A lot of you live in objectively wealthy suburbs where public services still seem to suck. Burbank. Davis. Cupertino. Long Island. Sounds dumb if you think about it, right? Because the whole reason people move to the 'burbs and pay all those taxes is so they don't have to put up with budget cuts, school closures, poorly-paved roads, and stuff like that. We'll discuss why your local government always seems to be broke, even if you live in one of the wealthiest areas in the country.
Bottom line, up front: Suburbs are so inefficient with land that it's much harder for postwar suburbs to balance the books than old-fashioned neighborhoods. Property tax is the main source of local government revenue, and suburbs are lousy sources of property tax revenue. To illustrate, we'll make two stops in Nassau County, NY, the 11th-richest county in America.
Nassau is broke. It has had its finances supervised by the State of New York for the last two decades after a near-bankruptcy in 1999, and regularly has to go to the state government in Albany, hat in hand, for more money to keep the lights on. To explain why suburbs are lousy sources of property tax, we'll go first to a really nice suburban house in affluent Roslyn, and then, we'll show you three shabby apartments above a store in middle-class Elmont.
While I show you these buildings, think to yourself: if I were mayor and wanted to balance the books, which would I want more of?
Stop No. 1: 14 Sherwood Lane, Roslyn Heights.
This is the prototypical wealthy suburbanite's house - over 3000 square feet, on a 1/3 acre lot, with a pool in the back. It's currently selling for $1.58 million. The median household income of Roslyn Heights is $137,150, double the average in New York State, and the schools are superb. The area is 56% white, 24% Asian, 15% Hispanic, 5% black. Nassau's filled from top to bottom with houses like this - Nassau County, after all, is where postwar suburbia was born.
Got the picture? Great. Now, we'll hop on the Cross Island Parkway, and drive to Elmont, 20 minutes to the south.
Stop No. 2: 803 Hempstead Turnpike, Elmont.
It's an unremarkable 1930s brick building with "Felicia Unisex Dominican Beauty Salon" on the first floor, and there's three nothing-special apartments above. The building's currently selling for $800,000 and definitely looks like it's seen better days. These kinds of buildings are as traditional as they get, but new ones are banned by law. As a town Elmont's doing well, but it's not full of millionaires - median household income is $104,000. A lot more minorities live in Elmont, too. Elmont's 14% white, 13% Asian, 21% Hispanic, and 50% black.
Now pause, and ask: what's better for county finances - mansions like 14 Sherwood Lane, or a bunch of worn-out 1930s apartments above Felicia Unisex Dominican Beauty Salon?
The mansion, right?
Mansion, 14 Sherwood Lane: $1.58 million/0.32 acres = $4.94 million per acre. At Nassau County's 1.79% property tax rate, the County gets $88,381.25 per year per acre.
3 apartments over Felicia Unisex Dominican Beauty Salon: $800,000/0.05 acres = $16 million/acre valuation. At Nassau County's 1.79% property tax rate, that's $286,400 per year per acre.
A few apartments over a store in a middle-class neighborhood is three times as valuable for the local tax base as the massive suburban mansion. Nope, I'm not kidding.
This would suggest that if Nassau County wanted to stabilize its finances, it would allow more homes. In one study of suburban California, each new apartment or townhouse unit meant an additional $254 a year for the local government's coffers.
Nassau County has made matters even worse because of how it's aging. Home prices have skyrocketed because the County maintains its virtual ban on new apartments. But even though prices are up, Nassau County's population today is smaller than it was in 1970, and the tax base is shrinking as the inhabitants age. And Nassau's postwar suburban infrastructure is reaching the end of its natural lifespan. After all, roads have a design life of ~50 years; water mains have a design life of 70 years; utility poles have a design life of 40 years. It's easier to pay for all this if you allow more housing, because that way there's more tax money coming in - and less road to pave, pipe to lay, and utility poles to mount.
This wasn't a problem when Nassau was first built out, because the real estate developers paid for the infrastructure, and the Feds subsidized the whole thing to boot. But that money's gone now.
Combine a stagnant population and a big infrastructure debt with a bunch of shitty union contracts that pay the average Nassau County policeman $121,000, and you have the recipe for a county which has been persistently broke since the late 1990s.
You can see variations on this theme everywhere you look in rich postwar suburbs which don't allow new housing. Cupertino, CA's school board (average home sale price $2.3m) tried to start doing school closures, because of a lack of enrollment. Davis, CA (average home sale price $780k), has roads that famously suck. Beverly Hills has had shrinking school enrollment for a quarter-century and now their high school has shrunk so much that they're cutting electives because young families can't afford to live there.
These problems are the natural result of the choices that these places have made. It wouldn't be the end of the world for Nassau to allow some organic growth and stabilize its finances. A duplex here and there, some rowhouses, apartments over a corner store - all this would make Nassau County like every small town in America built before World War II. But Nassau County would rather have shrinking schools, worse roads and higher taxes, than have a few more apartments over a Felicia Unisex Dominican Beauty Salon.