The City of Fresno is facing a massive deficit. But, now it could face bankruptcy based on a single project. The City could face hundreds in millions in expenditures—money it does not have.
“A sweeping analysis of Fresno’s long-term development trends by the Urban Institute is raising red flags about the city’s plan to build a major new suburban community on its southeastern flank. Even as city leaders tout the 9,000-acre South East Development Area (SEDA) as a model for sustainable sprawl, the project appears to be running headlong into the same market realities that have shaped Fresno’s sprawling past.
The UI report, while not directly assessing the proposed expansion, suggests that the SEDA’s lofty density targets far exceed anything Fresno has achieved in the modern era – a reality that could leave taxpayers holding the bag for hundreds of millions of dollars in infrastructure costs if the development fails to live up to its ambitious billing.
If the developer wants to build a 9,000 acre site—go for it. But they pay for it, not the taxpayers. Literally, the developer is looking for the citizens to finance their property—they make a profit and the community loses services. Not a good deal.
Fresno’s sprawl ambitions collide with market realities, report finds
Shrinking returns on fringe growth raise doubts about 9,000-acre expansion plan.
by Gregory Weaver, Fresnoland, 5/9/24 https://fresnoland.org/2024/05/09/urban-institute/
What’s at stake:
Fresno’s 9,000-acre SEDA project is on a collision course with the stark realities of a housing market that has delivered diminishing returns on the city’s fringe for decades.
A sweeping analysis of Fresno’s long-term development trends by the Urban Institute is raising red flags about the city’s plan to build a major new suburban community on its southeastern flank. Even as city leaders tout the 9,000-acre South East Development Area (SEDA) as a model for sustainable sprawl, the project appears to be running headlong into the same market realities that have shaped Fresno’s sprawling past.
The UI report, while not directly assessing the proposed expansion, suggests that the SEDA’s lofty density targets far exceed anything Fresno has achieved in the modern era – a reality that could leave taxpayers holding the bag for hundreds of millions of dollars in infrastructure costs if the development fails to live up to its ambitious billing.
At the heart of the SEDA plan is a gamble that by packing in far more homes than is typical for Fresno’s suburban fringe, developers can spread out the cost of new roads, parks, water lines and other amenities to keep the project in the black. Mayor Jerry Dyer’s administration and the development industry are banking on this high-density approach to ensure that SEDA pays for itself and does not become a drain on Fresno’s existing neighborhoods, which have long suffered from urban blight exacerbated by sprawling growth patterns.
But the Urban Institute’s deep dive into Fresno’s development history over the last 80 years raises troubling questions about whether the developer’s cost-sharing strategy envisioned for SEDA is remotely realistic. The report found that each new wave of fringe development in Fresno since the 1970s has yielded diminishing returns, with densities dropping lower and lower – a trend driven by powerful market forces that show no signs of abating.
If the past half-century of market trends hold true for SEDA, the Urban Institute analysis suggests, the development could cease to be profitable for the private sector after just 10,000 to 15,000 homes are built – leaving the city and its taxpayers to foot the bill for the sprawling development’s remaining gargantuan infrastructure costs.
After looking at the data, Fresno City Councilmember Miguel Arias blasted the SEDA plan as a financial house of cards.
“The evidence is clear. In order for SEDA to pay for itself, we have to assume unrealistic market numbers,” he said. “And the backstop would be public utilities. There’s no way I would sign off on that.”
The specter of a half-finished sprawl project haunts Fresno’s civic leaders, who have seen firsthand the toll that unchecked growth can take on a city’s finances and quality of life. The ambitious plan puts pressure on the Dyer administration, which is already grappling with a shortage of 30,000 affordable housing units and put planning for SEDA on hold this January due to financial uncertainty.
City manager Georgeanne White acknowledged the gap between SEDA’s plan and the long-term market trends.
“That’s part of the work that’s underway right now with what the best infrastructure plan is,” she said. “We don’t have the answers.”
She cautioned that while some new developments across the San Joaquin River in Madera County have reached densities of 2,000 units per square mile, that is still well short of SEDA’s aggressive target.
“I just know this: There is definitely a market for single-family subdivisions.”
Fresno’s growth machine is chasing diminishing returns, data shows
Fresno’s home building industry knows just one tune, and it’s the siren song of sprawl.
“In Fresno, what we’ve seen clearly is that developers, and even the city itself, are stuck on a certain development type,” said Yonah Freemark, a lead researcher on the Urban Institute report. “It’s very difficult to propose anything else.”
According to the findings of Freemark’s research team, the city’s developers are overwhelmingly drawn to areas with low existing density, where land is cheap and homes can be sold at high prices – a pattern that is more pronounced in Fresno than nearly anywhere else in California, the study found.
This singular focus on sprawl is exemplified by the city’s General Plan, which aims to build two sprawl homes for every one house of infill. The General Plan’s 2:1 sprawl-to-infill ratio mirrors Fresno’s historical growth patterns, the report found, despite overwhelming evidence that such low-density development has hollowed out the city’s core.
Curiously, despite the growing body of data suggesting a different course, the Dyer administration has embraced this blueprint as the city’s guiding vision into the 2050s.
This stands in stark contrast to other major California cities like Los Angeles and Sacramento, which have witnessed a surge in density in recent years, with new infill development transforming their urban landscapes. Fresno, however, was the only region in the study that showed flat-line infill growth over the past few decades, the report found.
The Urban Institute’s analysis, authored by a team led by Freemark and Samantha Fu, reveals a town and a regional industry that seem to be trapped in a feedback loop, perpetually constructing low-density suburbs on Fresno’s ever-expanding fringe – a tried-and-true formula that has shaped the city’s growth for decades.
For developers, the math is simple: buy cheap land on the outskirts of town, build a bunch of cookie-cutter homes, and sell them at a tidy markup. Rezone, rinse, and repeat.
But while this formula may be lucrative in the short term, Freemark’s team made a startling discovery: Developers are getting less and less bang for their buck with each new slice of farmland that the City Council uncorks for them.
The researchers dug deep into the city’s permitting data and found that since the 1970s, each successive wave of expansion has yielded fewer and fewer homes per acre, even as the total land area devoted to sprawl has ballooned.
According to the report, Fresno builders have been pulling back from neighborhoods at lower and lower levels of overall development: 2,000 in the 1970s, 1,800 in the 1980s, 1,700 in the 1990s, 1,200 in the 2000s, and just 1,100 in the 2010s.
In other words, Fresno keeps serving up more and more land to developers, but all it’s getting in return is an increasingly hollow and anemic form of growth – a far cry from the vibrant, efficient neighborhoods that the city is hoping to deliver with SEDA.
The city’s density targets proposed for SEDA would require a quantum leap from the norms of recent fringe growth, aiming for a staggering 3,200 units per square mile – a figure that has never been achieved at a large scale in Fresno’s post-WWII history.
The long-term decline SEDA is trying to defy is being driven by powerful market forces that favor low-density development, according to the Urban Institute report. To make matters worse, these troubling causes are all evident on the very land where Fresno is pinning its hopes on.
The problem starts the moment the once-empty tracts at the edge of town start to fill up, the report shows. The remaining land grows increasingly expensive – a cost that developers inevitably pass on to homebuyers in the form of higher prices. This dynamic, the report argues, creates a self-reinforcing cycle that makes it harder and harder to sustain density in new suburban communities over time.
As prices rise and the pool of potential buyers shrinks, banks grow increasingly nervous about lending to builders in these areas, further constraining development and pushing density down. The result is a kind of suburban sprawl that gets less and less dense with each passing decade, even as Fresno’s population continues to grow, the report showed.
Even as SEDA aims to defy this nearly half-century-old market trend, the very forces that have driven Fresno’s sprawling density decline appear to be even stronger in the city’s southeastern expansion area.
Mike Prandini, a prominent lobbyist for the BIA, told Fresnoland that the long-term market conditions that have pushed densities lower and lower on Fresno’s suburban fringe could be more pronounced in SEDA.
The area’s patchwork of rural homesteads, small farms and diverse landholders could drive land prices even higher than in the city’s established suburbs, Prandini said – a daunting prospect for a project already banking on unprecedented density to make its numbers work.
“In SEDA, if you’re looking for land today, you’re looking at $300,000 an acre, if not higher,” he said, noting that such prices are already in the ballpark of the best undeveloped lots in neighboring Clovis.
Sprawl’s long shadow
All of this pro-sprawl policymaking comes with heavy costs for Fresno’s residents, the Urban Institute report concluded.
As the city has pushed development further and further out into the countryside, it has paved over vast swaths of prime farmland, much of which has simply been replanted in neighboring Madera County, where it has encroached on sensitive natural habitats.
Meanwhile, the ever-expanding suburban fringe has left Fresno’s older neighborhoods grappling with entrenched poverty and urban blight. The city’s sprawling growth patterns are also taking a toll on the environment, with tens of thousands of tons of additional pollution spewed into Fresno’s air each year that could have been avoided if the city had followed a more compact development model like Sacramento’s, the report found.
Despite these sky-high costs, however, Fresno’s sprawl addiction is unlikely to be tamed anytime soon, according to Yonah Freemark of the Urban Institute.
“Developing in downtown, and the areas near downtown, requires a lot more than a wish,” Freemark said. “There has to be a mind shift in the views of developers and others who are the ones ultimately deciding to invest in these projects. There’s likely to be continued resistance from them in a place like Fresno.”
The city has made some strides in recent years to encourage denser development, Samantha Fu noted. In 2015, Fresno updated its zoning code to make it easier for developers to build infill projects. But the lackluster response from the private sector since then, Fresno’s urban decay report showed, suggests that the city’s legacy neighborhoods still face an uphill battle in attracting investment.
A separate Urban Institute report from last month showed that investment in the city remains locked up in the wealthy fringes of Northwest, Northeast, and Southeast Fresno. State and federal investment has not made up for this disparity, the report found.
Similar outcomes in other cities have led some advocates to question whether local governments should be taking a more active role in solving the housing crisis – with or without the developer’s help.
“What we’re seeing in some places, like in Montgomery County, Maryland, is increasing interest from local governments to serve as equity investors in new [affordable housing] projects.” Freemark said. “That might be an option for cities all across the country.”
In Montgomery County, a publicly owned developer is using a $100 million revolving loan fund – a fraction of SEDA’s projected cost – to finance the construction of thousands of mixed-income apartments. By leveraging relatively small amounts of public money, the county has created a sustainable funding source that could help meet its housing needs for years to come.
Last year, the Montgomery County Housing Opportunities Commission delivered its first batch of affordable units, complete with amenities like a fitness center, community gathering spaces and a courtyard pool – all at a price point that working families can afford.
Similar setups could happen in Fresno around high speed rail, Freemark said, using funds from new low-interest federal government loan accounts that are targeted for building affordable housing near transit hubs.
As Fresno grapples with its own housing challenges, the Montgomery County model offers a tantalizing glimpse of what a more proactive, publicly driven approach to development might look like, Fu added. With the private sector showing little appetite for the kind of transformative change the city needs, it may be time for Fresno’s leaders to start thinking outside the sprawl-box, she said.
“The high speed rail station, and the state’s $200 million investment in downtown Fresno is a potentially pivotal opportunity for Fresno and the region,” Fu said.
“But I think it’s clear that there’s a lack of consensus about the impacts of sprawl – including SEDA and Fresno County’s new general plan – and how to grow in more sustainable ways.”
