Every smart shopper and retailer knows the value of a “loss leader.” It’s the product a store advertises at an impossibly low price—think of the Costco hotdog, a hot and fresh rotisserie chicken, or the bag of milk sold at cost so you make sure to shop there regularly.
This is a common and powerful business strategy. Technically, the store almost certainly loses money on every chicken it sells. But they do it to get you in the door, making a calculated bet that once you are inside, you will fill your cart with items that will help them make money overall: spices, cereal, vitamins, and batteries. The profits from those items easily cover the small loss on the chicken. The business is successful with this strategy because it maintains a balanced inventory.
Our cities, however, have missed the most crucial step in this process. For the last few generations, we have operated on a business model for housing where large parts of the city exclusively sell the loss leader: single-family homes. And now, the bill is coming due, and it’s going to hit us hard.
The Suburban Loss Leader
In the business of municipal development, our most desirable and mass-produced “product” is the detached home on a quiet, low-density street.
As a resident of Convent Glen, an older suburb of Orléans, I can see the appeal. For many residents in this type of community, it’s the suburban dream: a private yard, a driveway, and space for the kids. Having some nice, attractive properties like this are the “deal” cities offer to attract residents to neighbourhoods. The “price” of this product (aside from the sale price of the house) is the annual property tax bill, and it costs a lot more over to maintain the infrastructure for streets which only have this kind of housing.
Here is the fundamental accounting problem: the tax a homeowner pays on their single-family home doesn’t come anywhere close to covering the cost of keeping the doors open, i.e. funding our communities that are brimming with a huge majority of single-family housing.
The property taxes collected from a typical single-family home are not even close to enough to pay for the long-term lifecycle cost of the public infrastructure required to service it. We aren’t just talking about plowing snow. We are talking about the massive cost of the 30-year replacement cycle of asphalt roads, concrete curbs, and the miles of underground pipes for water, sewer, and stormwater required to connect spread-out homes.
This isn’t a political opinion; it’s a math problem. When you spread expensive infrastructure over very few payers, and don’t set up the system so everyone pays a fair share, the model slowly bankrupts a city.
A Store with Empty Shelves
This is where the analogy becomes clear. What would happen if a grocery store manager decided to stop selling meat, veggies, and other staples, and filled every single aisle with nothing but below-cost milk?
The store would go bankrupt. Quickly. And while it was failing, the business would look extremely successful, until the money runs out.
Yet, this is effectively the zoning strategy of Orléans and many modern North American suburbs. Through restrictive zoning designations (like the prevalent N1 and N2 zones being written into our new bylaws in the city), we have mandated that the vast majority of our land will continue to only be used for the loss-leader product. We have effectively outlawed sustainable housing in much of the suburbs. Technically, the city is making it legal to build 4-6 unit multiplexes with the new bylaws, but there are still so many harsh restrictions on what can and can’t be built. This makes any density at all very challenging to build unless you do this for a living (i.e. you are a developer).
How have we managed to keep the lights on so far? We’ve been funding this insolvency through what the Strong Towns movement calls the “Growth Ponzi Scheme”. We use the development charges and initial taxes from new subdivisions to pay for the mounting maintenance bills of the old ones. But as our suburbs mature and those 30-year-old roads all crumble at the same time, the illusion shatters. We see this now with year after year of cuts and austerity budgets, needing to find more and more ‘efficiencies’ that nobody is happy with.
Restocking the “Profit Centers”
A healthy city, like a healthy business, needs a diverse product mix. We need “high-margin” items that are fiscally productive to subsidize the “loss leaders” that we enjoy living in.
To find these products, we need to look at Land Use Efficiency: the amount of tax revenue a property generates per hectare of land. When you view the city through this lens, the “high-margin” products become obvious:
- Medium-Density: A duplex, four-plex, or small 3-4 story mixed-use apartment building built on the same-sized lot as a single house requires the exact same length of road, pipe, and sidewalk, but generates two, three, or four times the tax revenue. From a land-use efficiency perspective, that is pure profit for the city.
- Neighborhood Commerce: A corner store or cafe nestled into a residential block or operated on the main level of a residential building doesn’t just provide coffee; it provides a high density of taxable value on a smaller footprint.
Super-wide driveways and giant parking lots are about the only thing worse for a city than single-family homes, and unfortunately we’re chock full of those too.
Places like Centretown, the Glebe, and Westboro are fun to spend time in because they are dense. They are also good for business and the local economy because they are dense. The very things that make a community fiscally resilient—walkability, mixed-use buildings, and additional density—are the same things that make them enjoyable places to be.
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Balancing the Books
We have built our communities on a fundamentally broken business model. We are addicted to our single “loss leader,” and the financial reckoning—visible in our potholed roads and strained transit budgets—is already here.
The solution is not to ban single-family homes, just as a grocery store does have an incentive to sell a few products at or near cost. The solution is to stop making this kind of housing our only product in established neighbourhoods.
We need to restock the shelves. This means supporting comprehensive zoning reform to allow gentle density by default (I suggest dropping our couple of most sparse zoning designations, like N1 and N2, completely, which makes building more dense housing easier without being too radical). It means allowing our neighborhoods to organically evolve, permitting the multiplexes and corner stores that make our city a great place for anybody to live.
We must shift the conversation from a “lifestyle” debate to a fiscal one. This is about building a community that can actually afford to maintain itself for the next generation. Let’s stop trying to run a city on milk alone.
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