The Suburbs are a Ponzi Scheme

I was raised in an urban environment, center city Philadelphia to be exact, but now raise a family in a northern suburb of Dallas. The conveniences of raining kids here are wonderful: everything is new, safe, and schools are great. The problem is it’s unsustainable.

This is not a new or unnoticed issue. The suburbs being a Ponzi scheme is widely written about by Charles Marohn on his website He chronicles the history of the suburbs, their funding sources over time, the structural issues the funding sources have created, and what we can do to correct their course. His goal is to change how we develop our country and ensure it’s done in a sustainable way.

Because of his critical critique of how suburbs are managed he is often derided as anti-sprawl but he really doesn’t care as long as its sustainable. It’s a very interesting perspective as someone with a great interest in economics and he has a very laudable goal.

Sadly, my goal is much more selfish and is only to stay ahead of property value declines in my own area. To do this I need to review what the issues are.

The basic argument in economic terms is that the city council of my town, as do all the others, have incentives to grow the town through additional infrastructure projects but the true costs are borne by others many years later. When towns are quickly growing, the city issues long term bonds that are paid for by the boost to property taxes from nice new houses the residents moving in. These new residents are happy to pay to live in the shiniest new suburb.

City councils however are far too likely to underestimate the true cost of maintenance on this new infrastructure and the eventual replacement or upgrades needed to support sustainability. City councils are, after all, politicians so they are unlikely to raise taxes to pay for these costs escalations so another round of bonds are issued to do “upgrades” which they also bury some of the maintenance costs into as well. The can is thus kicked down the road until it becomes unsustainable.

Once the town starts to become behind on the maintenance to a point that is visible to the current residents, the most mobile (usually wealthier and higher property tax paying) residents begin  moving to newer, faster growing suburbs.  The suburb then enters a disastrous cycle of lower property values (as the residents move out) and increasing taxes (to make up for the lower property values). The increasing property taxes then makes the town less attractive for potential new residents, further decreasing property values, increasing the need for higher taxes… This is a death spiral for the town.

So where is the tipping point? Is my town at it or yours?

There appears to be two ways to look at it, either through the life cycle of the projects being undertaken and when they will come up for renewal/updating or by analyzing the population growth which pays for the new investments.

Looking at the life cycle of investments is a good start as it looks at the true issue and the cost associated with it. It should be pretty easy to find out when the largest capital infrastructure investments were made in your town as it should be public record. My town publishes its debt schedule online showing when capital was spent:

Debt Schedule

Because of the amazing growth the city has seen, the issuances before 2007 have all been paid off. That’s good from a debt management standpoint but the roads are still aging and will need to have ongoing maintenance.

The useful life of a concrete road, which these are, is 30 years. As the roads approach that age, they will require additional maintenance before needing replacement at the end of its useful life. Based on this, the first round of road replacements should begin in 2033 with another big bubble in 2036.

That may seem far off but it’s only 17 years.

Fortunately for my city, it’s still growing fast. Current population is 146K with a projected population in 2020 of 186K. The town as well as the greater Dallas area is booming, I can’t imagine a scenario where that population goal isn’t achieved. And as long as there is a continuous stream of new buildings and property taxes coming in, covering the cost of new maintenance expenses and debt service should not be a problem.

If there wasn’t such strong population growth, I would be looking at selling my house at close to the 17 year mark before taxes started to increase to cover the higher maintenance expenses and well as new debt service on the replacement road.

But my kids should finish school in 15 years anyway and my wife are planning to downsize. I can sleep easy and I hope you can too in the town you live in.

If you want more information on building or knowing if your town is a healthy one, check out