April 30 was the last day for the planning department of Petaluma, Calif. The city decided to axe the department after it became clear that development activity was not generating sufficient revenue to cover the department’s expenses. As of March, the department was running a deficit of $280,000 for the fiscal year, which ends in June. Too few developers were applying for building permits or otherwise making use of the department’s fee-generating services.
In 1972, Petaluma became the first city in the country to attempt to control growth through limiting the number of building permits issued each year. The city also established an urban-growth boundary. These and other planning devices eventually became known as “smart growth” and were subsequently adopted by many other cities around the country. In 1975, the city successfully defended its growth-control legislation before the U.S. Ninth Circuit Court, and the Supreme Court declined to hear the developers’ appeal.
It’s not clear if the planning staff view their dismissal as success through obsolescence, but that appears to be what the city has accomplished. Over the decades, Petaluma has developed a reputation as being unfriendly to new businesses, especially big box retailers that would compete with the established boutique shops. It’s a form of protectionism, of course, and some may like to keep their town small and quaint.
But “smart growth” advocates should acknowledge that they are practicing a new form of segregation. As Wendell Cox and Ron Utt point out, cities with the most restrictive land-use regulations have the highest ratios of median house price to median annual income. San Francisco, Los Angeles, and San Diego each have tight land-use regulations and in each of those cities, the ratio of median house price to median annual income exceeds 10 to 1. Historically, that ratio has been 3 to 1 or less. Higher house prices drive out families of more modest means. Cities with light land-use regulations such as Indianapolis, Dallas, Atlanta, and Houston have more welcoming prices. The ratio of house price to median annual income is only 2.3 in Indianapolis, 2.5 in Dallas, 2.8 in Atlanta, and 2.9 in Houston.
Even more troubling, however, is the fact that “smart growth” policies have contributed to the recent instability in housing markets—which in turn has contributed to the falling interest in new development in California. As Cox and Utt detail in their recent paper, the housing bubble that collapsed last year was a regional phenomenon. In areas where regulations made land artificially scarce, house prices increased faster than incomes, which lured many homeowners to convert their equity appreciation into cash. When the bubble then collapsed, the tightly regulated markets experienced the largest declines in house prices and the highest foreclosure rates, as homeowners with excessive debt were exposed. The foreclosures have been concentrated in four states—and California is one of them. Utt and Cox write:
According to RealtyTrac, a leading real-estate reporting firm, nine of the 10 areas with the highest foreclosure rates were in California, Nevada, Arizona, and Florida, while 18 of the top 20 were in urban areas that [the] Brookings [Institute] includes in its most restrictive category, including California, Nevada, Arizona, and Florida. [Internal citations omitted.]
So the planners in Petaluma can thank “smart growth” for putting them out of a job. Meanwhile, the citizens of Petaluma are currently engaged in a debate over whether letting Target set up shop would be good for the tax base and help the city close its budget gap. But maybe Petaluma doesn’t need Target. In 1973, George Lucas filmed many scenes in his ’60s nostalgia movie American Graffiti in Petaluma. Perhaps by shunning development, Petaluma can remain stuck in time, the perfect venue for filmmakers to make future coming-of-age movies. That model, however, probably can’t work for every city currently enthralled with “smart growth” ideas.