Decisions about infrastructure investments often have strong and long-lasting implications for the built environment, and vice versa. Should governments subsidize highway construction or public transit? Is it better to invest in the durability of rail lines or the flexibility of bus lines? How will these and other decisions about infrastructure affect residents and workers? The relationship between infrastructure policies and the physical form and productivity of cities is the subject of two chapters in Infrastructure Economics and Policy: International Perspectives, a recently published Lincoln Institute book. 

In chapter 4, economist Edward Glaeser of Harvard University focuses on how infrastructure technology shapes the economic role and physical form of cities. Glaeser observes that the density and form of a city reflect the transportation technology prevailing at the time when the city was growing most rapidly. Boston is denser than Las Vegas, for example, largely because it grew in the era of the streetcar rather than that of the automobile. The full effects of technological change develop in three steps, however, and that development can take many decades. The first step is the invention and refinement of new mobility types, such as the wheeled wagon, the horse-drawn (and then electric) streetcar, the subway, the automobile, and even the elevator. The second step is the construction of the urban network over which those vehicles operate, while the third is the building of the cities around that network. 

Glaeser takes as his example the automobile, which was invented in the late 19th century but neither comfortable, reliable, nor affordable until the first decades of the 20th century, when its popularity exploded. The United States responded by building extensive high-performance, limited-access expressway systems in many cities. Those systems, in turn, stimulated the restructuring of urban areas in the United States in the second half of the 20th century, moving housing and workplaces from the central cities to the suburbs and enabling a migration from northern cities to the newer Sunbelt cities.  

Our ability to shape cities around their important highway, subway, and other transportation networks is limited, however, by the value and durability of the existing stock of houses and workplaces. For example, a big increase in the travel time or other costs of commuting to the center of a metropolitan area would be needed to make it worthwhile for real estate developers to tear down the existing suburban housing stock and rebuild it to a higher density commensurate with the higher commuting time and costs. Land use regulations can also help slow the land use response to transportation technology, especially where they favor the status quo.

Glaeser also illustrates several common policy choices about infrastructure and urban form. The first is whether the government should subsidize highway construction or public transit.   Subsidizing highway construction and uses often encourages urban sprawl. Subsidizing public transit may induce people to live near—and real estate developers to build homes near—public transit stops, but evidence shows that the impact is much smaller in scale than that of subsidizing highways. In addition, in the United States, strict local land use controls often constrain the ability of housing developers to respond to infrastructure investments, thus limiting the benefits of such investments.  

A second policy choice is between rail and buses to provide urban public transit service. The choice is basically between durability and flexibility. The flexibility of bus services is an advantage in an uncertain world, but the durability of rail infrastructure makes real estate developers feel more confident about developing around rail stations. Public transport is now facing a major challenge: it is an important part of any carbon emissions reduction strategy, but ridership has fallen since the onset of the pandemic. 

In chapter 5, Daniel Graham, Daniel Hörcher, and Roger Vickerman, all professors and researchers at Imperial College in London, explore the relationship between infrastructure and the competitiveness of cities. Urban concentration provides more employment opportunities to workers and helps raise productivity for firms. These agglomeration benefits are accompanied by congestion and pollution which are also caused by urban concentration. However, it is methodologically difficult to measure the agglomeration benefits. 

To do so and for analytical simplicity, the authors assume a city where residential and workplace locations are fixed, and infrastructure affects only the productivity of city workers and the levels of congestion and pollution. Their main propositions are that urban agglomerations generate both positive and negative externalities and that the failure to consider them together may lead to poor investment and pricing decisions. The positive externalities stem primarily from increases in worker productivity as the agglomeration grows, but also from the realization of economies of scale in provision of public transit services; the negative externalities stem from increases in traffic congestion, pollution, and accidents. 

The authors describe the considerable challenges of empirically estimating the agglomeration benefits. They report their own estimates of the effects of agglomeration size on productivity, which have been endorsed by the U.K. government for use in required cost-benefit analyses. It is conceivable, but unlikely, that the agglomeration benefits and public transit scale economies are large enough and the congestion externalities small enough to greatly reduce the net benefit of the conventional recommendation of charging motorists a fee to travel into congested locations during rush hour. These are the kinds of factors cities must consider as they make decisions about infrastructure investment and pricing and subsidies. 

José A. Gómez-Ibáñez is the Derek C. Bok Professor Emeritus of Urban Planning and Public Policy at Harvard University. Zhi Liu is senior fellow and director of China Program at the Lincoln Institute of Land Policy. They are the editors of Infrastructure Economics and Policy: International Perspectives. 

This article was originally published by the American Planning Association and is reprinted with their permission. 
 
With 47 miles of coastline subject to punishing inundation, Boston is considering a range of innovative techniques to build resilience against the inevitable impacts of climate change. But one of the most groundbreaking features of this effort may well be the mechanism to pay for it. 

City officials last year established a Climate Resiliency Fund to help finance the berms, seawalls, and natural systems restoration that will help protect real estate in the vulnerable Seaport district and other potential flooding hotspots. Private developers will make contributions to augment local, state, and federal funding. 
 
The mechanism will be applied to the estimated $124 million cost of protecting a city-run, 191-acre coastal industrial park, but is poised to become a template for building resilience at many other vulnerable areas. 
 
While chipping in to help build defenses seems to be an obvious thing to do, the resiliency fund reflects an important recognition: Public investments in critical infrastructure benefit the private sector by boosting property values—and in the case of rising seas, allow land to continue to be usable. 

“There’s been a cultural shift,” said Brian Golden, who retired this spring as director of the Boston Planning and Development Agency after eight years of service. With such a huge task—preparing for 40 inches of sea level rise by 2070 across a landscape of hundreds of acres of squishy landfill dating back to colonial times—developers understand they have to pitch in and foot part of the bill, he said at the Lincoln Institute’s Journalists Forum in April. 
 
“We don’t get a lot of people balking at any of this,” he added, suggesting that developers have come to understand exactions and charges for climate infrastructure as a basic reality of the times, and appreciate the consistency and predictability of the policy. “If you’re doing business with us . . . you’re going to be paying to build some resiliency measures.” 

Don’t ‘Leave Money on the Table’ 

What’s happening in Boston reflects a growing consensus around the world, rooted in the concept of land value capture: the retrieval of increased land and property values specifically associated with government action and public investment. Just as a new transit line can increase values for properties all along it, resilience infrastructure can be shown to do the same. That increase in value is identified as the land value increment. 
 
Allowing the private sector to enjoy those benefits without making any contribution is increasingly recognized as the equivalent of “leaving money on the table,” noted Enrique Silva, director of International Initiatives at the Lincoln Institute. 
 
Value capture won’t fully finance climate adaptation efforts, but can become part of a “stack” of public finance arrangements that jurisdictions can leverage together, said Lourdes German, executive director of The Public Finance Initiative and a Lincoln Institute board member, also speaking at the Journalists Forum. Drawing contributions from developers and landowners can help fill critical gaps that often remain at the local level, after national and state funding is allocated. 
 
The search for the necessary revenue to fight the battle against climate change, estimated by the UN to be some $90 trillion worldwide through 2030, is certain to intensify. Governments have been using versions of value capture in Brazil, Colombia, Ecuador, the United Kingdom, and throughout Asia for many years. Officials in Miami are studying similar mechanisms to help pay for resilience infrastructure in that flood-prone city. 

Protecting Assets 
 
The argument for developer contributions is bolstered by the quality of the climate action efforts, which build confidence that real estate assets on urban land will indeed be protected. Boston has been taking steady steps for decades to address climate change in its planning, backed up by changes to zoning regulations and its broad application of Article 80, which provides the discretion to approve projects with certain strings attached. The Climate Ready Boston plan won an APA award in 2019, and Singapore’s Lee Kuan Yew World City Prize bestowed special recognition for the city’s efforts to address climate change in an older coastal city. 

It may have taken the climate crisis for landowners and developers to accept the obvious benefits of such government-funded interventions, said Golden. In the past, public investments that enhanced land and property values may have been regarded as a gift to the private sector or a form of stimulus for economic activity. Now the enormity of the task—fending off the water in some places, letting it be absorbed in others—is clear to all the stakeholders, who are more willing to be part of such a daunting, but necessary, effort. 

“It’s an old city, our building stock is fundamentally 19th century and early 20th century, and none of this was considered,” said Golden, referring to climate impacts and flooding. “And it’s not just about the benefit to metropolitan Boston. We are, after all, the economic engine of all the New England states. So people are, in 2022, signing up for this. They get it.” 

 
Anthony Flint is a senior fellow at the Lincoln Institute, host of the Land Matters podcast, and a contributing editor to Land Lines. 

Image: Boston’s Seaport District. Credit: Denis Tangney Jr. via iStock/Getty Images Plus.

Several major sources of radical uncertainty are currently affecting the performance of infrastructure and will likely shape infrastructure in the future: climate change, automation, the sharing economy, and the COVID-19 pandemic. Our book, Infrastructure Economics and Policy: International Perspectives, recently published by the Lincoln Institute of Land Policy, attempts to determine how the infrastructure sector should cope with these radical uncertainties. 

Three chapters of the book assess the impacts of climate change, automation, and the sharing economy, respectively, and discuss how public policies should respond to these challenges. The COVID-19 pandemic erupted while we were preparing the book, and little evidence was available on which to assess its impacts on infrastructure. These impacts are becoming increasingly clear now as data and empirical studies are emerging, and we have included our thoughts on them below.  

Climate Change 

Severe weather conditions and natural disasters due to climate change can seriously disrupt infrastructure services and damage or destroy infrastructure facilities, from transit lines to power lines. These impacts typically vary from one locality to another. For example, forest fires are a major concern in California, while rising sea levels are more important to Miami. As a result, Henry Lee, the author of chapter 18 of the book and a faculty member at the Harvard Kennedy School, argues that effective adaptation policies will mainly emerge at lower levels of government, in a bottom-up process.  

Lee predicts that the magnitude of investments in climate-resilient infrastructure over the next few decades will be unprecedented. He discusses the characteristics of these investments and the scope of the transitions that will be required in the transportation, electricity, and water sectors. After identifying the governance challenges that underlie all climate mitigation and adaptation options, Lee proposes changes in governance to enable more effective planning, delivery, and management of infrastructure. His main messages are as follows: 

• Honoring the commitments made by many nations to achieve net-zero emissions by 2050 will require unprecedented investments in infrastructure.  
• Local governments are likely to lead in developing adaptive policies, since the nature and extent of climate damages vary so much by location. 
• The electricity sector will be by far the most affected by efforts to mitigate emissions as electricity replaces direct burning of fossil fuels for mobility, heating, cooling, and manufacturing and as countries shift to solar, wind, and other renewable sources that require more sophisticated and extensive grids and standby capacity to remain reliable. 
• In the water sector, changes in precipitation will require some areas to import water, increase desalinization, or encourage conservation by raising prices. 
• Transportation infrastructure will be the least affected, although many vehicles are likely to be powered by electricity or hydrogen.  
• For these investments to succeed, four changes in the governance of infrastructure are needed: (1) reduce the number of agencies and levels of government with overlapping responsibilities; (2) streamline the process for siting facilities; (3) address stranded financial and human assets; and (4) reduce the bias for spending on disaster relief rather than disaster prevention. 

Autonomous Vehicles 

The second radical uncertainty examined in the book is automation and other new technologies that have emerged rapidly in recent years, thanks to advancements in information technologies such as cloud computing, the internet of things, and artificial intelligence. Whether these new technologies will revolutionize the infrastructure sector is the central question examined in chapter 19 by Shashi Verma, director of strategy and chief technology officer at Transport for London (TfL). Verma reminds us that fundamental infrastructure change typically comes only very slowly. Then, using autonomous vehicles (AV) as a case study, he discusses the economics of AVs, the likely impacts of automation on other modes and consumer behavior, and the institutional challenges it faces before its widespread acceptance. He offers the following advice: 

• AVs may prove to be among the rare fundamental changes in infrastructure technology, on par with the invention of the internal combustion engine, and especially disruptive to our cities. 
• Policy makers should take actions to prepare for the arrival of the technology, including licensing, allocation of road space, economic support to public transportation, and control over pricing structure. 
• Between one-half and three-quarters of the cost of a taxi ride covers hiring the driver. If AVs could save on driver cost, this would stimulate an increase in travel and pose an existential threat to public transportation. The latter would be competitive with AVs only during peak hours and even then, only where it is protected from traffic congestion. 
• Road congestion would likely increase greatly with the rising use of AVs unless there is a large increase in ride-sharing. The only unmitigated benefit would be a large reduction in the land required for parking. 

The Sharing Economy 

The third radical uncertainty examined in the book is the sharing economy. Sharing is an economic model of acquiring, providing, or sharing access to goods and services using online platforms. What impacts might the sharing economy have on infrastructure services and assets? In chapter 20, authors Andrew Salzberg and O.P. Agarwal explore this question using a case study of urban transportation. Salzberg is responsible for public policy at Transit, a leading public transportation app in North America, and before that worked as an executive at Uber. Agarwal served in the Indian Administrative Service and the World Bank and is currently chief executive officer of World Resources Institute India.  

Over the last decade, new methods of sharing motor vehicles (Zipcar, Car2Go, Uber, Lyft, DiDi, Ola, and others) and smaller motorized electric vehicles like e-bikes and scooters (Bird, Lime, Gojek, etc.) have grown rapidly around the globe. Salzberg and Agarwal discuss the potential benefits, costs, and risks of shared vehicles, and argue that the sharing economy model has the potential to improve the use of fixed assets and thereby allow wider access to services. However, the current experience of shared vehicles in the U.S. indicates that the market penetration remains tiny, as most people still prefer individualized mobility services. Therefore, whether the service will grow to a significant size remains uncertain. The authors predict that new regulations will emerge to address the disruptive impact of this model on traditional businesses. More important, public policies related to road and parking pricing and congestion charges will be crucial to the future of the sharing economy in the urban transportation sector. Their chapter also delivers the following specific messages: 

• The sharing economy is not an altruistic neighbor-to-neighbor exchange, but a digital transaction connecting asset owners with users by taking advantage of improvements in technology. 
• In theory, car sharing could greatly increase asset utilization, since personal cars are used only about five percent of the time. Simulations have shown that a ubiquitous shared vehicle network—using right-sized vehicles, potentially including AVs, and moving 100 percent of motorized travel—could dramatically reduce peak-hour congestion, the number of vehicles on the road, and the roadway and parking infrastructure needed to accommodate a given quantity of passenger travel. These model results are optimistic, however, in that they assume that travelers will shift to a sharing mode that is highly efficient from a systemic perspective. In reality, the long-term decline in carpooling suggests how difficult it is to convince two or more people to ride together in the back of a car. 
• Infrastructure managers could encourage sharing by imposing per-vehicle congestion charges or by designating priority lanes for carpools. 
• The future of micromobility services, such as electric scooters and bikes, seems especially dependent on designating street space where the vehicles could be safely operated by people with different levels of skill. 

The COVID-19 Pandemic 

During the production of the book, researchers were actively studying both the effects of infrastructure on pandemic severity as well as the effects of the pandemic on infrastructure. One of the first studies of the former appears in chapter 3, in which the World Bank’s Sameh Wahba, Somik Lall, and Hyunji Lee argue that infrastructure shortages and affordability challenges have exacerbated exposure and community contagion risk from COVID-19 across poor neighborhoods in developing cities around the world. Many other cities, including some of the major cities in China and Europe, adopted the opposite policy of attempting to reduce contagion by deliberately limiting access to infrastructure through lockdowns, quarantines, and other similar measures. How successful these measures have been in reducing the spread of disease and whether those reductions are worth their often-substantial economic costs is a matter of continuing and intense debate. Other emerging takeaways include: 

• Public transit systems around the world lost much of their ridership and passenger revenues. Moreover, these systems seem unlikely to be able to fully bounce back even after the pandemic is over. Former riders are now more used to working at home and meeting online, and are more inclined to view riding on crowded public transportation as a health hazard.  
• The consequences of a long-term shift from public transit to driving would be a financial disaster for public transit operators and traffic gridlock in our largest and most congested cities. It is important to consider what public policies are required to revitalize public transit systems, and to enable them to cope with future pandemics. 
• A likely increase in public infrastructure spending is an important part of post-pandemic economic recovery programs. The primary objectives of these programs are to increase employment and revitalize the economy, and this funding can speed up the delayed construction of public infrastructure works, clear maintenance backlogs, and perhaps finance some “shovel-ready” projects. The key question is whether this is the right time for increased public investment for new mega-infrastructure projects. 

Policy makers often assume that infrastructure investment would have significant multiplier effects on other parts of the economy. However, a review of empirical analyses of economic stimulus programs, presented in chapter 2—authored by Gregory Ingram (former president of the Lincoln Institute) and Zhi Liu—suggests that in developed economies, infrastructure spending has little stimulus effect in the first several years, after which the economy is likely to have begun growing again anyway. These analyses find little to no short-term economic impacts, even when the long-term economic impacts are clearly positive. The small short-term impacts are due in part to the substantial time required to prepare and construct a project and in part to the crowding out of private investment by public investment. Therefore, it is important to select and include the most valuable and shovel-ready projects in the stimulus programs.  

José A. Gómez-Ibáñez is the Derek C. Bok Professor Emeritus of Urban Planning and Public Policy at Harvard University. Zhi Liu is senior fellow and director of the China Program at the Lincoln Institute of Land Policy. 

Image: A woman in the back seat of a rideshare. Credit: halbergman via GettyImages.