Clear a path for sweeping urban experiments such as California Forever

Earlier this fall, the Silicon Valley dreamers proposing to build a 400,000-person city and manufacturing hub on rangeland 50 miles northeast of San Francisco released a detailed rendition of their plan, which they call “California Forever.” It’s unlike anything the United States has seen before: exurban in location, intensely urban by design.

The new city will be laid out on a compact grid, with interlocking streets, rapid-transit routes and greenways for pedestrians and cyclists. The city’s least dense residential neighborhoods will be zoned for 85-foot apartment buildings, taller than essentially every apartment building erected before 1880. House hunters will be able to purchase row houses as if they were shopping for real estate in 19th century Brooklyn, not in cookie-cutter suburban sprawl.

This vision – so distant and so dense – represents a stark break with what has typically sold well on the exurban frontier. The Woodlands, Texas, one of the most successful exurban developments of the past 50 years, is only 30 miles from Houston and is built overwhelmingly around single-family homes. Only in radically underhoused California could you even imagine selling Americans apartments that are considerably farther away from existing employment hubs.

Yet California Forever represents more than a bet that the Bay Area’s extreme housing shortage has created a robust market for “super-commuters” based in the Central Valley. Rather, it is an audacious effort to operationalize the last 30 years of research in urban economics.

One lesson of this research is that “building up” in existing neighborhoods is often irksome to folks living nearby. (Put your new city somewhere else, if you can.)

A second lesson, more important and less intuitive, is that packing more people and businesses into a small geographic area makes everyone more productive. People who live and work close together learn from each other. They can take entrepreneurial risks, because if one scheme doesn’t pan out, other opportunities await. Thick labor markets give workers bargaining power and enable them to find the right employer. Individuals and firms also benefit from sharing facilities that have high fixed costs to build, such as an opera house or airport. Economists call this package of advantages the “agglomeration benefits” of urban density.

But there’s a catch: A small-scale developer who is building a home or a small apartment building doesn’t capture the agglomeration benefits of the density they bring. If the people who are housed by the developer open a restaurant or give a worker a raise, the developer doesn’t benefit. Ordinary builders have no claim on the proceeds of the city’s collective imagination. Thus, left to their own devices, developers underinvest in density. NIMBY pressures make things worse.

The big bet of California Forever is that by acquiring enough land to build an entire city from scratch, the investors can profit from the economics of agglomeration. Their first row houses and apartments may lose money, but the resulting population density will increase the value of the city’s downtown office and manufacturing districts. Because the investors who own the residential land also own the downtown and manufacturing areas, they’ll consider the benefits a new building brings to the whole community, not just what prospective residents would pay to live in the new building.

Owning it all also gives California Forever high-powered incentives to improve schools and public safety, and to mitigate traffic congestion. In most big cities, well-meaning planners lack the resources and incentives to eliminate urban gridlock. In California Forever, the investors’ fortunes depend on creating an urbanism that soars.

If it ever gets started.

The roadblocks to founding a new city are daunting. Almost anywhere in the United States today, a large development requires approvals from numerous local, state and sometimes federal agencies, each of which wields a veto. Research by one of us finds that strict land-use regulation induces developers to pursue smaller projects and ultimately fragments the building industry. This reduces productivity and innovation in the construction sector.

At a minimum, the California Forever project will require approvals from one city (Suisun), one county (Solano) and eventually one state agency (the California State Water Resources Control Board). Each approval triggers review under the California Environmental Quality Act and potentially years of litigation and delay. A Solano County supervisor has already told California Forever, “Go somewhere else.” If she persuades two of her colleagues, the project is dead.

California needs millions of new homes. The state has passed hundreds of housing laws, yet few have moved the needle on production. The forces of NIMBYism are deeply entrenched. California Forever could transmit Silicon Valley’s dynamism into the Central Valley, backed by investors with incentives to develop an efficient and scalable community of dense urban housing and high-tech manufacturing. No one city or county ought to have an absolute veto over such an important project.

Clean-energy policy offers a path forward. In Massachusetts and California, lawmakers have developed “comprehensive permit” programs for energy and transmission projects of statewide significance. A single official under the governor makes the project-approval decision, after hearing recommendations from the many state and local actors that would traditionally have a veto over the project.

The comprehensive permit model should be extended to urban development projects of statewide significance, including California Forever. A generation ago, the California Supreme Court declared that local governments have a duty to heed their region’s needs. But experience has shown that locally elected officials are rarely good stewards of regional interests. A new state permitting pathway can open up tomorrow’s vital experiments in city-building.

Chris Elmendorf is a professor of law at UC Davis. Ed Glaeser is a professor of economics at Harvard.