Poor Neighborhoods Make the Best Investments

Charles Marohn of Strong Towns breaks down why poor neighborhoods are profitable while the affluent neighborhoods are not, and makes the case as to why investing in the poor neighborhoods realizes the most bang for the buck for cities.

So why does this make poor neighborhoods the best investment today? There are three reasons.

First, in comparison, the other investment opportunities are terrible. That map of Lafayette tells a compelling story about the financial failure of all those residential subdivisions with the wide lots, curvy streets and cul-de-sacs. They are financial losers right now and, understanding modern zoning as well as the expectations of the people who have bought there, there is little hope of turning that around. These places are built all all at once to a finished state. Today is peak wealth; it’s all downhill from here, regardless of how much public investment is made.

Second, it won’t take much to see consistently large returns. In these poor neighborhoods, we’re not talking about taking $50,000 homes and making them into $250,000 homes. Those kind of projects are hit-and-miss risky and not really scalable anyway. What we’re really talking about is taking a neighborhood of $50,000 homes and making them $55,000 homes. That’s a solid 10% increase in the tax base. It’s wealth that is shared throughout the neighborhood. It’s a real gain – not an illusion – that is more likely to persist than some kind of one-off project. And it’s repeatable. We can nurture 3-5% annual returns out of these depressed neighborhoods for a long, long time. (And, by the way, one quick diversion from dollars and cents….this is also how you avoid displacement and ensure that the gains in wealth actually go to the poor who are responsible for it.)

Finally, the type of investments that these neighborhoods need in order to experience consistent 3-5% returns over time are very small and low risk. We’re talking about things like putting in street trees, painting crosswalks, patching sidewalks, and making changes to zoning regulations to provide more flexibility for neighborhood businesses, accessory apartments and parking. If we try some things and they don’t work, we don’t lose much because they don’t cost much. We learn from our small failures and try something else. This is the approach we described in our Neighborhoods First report, a way of building we’ve now seen repeated in cities like Austin, Memphis and Pittsburgh. We also shared some other ideas last week in Five Low Cost Ideas to Make Your City Wealthier.

American cities can make low risk, high returning investments while improving the quality of life for people, particularly those who have not benefited from the current approach. That is the essence of a prudent, Strong Towns approach. It’s critical we get started now because we need strong cities if we are to have a truly strong America.

This article was originally published by Charles Marohn on Strong Towns.

Charles Marohn - known as “Chuck” to friends and colleagues - is a Professional Engineer (PE) licensed in the State of Minnesota and a member of the American Institute of Certified Planners (AICP). Chuck is the Founder and President of Strong Towns. He has a Bachelor’s degree in Civil Engineering from the University of Minnesota’s Institute of Technology and a Masters in Urban and Regional Planning from the University of Minnesota’s Humphrey Institute.

Chuck grew up on a small farm in Central Minnesota. The oldest of three sons of two elementary school teachers, he graduated from Brainerd High School in 1991. Chuck joined the Minnesota National Guard on his 17th birthday during his junior year of high school and served for nine years. Besides being passionate about building a stronger America, he loves playing music, is an obsessive reader and religiously follows his favorite team, the Minnesota Twins.

The mission of Strong Towns is to support a model of development that allows America’s cities, towns and neighborhoods to become financially strong and resilient. </i>