Can Our Newest "New Cities" Learn From The Past?
"New cities" and "new towns" have regularly gone bankrupt because the developers overextended themselves. But these failures provide a lot of lessons going forward
Reston, Virginia, in 1966. Reston went bankrupt because the original developer overextended himself.
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The other day, Conor Dougherty of The New York Times – perhaps the leading chronicler of America’s housing crisis – weighed in with another piece that seemed to suggest outward urban expansion is a necessary step.
A few months ago Dougherty stirred up some controversy by writing about the fast-growing northern suburbs of Dallas in an article titled, “Why America Needs More Sprawl”. This time he focused on the age-old topic of new towns, focusing on the history of Irvine near Los Angeles and the proposed new city of California Forever by suggesting in the headline “Maybe America Needs Some New Cities”.
I’ve written about sprawl and outward urban expansion before, suggesting – as Dougherty does in his latest piece – that there may be better ways to manage urban expansion and “build better suburbs”. But there are big challenges as well.
Not everybody owns 100,000 acres of undeveloped land near a major city, as the Irvine Company did, and not everybody can buy 60,000 acres of pretty expensive farmland on the edge of a major metro area, as the tech moguls behind California Forever apparently did. So most new suburban development is going to occur at a much smaller scale than Dougherty’s “new cities” – or even Trump’s proposed “Freedom Cities” on federal land.
But even if you do control tens of thousands of acres on the metropolitan fringe and want to build a completely new town, there’s one major problem: the amount of money you have to put into planning, design, and especially infrastructure before you get a single dollar of revenue in return. That problem has sunk virtually ever “new city” ever proposed in the United States – at least temporarily.
Why New Towns Go Bankrupt
Private lenders don’t usually have enough “patient capital” to wait out the long revenue-starved stretch at the beginning while infrastructure and community amenities are constructed ahead of houses. So, a new town usually runs into trouble when the real estate market cycle dips downward and absorption assumptions don’t pan out.
This happened to Reston, in Virginia, which was originally conceived of by Robert E. Simon, heir to a New York real estate fortune. (The name Reston is derived from his initials.) He sold out to Gulf Oil in the 1960s. It happened to some extent to James Rouse’s new town of Columbia, Maryland, also in the D.C. suburbs. Roused used to like to say that if you owe the bank $1 million the banks owns you, but if you the bank $100 million, you own the bank. He used that philosophy to his advantage to keep the lenders from foreclosing on him in Columbia.
Architect William Pereira and his design for Irvine in 1964.
Reston, Columbia, and Irvine all originated in the 1960s, a period when the idea of building new towns and “better suburbs” was in vogue after the fast-paced, haphazard suburban development after World War II. Recognizing that up-front capital was a big problem, in 1970
The Failed Federal Program
Congress passed the Urban Growth and New Community Development Act, which included, among other things, a loan guarantee program for new town developers. The loan guarantees “de-risked” investment from private lenders, who would be paid off by the federal government if the private developer couldn’t pay back the loans.
Which almost all of them couldn’t, as Dougherty points out in his article the other day. The federal government provided loan guarantees for 13 new towns around the country – Irvine, Reston, and Columbia were not among them – and all but one of them got caught up in the “stagflation” of the early 1970s, when the economy experienced simultaneous high inflation and low growth.
When, in 1975, Congress held hearings on what went wrong, they asked James Rouse – though he did not participate in the program – to explain how it all worked. In plainspoken language, Rouse simply said that the assumptions about market absorption were too optimistic, which he pointed out is not unusual in the real estate business. “Nobody in the development business
ever assumes a down cycle,” he told a congressional committee. They are always up.”
What Irvine and The Woodlands Did Right
So is it possible to make a large “new town” or “new city” work, given the ups and downs of the real estate market? In a Future Of Where post a few months ago, I suggested that you need five things to succeed. These are:
1. Deep pockets
2. A big job center up front (like UC Irvine)
3. Lots of different types of housing
4. Some permanent affordability
5. Flexibility
The Woodlands Town Center today.
These are all very important to the success of a new town, but the more I have thought about it – especially after reading Dougherty’s piece the other day, it occurred to me that there is a sixth component to all this:
You have to resist the temptation to overextend yourself, especially in bearing the cost of up-front infrastructure.
And how do you do that?
Let’s take a look at the examples of Irvine, near Los Angeles, and The Woodlands, outside Houston, which – by the way – was the only federal new community that didn’t default on its federally guaranteed loans.
