Strategies in Building Strong Towns with Incremental Developments with Charles Marohn, P.E.

Strategies in Building Strong Towns with Incremental Developments with Charles Marohn, P.E. – Ep. 44

About the Guest

One of the best shows yet is coming your way! I am excited to share this next conversation with all of you. Charles Marohn is the Founder and President of Strong Towns and the author of Strong Towns: A Bottom-Up Revolution to Rebuild American Prosperity. He is a Professional Engineer (PE) licensed in the State of Minnesota and a land use planner with over two decades of experience. He holds a bachelor’s degree in Civil Engineering and a Master of Urban and Regional Planning, both from the University of Minnesota. He has presented the concept of Strong Towns in hundreds of cities and towns across North America. He is featured in the documentary film Owned: A Tale of Two Americans, and was named one of the 10 Most Influential Urbanists of all time by Planetizen.

“Strong Towns supports thousands of people across the United States and Canada who are advocating for a radically new way of thinking about the way we build our world.
Strong Towns believes that in order to truly thrive, our cities and towns must:
• Stop valuing efficiency and start valuing resilience
• Stop betting our futures on huge, irreversible projects, and start taking small, incremental steps and iterating based on what we learn
• Stop fearing change and start embracing a process of continuous adaptation
• Stop building our world based on abstract theories, and start building it based on how our places actually work and what our neighbors actually need today
• Stop obsessing about future growth and start obsessing about our current finances
But most importantly, they believe that Strong Citizens from all walks of life can and must participate in a Strong Towns approach—from citizens to leaders, professionals to neighbors, and everyone in between.”

In this episode, we are going to discuss the mission of the Strong Towns movement, the attributes of successful developments and how they can impact the surrounding neighborhoods and towns, and how developers can learn from the past in order to help build developments that ultimately benefit their cities and communities. There is loads of great information in this episode and I greatly appreciated Charles for taking the time out of his extremely busy schedule to discuss this topic of Strong Towns with me.

As always, if you have enjoyed the show, please subscribe to the show and share with your friends in the industry. There will be more exciting conversations on the shows to come.

Main Take-Away’s From This Show

This was another interesting episode to record. I thoroughly enjoyed Charles candidly sharing his story behind founding Strong Towns and the various revelations he came across on his journey. From just beginning to ask questions about “successful” City spending to the formulation of his thoughts on what truly successful developments are and can be. As mentioned in the show, this wasn’t just a dive into the history of Cities, but truly a deep dive into understanding humanity as a whole. There were so many great talking points that Charles shared throughout the discussion, so it is hard to just pick three for my main take-away’s this week. The following main topics of the show come from an understanding in City Planning, Engineering, and Development that Charles possesses.

As an incremental developer, you are fighting against forces much bigger than yourself. (i.e. subsidized capital)
Private Public Partnerships; the good, the bad, the ugly.
There are a lot of basic business principles that Cities could very well adopt that will make them much stronger.

As always, I will dig into each of these “take-away’s” every week on the blog. So, without further a due, here we go!

As an incremental developer, you are fighting against forces much bigger than yourself. (i.e. subsidized capital)

As if it weren’t hard enough…Charles made a great point here that incremental developers are often fighting against forces that are much greater than themselves, unfortunately. These forces include but are not limited to; subsidized capital, City zoning requirements, NIMBY’s, access to capital, etc… The list could really go on for quite some time. We mainly discussed the role of subsidized capital when talking about the extreme advantages that national home builders seem to have over the less capitalized local developer. This allows these home builders to produce large quantities of single-family homes while being able to command and demand material pricing that is more advantageous than those doing primarily incremental developments.

Another force that usually affects incremental and infill developers is outdated zoning codes. The Euclidean zoning that plagues most City’s in the U.S. can hold these developers back from providing developments that are more necessary and sustainable in the context of urban infill. It can be downright vicious in some City’s to get good mixed-use developments in much-needed neighborhoods due to the antiquated codes that surround the area.

Charles mentioned that if we really want to encourage strong towns, we need to cultivate developments within the urban core where developments can actually provide much more value per square foot than those on the outskirts of town. If City’s started to recognize the role of good incremental developers within their City’s, they could begin to reap the benefits of increased investment in the urban core and surrounding areas.

Private-Public Partnerships; the good, the bad, the ugly.

I would say this next point is a “hot take” or one that may cause a little controversy from those in the development community but when you understand where he’s coming from on this point, you can start to understand the perspective of someone who has a City’s best interest in mind. Charles identified that in most Private-Public Partnerships (PPP) the City takes on all of the risks with little upside potential if the development succeeds. Sure, they get a potential increase in tax revenue in the area if the development encourages more development in the area, but once the pipe is in the ground and the streets are paved, the City has to maintain it.

The City is essentially handing out a subsidy with little upside potential if the development succeeds but gets stuck with failing infrastructure and little-to-no tax base if it does not succeed.

One of his thoughts for making these partnerships more equitable from the City’s standpoint would be to share in the upside potential gained by the development. Say the development estimates that a good return on the investment is 10% but eventually nets a return of 15%. Then potentially the City could get a share of this 5% additional return seeing as the City technically also invested in the development through means of tax abatements or another mechanism. It’s an interesting idea and seems to make perfect business sense from the City’s perspective, which is a solid transition into my next point.

There are a lot of basic business principles that Cities could very well adopt that will make them much stronger.

This last main point is one that is almost too simple but often overlooked by municipal governments. In the podcast, we discussed a couple of basic business principles that you may have learned in Economics 101 in college or maybe even earlier in high school. Intuitively it makes since that an agency that handles revenue and expenses should operate as a business, but this is often far from reality. In the show, we touched on value propositions and how a government that acts as a “low-cost” commodity is positioning themselves in a lower value position in regard to a City that positions themselves as a luxury good.

We also touched on the standard accounting principles utilized by most if not all cities in North America. While most businesses operate in an Accrual basis method of accounting where liabilities are reflected as negative values in the year they are incurred, City’s often operate on a Cash basis which reflects liabilities in the year they are paid. This subtle difference means that debt taken on by the City does not show up as a liability for the full amount the year it was received, it shows up as a credit or revenue, which appears to inflate the cash position of the City and blind individuals from the true liabilities incurred by the City.

As you can see from the takeaways above, this podcast episode was absolutely full of amazing information on making it in real estate development and certainly provides actionable steps you can take on your next real estate development project. As always, if you have enjoyed the content and the show, please subscribe to the show below and share it with your friends in the industry! We’ll have many more great discussions on the shows to come.

To Learn More About Charles Marohn and the Strong Towns Movement, Check out the Following Websites:

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