Image: Las Vegas

How Infrastructure Shapes Cities

By José Gómez-Ibáñez, Zhi Liu, July 28, 2022


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