Urban development: A case against subsidies

There is an interesting article by Jack Diamond in Saturday's Globe and Mail ($ subscription required). In it, Diamond explains how subsidies have a negative impact on urban development.
He first explains some of the weaknesses of current urban development trends in low density areas, including automobile dependency, exacerbation of social problems, urban poverty and the cost of providing services (which “exceeds the tax revenue derived from low-density development”).

Diamond says that “urban development has been made possible, and indeed encouraged, by two factors:”

The first is what amounts to subsidies that land speculators and low-density developers receive from provincial and federal governments in the form of highway construction, and the provision of trunk-line sewers, water supply and other services. The burden of this cost is not borne by the beneficiaries, but by all taxpayers.

The second factor is low gas prices in the past. They meant that transportation costs were often not a consideration in urban development.

Diamond offers two suggestions to change current development trends:

The means to make these changes is first to institute full-cost pricing. Let the market forces exert their logic: If each increment of suburban growth were to bear the full unit-cost of expressways, trunk water supply and other services, the market would adjust to more appropriate urban forms. That this would create densities capable of supporting public transit, creating a richer mix of land uses, would be an added benefit to affordable development.
Nowadays, development occurs at the extremes of density — either vast expanses of single or semi-detached housing (and low-density commercial uses), or high rise/high density condominiums. There is a wide variety of satisfying housing in between these two extremes, from town houses and duplex dwelling to low-rise apartment buildings of about six to eight storeys. Ingenuity, when confronted with necessity, will out.
The second means to bring about change is for governments to set performance standards for the infrastructure. Imagine a situation where, instead of distributing
infrastructure funds across the country, regardless of the effects of the funding or even the quality of the urban development, funds went to those who would build sustainable communities, effective in social, physical and economic dimensions. Imagine building on this excellence in a manner that would buttress our society in an inclusive manner, one that would plan for the inevitable change wrought by scarce and expensive fossil fuels, rather than belatedly reacting to crisis once it is upon us.

Such a system has been operating successfully elsewhere in Canada — consider the
Canada Foundation for Innovation that funds research infrastructure.