Lawrence Solomon

May 5, 2004

Lawrence Solomon, the executive director of Urban Renaissance Institute, delivered the keynote address at the 5th annual Edmonton Real Estate Forum on Wednesday, May 5, 2004. Mr. Solomon looked at factors such as demographic change, attracting a skilled workforce, continuing advances in technology, infrastructure investment and transportation and their impact on how effective cities function. He explored how these factors influenced the direction of cities as they headed into the future, as well as how cities would attract and facilitate growth, and where the funds would come from. His speech appears in full below.

It’s a pleasure to be back in Edmonton, here in one of Canada’s – and the western world’s – most dynamic city regions. It’s doubly pleasing for me to be back in Alberta. Alberta is the only province in Canada that has a powerhouse for a rural economy. In every other province, the rural regions are economically weak and a drain on the urban economy. Only Alberta has a strong rural economy that works hand in hand with its cities.

Greg asked me to talk about the cities of the future. I have a great crystal ball, so I can tell you a lot about how cities – as well as rural areas – will evolve in the future.

My crystal ball tells me that globalization will continue to bring prosperity to the world and that free markets will continue to expand in Canada and elsewhere, as they have for the past two centuries. My crystal ball also tells me that governments will continue to privatize more and more services, leading to ever-greater efficiency and to an ever-greater need for communities to be self-supporting, and not dependent upon subsidies. Many if not most rural areas will prove to be unsustainable, leading to a resumption of the great march of people from the rural areas to the cities.

Here’s the bottom line: Big cities are efficient and economical and will become bigger in future. Resource towns are generally unsustainable without subsidies and, because globalization and free markets tend to eliminate subsidies, small towns as well as small rural communities will disappear.

The beginning of the profound changes to come to our daily lives, and to our economy, can be seen in events that started in London a year ago. Most Canadian are unaware of the revolution that is now underway, and how dramatically it will be changing our own lives in the near future.

In London a year ago, the city government decided to introduce a user pay system to its downtown roads, by tolling for their use during congested periods. Car owners began to pay £5 per day – about $12 – to enter central London between 7 a.m. and 6:30 p.m. on weekdays. Overnight, congestion all but disappeared. Until then, London was heavily congested, ranked among the six most congested cities in the world. Now traffic jams are a thing of the past. Not only that, the tolling of London’s roads is immensely popular.

Why does the public overwhelmingly embrace the tolls? Almost everyone benefits. Just about the only losers are parking lot operators. They’ve had to lower their parking rates by an average 14% to keep their customers.

It’s easy to see why the general public likes the road toll, if you put yourself in a Londoner’s shoes.

Imagine you’re a bus passenger. Bus passengers love the toll because the free flowing roads means that they aren’t stuck in traffic. Bus disruptions due to traffic are down by 60% in the central area and 40% across London as a whole, reducing the excess waiting time at bus stops by 33% in the central area, and by 20% across the whole system. With buses moving quickly, demand for public transit has soared. As a result, London transit companies have put another 300 buses on the road.

The bus companies like it, too. More customers translate into more profits. And the bus companies were profitable even before the tolls were introduced – in London, the bus system operates mostly without subsidy, and it is privately owned.

Or, imagine you take taxis regularly. If you take a taxi, a ride that used to cost you £20 now costs you £11 or £12, because the cab doesn’t sit idle in traffic – it now averages 35 miles per hour.

Your cabby likes it, too, because he makes more trips now, and he makes more money when his cab is rolling than when it’s idle.

Or, imagine you’re a pedestrian. Accidents involving pedestrians are down 6%, part of a great overall reduction in accidents: 28% fewer cars are now involved in accidents.

Most businesses like it, too. Less time spent in transit means more business deals can get done. Faster delivery times of goods translate into better service, lower inventory requirements, and lower costs. A survey of businesses in and around the central core found that 70% supported the road charges, with only 20% opposed. Those in central London’s financial services industry favoured the tolls in even larger numbers.

With road users no longer getting a free ride, people are weighing the costs and benefits of taking their car and they’re making different decisions than they did when the roads were free. All told, London now has 50,000 fewer cars entering its downtown area during peak hours. Many still come in by car, only they share rides. Or they arrive earlier, or leave later, to avoid the tolls.

All told, car trips are down 30% and truck trips are down 10%. Meanwhile, motorcycle and scooter trips are up 12%. Bicycle trips are up by 20%. Taxi trips are up by 20%. Public transit – the biggest winner of all – has trips up by 23%.

London has solved one of the last great drawbacks of large cities – traffic congestion. Because it eliminated the traffic jam, the London economy saves some £220-million a year in reduced travel time, fuel costs and accidents.

The cities of the future will look a lot like London, at least in terms of controlling traffic.

London’s success has led cities around the world – some 100 of them – to investigate moving in the same direction. Just a few weeks ago, Stockholm announced it would be introducing a similar toll system.

But road tolling isn’t just an urban phenomenon. The United Kingdom plans to toll all roads – urban, suburban, rural – within the next 6 to 8 years. The European Union has already passed legislation to toll trucks on all its roads.

The US has another road tolling innovation that will lead to profound change. The country’s fourth largest auto insurer, Progressive Casualty Insurance Company, has launched a pay-by-the mile auto insurance system. In Texas, where it is in place, car owners who opt to pay by the mile are saving about 25% on their car insurance. These drivers, of course, are those who drive less than the average. In the past, they paid more than they should have, while those who drove more than average paid less than they should have, because the insurance industry didn’t have an accurate way to allocate the actual costs of insuring their customers. Now that technology allows accurate pricing, all this will change. Those who drive a lot won’t be subsidized by those who don’t. Rates for car-dependent people will climb dramatically. That will encourage them to drive less. But in Texas, even those who don’t drive much are deciding to drive less. Drivers are realizing that the cost per trip of their insurance alone – forget the cost of gas or depreciation on their car – can exceed the bus fare.

What will all this tolling mean for society? You know better than most. When people make decisions about where to live, they often make difficult trade-offs. Do I buy a house in the city, or do I go further out, where land costs less? Often, people decide to put up with a 20 or 30 minute commute in order to save money on their accommodation – in Toronto, sometimes they put up with a 1 or even 2 hour commute.

After road tolling comes in – and the future is not all that far away – that logic gets thrown out the window. There will no longer be a trade-off between the inconvenience of a commute and the saving on land. The commute will be both inconvenient and costly. People will no longer go further and further out. Suburban sprawl will not continue. In fact, it will begin to reverse. In the past, when suburbs began to decay, suburbanites abandoned them for newer suburbs, further out. In future, when suburbs begin to decay, people will abandon them for locations closer in. The decayed suburbs will become slum or, if they’re uneconomic, they’ll be abandoned as residential areas. Cities, meanwhile, will become denser and denser. And as they become denser, they’ll function better.

The denser that cities get, the less expensive it is to deliver basic services such as water, gas, electricity, and cable. The denser that cities get, the easier for neighbourhoods to support local bakeries, local flower shops, local green grocers, local hardware stores. The denser that cities get, the more opportunity for diversity in schools for your children – dense neighbourhoods can support art schools, religious schools, alternative schools, and all without busing. The denser that cities get, the larger the city’s tax assessment and the lower the taxes per household.

People often assume that high density neighbourhoods are undesirable, sometimes people even associate high density neighbourhoods with slums. While some slums do have high densities, the general rule is that the higher the density, the more desirable the neighbourhood.

In most cities, the older, denser neighbourhoods are among the toniest, and fetch some of the highest prices. They can be gentrified or they can be new; they can be affluent or neighbourhoods in transition, where the rich live next to rooming houses, but they have one thing in common. They are full of people and, as a result, full of life. People walk more in these neighbourhoods, they shop more on foot, they have more neighbourhood restaurants and more access to entertainment. Their kids have more options, too, and not just in schools: more museums and other cultural institutions offering programs, more sports and recreational opportunities, more local musicians offering flute and guitar and piano and violin lessons.

People love density. Because they love density, they bid up the price of real estate in dense neighbourhoods, whether the neighbourhoods are commercial or residential. The best North American example of density is Manhattan, where about 50,000 people live per square mile. You have to be very rich to live in Manhattan and when people become very rich – like Wayne Gretsky – they often move there. Manhattan’s density supports an incredible array of establishments, making it among the most desirable places on earth, and its real estate among the priciest. New York continues to grow – its population, at the last census, was its largest ever.

No other city in North America has even half of Manhattan’s density. Toronto’s density, before its recent amalgamation with suburbs, approached 20,000, making it North America’s second densest city. Yet even at that density, a city would need to grow two and a half times to reach Manhattan’s density, and be able to afford all the amenities that Manhattan has. Edmonton’s density is lower still, at 3,500 people per square mile. To reach Manhattan’s density, you’d need to grow 15 times.

I am not arguing that either Toronto or Edmonton have as a goal to reach Manhattan levels of population. I’m not in favour of social engineering to achieve something as abstract as a certain population density.

My point is that high densities should not be feared, and that governments should not have as a goal the discouragement of high population densities. Yet that’s what governments do, at all levels. They discourage high population densities through the tax system and through all manner of government policies. Governments are in the business of social engineering, to influence where we live. I would like to see the government get out of this business, and let people choose where they want to live – whether in cities, in suburbs, in rural areas – not because the government provides some incentive or disincentive, but because that is their true preference.

This social engineering started off as an Eastern disease. A century ago, Canadian governments had explicit policies to move people out of cities, and to discourage high densities in cities. High densities were associated with public health problems. The public health problems that concerned governments then were tuberculosis, sexual promiscuity, sewage, sexual promiscuity, fresh air, sexual promiscuity, alcoholism, sexual promiscuity, atheism and sexual promiscuity.

If people lived too closely, together, public health reformers believed, their morals would suffer. A big problem in eastern Canada was that people were leaving the farm for the cities, and most of those people were single women. These single women got jobs with Eaton’s or with the telephone company during the day and who knows what they were up to at night.

So governments decided to discourage high-density living. Because the single women often rented rooms in private homes or shared apartments to save on rent, cities began to discourage lodging houses and rooming houses and to ban apartment buildings. They forced public transit companies to service unprofitable routes to the suburbs, in order to move people out. They tore down high density districts, and replaced them with low-density accommodation or with parking lots. When the First and then the Second World Wars came, governments leaned on the returning servicemen to live outside cities, even if they had come from cities. To be eligible for housing aid under the Veterans Land Act, for example, servicemen need to locate either in rural areas, or outside the city’s municipal boundaries.

The government bias against urban living continues to this day. Property taxes are, in effect, based on location, not on the cost of delivering services. In dense downtown neighbourhoods, where there are many residents per block, garbage trucks can service many more households than in low-density neighbourhoods, which have few households per block. If households paid for garbage collection on a user pay basis, the dense neighborhoods would pay less, the low-density neighborhoods more.

So, too, if households paid for their firemen and fire stations on a market-oriented basis. Fire trucks typically must be able to reach a home within four minutes of being called. In a high density area, which might have three or four times as many homes within a four minute radium of the fire station, the cost of providing fire protection is one third or one-quarter as much. Low-density areas require more road per house, more city water pipe, more gas company pipe, more electrical wire, more telephone wire, more cable, more everything. Yet in the city of today, low-density neighbourhoods pay less property tax. High density areas – those in or near the downtowns of cities which are fairly dense – pay more.

The property tax system in the city of today is a redistribution machine, that, in effect, takes money from people living in a high-density areas and gives it to people living in low-density areas. Often it takes money from those who aren’t well off and gives it to those who are. It’s unfair, and it will change, as free markets continue to make progress and as hidden subsidies such as these are replaced by transparent user fees.

But property tax isn’t the only example of built-in government discrimination against density in the city of today. Our regulatory systems for utilities all overcharge city residents to subsidize those in lower density areas. The telephone companies, for example, by law must overcharge city folk to keep rural rates down. That subsidy amounts to hundreds of millions of dollars a year, at times it has topped $1-billion.

Subsidies to low density developments also apply to the water, sewage, and natural gas systems. Because it is uneconomic – in the city of today – to expand the infrastructure, regulators routinely finance expansions with surcharges on urban customers.

Often these subsidies are hidden, and don’t appear in anyone’s books, not even a regulator’s books. We all know that public transit is subsidized in Canada, but we don’t know that it isn’t subsidized for all users. In a study that my organization did several years ago of the Toronto transit system, we found that people who take short transit trips were being overcharged for their trips – the transit company made money on them. Those who took longer trips were paying less than the cost of providing the service. Those who took very long commutes received the largest subsidy of all. The government’s attempt at social engineering had some successes and some failures.

The government didn’t succeed in outlawing sexual promiscuity but it did succeed in discouraging urban living. The sprawling suburbs we see are mostly a consequence of government subsidies. Most of the farmland now cultivated is also a consequence of government subsidies. Low grade land keeps being brought into production – we now have more land under cultivation than ever before – again thanks to government subsidies.

And yet, despite all the subsidies designed to keep people on the farm, and away from the cities, urban Canada keeps growing.

80% of us now live in urban areas, because that’s our preference, even if we’re penalized for exercising our preference.

How many of us will live in the Cities of the Future? When North America was first settled, only 10% of us lived in cities, 90% in the countryside.

Then 20% of us lived in cities, then 30% and 40% and 50%.

Historians in the first half of this century thought 50% was the peak – and governments tried to make it the peak with all their programs to keep people on the farm.

But 50% urban became 60% became 70% became 80%.

In Cities of the Future, we will see 90% because there’s no economic basis for most rural jobs.

Some farming is economic, most is not, and hasn’t been for decades. For every dollar of profit that a farmer in Canada made over the last decade, Canadian society kicked in $3.60.

Some mining is economic, most is not.

Some logging is economic, most is not. Even in the BC coast, 60% of the trees are logged at a loss, only to keep forest jobs.

There are only two major rural occupations that are very economic – and that is a big part of Alberta’s strength. Oil and gas is economic – the only resource industry that is viable on a large scale. And rural tourism is economic. They aren’t making any more Rockies.

Because Canada will need to be internationally competitive in future, we won’t be able to continue to carry rural areas that are unsustainable.

Just last month, the Ontario government released a major report, endorsed by the premier, that suggests phasing out rural communities in Ontario. “We can’t subsidize everyone,” the report said.

This is the beginning of a hard but realistic assessment of our rural areas. The report calls for retraining rural youth for urban jobs. The youth won’t need much encouragement to head for the cities – that’s where they’ve been heading to anyway, generation after generation.

The rural areas of the future will be sparse. Rural areas should be sparse – that is their fate.

And the Cities of the Future will be sense. That, too, is their fate. That is the natural order of things. That natural order will assert itself as people finally decide where they want to make their homes.

Thank you.