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The Social Side of Economic Development

Economic development is another area in which issues of physical planning quickly reveal a social side. Assume that a community needs jobs and new tax revenues but is handicapped by a shortage of sites suitable for commercial development. It could use its power of eminent domain to take some land, carry out the necessary site preparation, and then market the land for commercial use (as noted in Chapter 5, this strategy, once very widely used, is now not legal in a number of states). But the land now contains housing, whose residents will be forced to move. Should the community do so anyway? Will a functioning neighborhood be destroyed, and, if so, are the new jobs and new tax revenues worth it? If it is to be done, what arrangements will be made to rehouse the displaced population? Or will the population that now lives there simply be given notice, a modest moving allowance, and then left to its own devices?

Very often there is a strong connection between economic development and housing markets. This is particularly true if the supply of housing is relatively inelastic, meaning that large increases in housing prices or rents evoke only small increases in the size of the housing stock. In that case, most of an increase in demand is manifest in an increase in prices and rents.

Michael Bloomberg was Mayor of New York City for 12 years, from January 2002 to January 2014. During that time the economy of the city did well, given the Great Recession beginning in 2008. Despite major job losses in the financial sector, employment in the city grew, with substantial gains in a number of high-tech activities. Bloomberg, a man who had made hundreds of millions as an entrepreneur (founding Bloomberg News, supplier of many kinds of financial data), was quite successful in promoting the economic development of the city.

But the economic success of the city exacerbated the already extreme tightness of the city's housing markets, and for the majority of the city's residents who were not earning substantial incomes that was a huge stress.10 In 2012 the city's Rent Guidelines Board reported that one-third of all renters spent 50 percent or more of their income on rent.11 Vacancy rates for all apartments under $1,000 per month were 1.1 percent. Basically, the supply of apartments available to anyone looking for a place for $10,000 or under per year was negligible.12 A certain number of people living in New York City's homeless shelters were full-time low-wage workers. They simply could not afford any housing at all.

In January 2014 Mayor Bloomberg was succeeded in office by Bill De Blasio. Bloomberg was not a candidate in the 2013 race but much of De Blasio's campaign was a run against Bloomberg's policies. De Blasio stated that his number one goal was to reduce income inequality in the city. He favored the praiseworthy goal of providing pre-kindergarten schooling for all children, which he intended to pay for with a tax on all incomes of over $500,000. In short, he ran as a populist from the left side of the political spectrum. While Bloomberg's main thrust had been to promote economic growth, De Blasio's campaign was about reducing inequality, two very different and in some ways contradictory goals.

What is one to make of this? It is hard to be opposed to De Blasio's goal of reducing income inequality, and Bloomberg himself would probably agree with that as an abstraction. On the other hand, the city needs the jobs and the tax revenues that come from new commercial activity and also from multi-million-dollar condos in Manhattan. The "millionaires' tax" which De Blasio advocated to pay for his educational goals may seem fair to anyone who believes in the principle of progressive taxation.13 But the fact is that if high taxes cause wealthy people to move across the city line, then the city cannot tax them at all. Then, too, they may be less inclined to invest their capital in the city and more inclined to invest it elsewhere. In short, reasonable and well-intentioned people may differ sharply about what emphasis the city should place on economic development versus other goals.

The situation described above for New York is not unique. San Francisco may have the highest rents in the United States. The city is within commuting range of Silicon Valley (Santa Clara County) and so commuting to Silicon Valley and the growth of high-tech employment in the city itself means very many people with high incomes competing for housing. On the other hand, there is little land left for development of the city and there is citizen resistance to developing older neighborhoods at higher densities. Thus, as in New York, the dark side of economic development is high rents, low vacancy rates, and, at the extreme, homelessness.

Often the promotion of the local economy involves giving subsidies or tax breaks to firms to encourage them to locate in the community instead of elsewhere. In that case, public funds are being given indirectly to entrepreneurs, investors, and stockholders, who may be a good deal wealthier than the average taxpayer. Should we be troubled by this treatment?

Some planners are very comfortable with this approach: That is the way the game is played in this capitalist society, and by and large, the system works better than other alternatives. Another planner might tell you that he or she does not really like to see public funds used to subsidize private sector activity but that when one jurisdiction, be it a town or city or county or state, puts money on the table to attract economic activity it forces the hand of adjacent jurisdictions, so one might as well accept it without becoming upset.

Others, such as Norman Krumholz, a former planning director of the city of Cleveland, are outraged by it.14 Regardless of what position one takes on the point, it clearly contains serious questions of social philosophy.

 
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