices wouldn’t go down. And, the way they made sure the prices wouldn’t go down is they went around to all real estate brokers and experts in the real estate industry and said, ‘How can you tell which places, which neighborhoods, which kinds of housing are the kind that are not likely to go down in value?’ The advice that they got is: The newer it is, the more homogeneous the neighborhood is, if it’s single-family homes that’s more secure than apartment buildings… They got all this kind of advice and they created maps of metropolitan areas that indicated where it was safe to lend and where it was less safe to lend. Because of the criteria they used, it was safe to lend in suburban areas and not safe to lend in urban areas. When people went to build new houses, they would build houses where people could buy them, where they could get mortgages – which is in suburban areas. Meanwhile, if you owned an apartment or if you owned an apartment building in a city, you couldn’t get access to capital to repair it, to build a new one, to rehab it…

The suburban American dream of the post-World War II era – it was a separation of the American people. Those who could afford to participate in this new American arrangement were moving to the suburbs and the people who couldn’t afford to participate in it and had fewer options were stuck in the city center.

Even if you wanted to live in the city, the cities were going to become decayed as a result of these policies…

Instead of solving the problems that were apparent across America that emerged in the 20s and 30s and 40s – in the post-War era – we basically made it easy for people to move away to new locations, to new neighborhoods, to new subdivisions – and the people who could move and could participate did.

BA: This all became cyclical…

OG: What was left was people who had fewer choices. [The] tax-base was leaving at the same time that you still had some problems in the cities – and there was fewer and fewer resources available to city government to try to tackle them. Then that was reinforcing as people chose to move out. They took their tax payments with them and moved to the edge. And, after enough people moved their houses to the edge, retail centers start[ed] to move to the edge and eventually office centers – and people then soon work, live, play, shop without ever going downtown. As that happens, that continues to undermine the tax base of the city center, which makes it a less attractive place to live. And this was a self-reinforcing cycle that started early in the 20th century – and by the 60s and 70s had really reached dramatic proportions and we had an urban crisis.

BA: The transportation piece of this – are there hidden subsidies, or subsidies that we don’t understand, that drive development to the edge of town?

OG: That has to do with the way in which we built highways, and how we finance them and which costs we pass on to the users compared to how we finance urban transportation.

We seem to have gotten to a place in the United States – and we’ve been there, I think, for a few decades – where we expect urban mass transit to be self-supporting and we don’t expect that of highways. Highways right from the very beginning of the 20th century have been generously subsidized by the Federal government, and that mechanism requires further subsidy from state governments. The end result is that people feel as though in their gas taxes or maybe in some occasional tolls, they are paying for their share of the roads – but that really is paying only a tiny fraction of the real costs of those roads.

We expect every new subway line or every new transit line to be self-supporting. People talk about how this transit system is losing money, maybe it needs a bailout, but we never talk about highways needing bailouts even though highways are, by definition in our current system, generously funded by public funds – both for initial construction and for maintenance every year. And, we consider that something that government’s supposed to do for us, whereas we consider transit as something that the people who use it are supposed to pay for it.

The funny thing that’s a little bit backwards about that is that in many cases, the users of transit systems are the poorest people and the users of highways have more resources. We’re expecting the systems that serve poorer people to be self-supporting, and the systems that support middle and upper-class Americans are the ones that are subsidized by government.

BA: Do American car-users have a free ride?

OG: Motorists are certainly paying a portion of their costs. And, it does cost something to register your car and to have a driver’s license, and we do pay gas taxes and some roads do have tolls. The misperception here is that is sufficient. And it’s not. It’s about a third of the total costs of the highway system – is what’s actually paid for by highway users.

And this has been the case all along. At its very highest, it reached maybe 50 percent, but ever since the 1960s really, the Federal government has been generously subsidizing the highway system and encouraging people to drive more, which increases demand for automobiles, which was a very good economic strategy for a long time. You had auto manufacturers, oil companies, motel operators, cement manufacturers, auto mechanics, tire manufacturers – any number of different industries really benefited from this effort to increasingly have Americans use automobiles more and more each and every year.

It’s only within the last few years that I think most Americans have started to realize that there are dramatic consequences to this overuse of the automobile. We’ve been encouraged to use the automobile as much as possible, and now we have foreign policy very much driven by the need for oil and we’re starting to understand the environmental consequences in addition to the economic consequences of this overuse of the automobile. Maybe it’s time for a shift, but this has been going on now for a long time.

BA: What are the consequences?

OG: Not only are motorists not paying the identifiable costs of the building, maintaining, paving, plowing, policing the roads, we’re also only recently starting to get a feel for all the costs that weren’t even in the previous models – the environmental costs, the foreign policy costs, all the hidden costs that aren’t even taken into account. This is a model that’s not sustainable not only because the users aren’t paying for the product that they’re consuming – and the users have become most Americans, so we can’t afford the extent of subsidy – but the bill’s coming due for all the hidden costs that we were ignoring for so many generations.

BA: What then must we do?

OG: We need to rein in the subsidy for private automobile use and start encouraging new transit systems that will allow people to get from home to work and to shopping and to play without having to get in an automobile and travel great distances. How does the government do that? [By] offering the same kind of subsidies to mass transit that they’ve been offering to automobiles and, in fact, reducing the subsidies to automobiles.

There are other ways to solve this problem, too, that are more local decisions about zoning, land use incentives. But the biggest issue is not a local problem. One of the things that’s been happening is that people are waking up and recognizing that sprawl is a problem and people are trying to combat it at a local level. But, it’s not a local problem. It’s a national problem that has local manifestations.

People raise their hands and say, ‘What can we do?’ And they try to fight it at a local level, which is swimming against the tide. The transportation policies and housing policies that have encouraged Americans to spread out across the countryside are national policies, not local policies.