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By Root 516 0

Anyone with some business training knows that corporations make investment decisions based upon their “cost of capital.” Cost of capital, narrowly defined, is the interest rate at which money is borrowed, but it could be more accurately described as the income that could be earned on a given amount of money were it invested elsewhere. For most successful companies, this cost of capital is well over 10 percent, and in the high-risk field of real estate, it is often well over 20 percent. When contemplating an investment, businesses create cost-andincome spreadsheets in which all future earnings are discounted at this rate. A dollar earned next year is worth about ninety cents this year, since it could have been invested elsewhere at 10 percent. The effect that this technique has on long-term value is straightforward: at a 10 percent discount rate, a dollar earned ten years from now is worth only thirty-five cents today. A dollar earned twenty years from now is worth only twelve cents. When investing in a new building or public space, a wise developer knows that any income earned from that building after thirty years is essentially worthless. Therefore, a developer who invests extra money to create a long-lasting building is making a poor business decision, and, quite literally, hurting his colleagues and shareholders. Given these circumstances, it is utter nonsense to believe that we can entrust the making of community to forces that are, by definition, primarily interested in making money.

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This situation typically brings down property values, for one of two reasons. Either the new construction sticks out like a sore thumb, creating an incoherent streetscape, or the construction creates a newness standard against which its older neighbors are judged inferior. Modern building codes are also destructive in that they often make renovating historic buildings prohibitively expensive, evidenced by the dozen still-vacant office towers above the Art Deco theaters of Los Angeles’ Roadway It is simply not affordable to reoccupy these buildings under existing ordinances. If they truly wish to encourage historic preservation, municipalities (and states) must enforce a less strenuous coding standard for older structures.

** The TND Ordinance was first developed in 1988 with the engineer Rick Chellman, of White Mountain Survey, Inc., for a project in Bedford, New Hampshire. Mr. Chellman has gone on to become the Institute of Traffic Engineers’ leading authority on traditional neighborhood street design.

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Unfortunately, principles are often forgotten in the name of a democratic process. At a 1996 conference on the celebrated town planner John Nolan in Madison, we were handed a flyer describing that city’s ongoing regional planning effort. Rather than explaining the proper solution to Madison’s incipient sprawl, the flyer listed ten distinct approaches for addressing the crisis; all were presented as equally desirable, even though three of them were nothing but more sprawl. Unsurprisingly, the citizens who had initiated the planning process were furious, and the plan was failing, because it dodged the difficult decisions. Thanks to its public nature, planning is perhaps the only profession whose practitioners feel compelled to please everyone at once, no matter the cost.

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This is already beginning to happen. After a first generation of zoning increases intended to support transit station densification, which did little more than encourage real-estate speculation, a new cycle of transit-oriented redevelopment designs for these still-empty parcels—often initiated by local shareholders—appears to be heading toward success.

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Indeed, new laws that are apparently unrelated to sprawl can also be used to encourage healthy growth. For example, any program that offers state (or federal) funding to local municipalities can tie that funding to smart-growth criteria. This would mirror President Johnson’s use of Medicare as a tool to desegregate Southern hospitals, by denying Medicare dollars to whites-only facilities.

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