SSC2011_Rick Rybeck PPT

COMPACT & EQUITABLE DEVELOPMENT:

REPLACING EXPENSIVE SPRAWL WITH AFFORDABLE TOD

Solutions for Sustainable Communities

Rick RybeckSeptember 2011

IF SMART GROWTH IS SO SMART, HOW COME SO MUCH

DUMB GROWTH?

Economic Incentives for Sprawl

Infrastructure is a double-edged sword

INFRASTRUCTURE IMPACT ON DEVELOPMENT




PERVERSITY OF INFRASTRUCTURE

Infrastructure created to facilitate development

Infrastructure inflates the value of well-served land.

Higher land prices chase development to cheaper, more remote sites Particularly True for Affordable Housing Whose

Occupants Need Access to Transit

Infrastructure extended to remote sites

Development chased even further away.

WHAT ABOUT BUILDINGS?

Government Tax Policies Make Buildings More Expensive Than They Need to Be

What would you think if I proposed a 10% or 20% Sales Tax on building labor & materials?

“That’s a TERRIBLE idea !” most would say.

But the Property Tax does this today. Typical property tax is only 1% or 2% of value. Unlike a Sales Tax (paid only at time of sale), the

Property Tax is paid every year that an improvement adds value to a building.

Using net present value, the economic impact of Property Tax equivalent to a one-time sales tax of 10% to 20% !

TAX BARRIER TO AFFORDABILITY

Our Quest

Can we fund infrastructure in such a way so that: All beneficiaries pay a fair share? Development is encouraged adjacent to the

infrastructure rather than at more remote locations?

Can we reduce or eliminate the tax burden on buildings so that housing is more affordable?

USER FEES FOR TRANSIT

Equitable & Comprehensible Beneficiaries pay in proportion to the benefit they

receive

Price Incentives Can Foster Efficiencies Encourage Shorter Trips or Trip Avoidance Encourage Off-Peak Trips Locate Homes & Businesses Closer Together

Full Cost Recovery?

Charging transit users full costs would

Reduce transit ridership

Increase congestion & pollution

Are There Other Beneficiaries?

General public benefits from Transit: Better Access to employment, shopping, schools &

recreation Cleaner Air Lower costs of goods

But general benefits not suited to user fees General Taxes Used Instead

Traditional Transit Budget Equation

Fares + General Taxes = Transit Costs

Traditional Transit Budget Reality

Fares + General Taxes < Transit Costs

Fares

Ridership

Traffic

Smog

Business Opportunities Arising Out of Concentrating People at Transit Stops & Stations

General Taxes

Disposable Income & Business Opportunities

Quality of Life

Resentment Politicians Drivers v Transit Riders

Service

Ridership

Traffic

Smog

Business Opportunities

Traditional View

Is There an Alternative View

That Can

For New Ideas, Look Back

In the 1800s, the streets of Washington, DC were mostly unpaved.

In wet weather, mud made travel very difficult and unpleasant.

Paving streets and sidewalks was a tremendous advance. It made properties more accessible and the air cleaner.

Everyone would benefit.

INVISIBLE USERS IDENTIFIED

Yet, people whose property fronted a paved street would benefit more. No longer would folks track dust, mud and manure

into their homes & businesses!

Even if they never walked on the new streets, adjacent landowners would benefit financially from them.

INVISIBLE USERS CHARGED

In 1894, Congress enacted law requiring adjacent property owners to contribute 50% of the cost of first-time paving of streets, gutters, curbs and sidewalks through a special assessment.

What is the Potential for Private Sector Participation?

In the 1800s, Congress required private landowners to pay for 50% of the cost of new transportation infrastructure.

In the 1990s, Congress and the District Government were able to obtain a 30% contribution from nearby landowners for a new Metrorail transit station at New York Avenue.

Can we do better?

Potomac Yards

In the mid 1990s, there was an old railroad yard just south of National Airport, across the river from Washington, DC.

The pension fund that owned it wanted to develop it.

Government officials said that development was not possible because the access road, Route 1, was already over capacity during rush hour

HOWEVER . . .

Officials noted that a rail transit line runs through the middle of this property.

IF a transit station was created there, then dense mixed-use development could be allowed without relying solely on Route 1.

Landowner did the math: It was cost-effective to pay the entire cost of a new transit station to get development rights!

UNFORTUNATELY . . .

Nearby residents thought that the development was too dense & would bring too much new traffic.

They pleaded for Down-Zoning

Politicians Listened to Constituents

Down-zoned parcel no longer supported enough development to justify a new station.

Matter-of-Right Development:Dumb Growth

Unable to get zoning permission for mixed-use TOD, landowner sought “matter-of-right” development.

Big Box retail was the answer.

Low-density, auto-oriented development generates much more traffic than the TOD would have.

If down-zoning had not occurred, could this private funding of infrastructure be replicated or was it unique?

At Potomac Yards, a single landowner internalized most of the externalities associated with a new transit station.

Most of the time, there are many owners.

But this does not negate the fact that the value created by public transit can exceed the cost of construction. It only makes it more difficult to collect.

Invisible Users

Landowners might never drive on a road, or ride a transit vehicle, but they use this infrastructure to extract windfall profits from public investments.

Thus, landowners are the invisible users of transportation facilities and services.

Value Capture is like a user fee that recaptures publicly-created land values in proportion to the benefit received and returns this value to the entity that created it.

NEW Transit Budget Equation

Value Capture

+ Traditional User Fees

+ General Taxes

= Transit Facilities & Services

Benefits of Value Capture

Financial Viability An often overlooked revenue stream

Equitable & Comprehensible Beneficiaries pay in proportion to the benefit they

receive

BUT WAIT – THERE’S MORE!!! Value Capture Can Promote Compact Development

Value Capture Land Use Incentives

User Fees, if properly structured, create incentives for efficiency.

Value Capture Can Promote Efficient Land Use Recapturing Land Value Motivates Development

Near Infrastructure

Development Fees v Value Capture

Development Fee = Tax on Building Value

Tax = Cost of Production

Cost of Production Quantity Produced

&

Prices

Do we want to reduce development near transit and increase its price?

Taxing buildings appropriates private value. It burdens builders, future owners & tenants.


Value Capture = Tax on Land Value

Land is NOT ProducedLand Tax ≠ Cost of Production

What’s the Impact of Land Tax on Land Price?

Price of Land Not Based on Cost

Price of Land Based on Expected Benefits


Land Tax = Cost of Ownership

Cost of Ownership Benefits Price

Taxing land does not diminish its quantity and tends to lower its price.

Taxing land captures Publicly-Created Values. No burden on private production.

Development Fees v Value Capture Landowner Responses:

Avoid the Development Fee

Number / size / quality of new buildings

Maintenance / improvement of existing buildings

Invest in buildings where tax rates are lower

Fund Value Capture Land Tax Cannot be Avoided

Location-value of parcel not determined by owner Owner can’t move land to a lower-tax location

Land will be developed – or sold to someone who will – in order to generate funds to pay the value capture fee.

Value Capture = User Fee

Landowners pay for a substantial benefit.

Landowners pay in proportion to benefit received.

The greatest impetus for development will occur where land values are high – adjacent to urban infrastructure. Instead of chasing development away, value capture draws development to infrastructure -- which is where we want development to occur.

Transform Property Tax into a Value Capture User Fee

Lower Tax on Buildings Makes Them Cheaper to Construct, Improve and Maintain. Lowers the cost of weatherization & repairs.

Higher Tax on Land Makes Land Cheaper & Induces Development Near Transit & Other Urban Infrastructure.

SOLUTION FOR SUSTAINABLE COMMUNITIES

MAKING ECONOMICS WORK FOR PEOPLE

1669 Columbia Rd, NW, Suite 116

Washington, DC 20009

(202) 439-4176

www.justeconomicsllc.com

Why Is Housing So Unaffordable?

Land Costs Are Inflated by Speculation Labor & Building Material Costs Track Inflation Land Costs Increase TEN TIMES More Than CPI

Boom & Bust Cycle Is a Hardship Speculators Outbid Users During Boom Times Speculators Refuse to Sell During Bust Users Can’t Get Credit During Bust

EQUITY & AFFORDABILITY

Empirical Evidence Shows that Middle- and Low-Income Neighborhoods Benefit The Most

Middle-class & working class residents aren’t very swanky – but they constitute the lion’s share of total property value.

In wealthy neighborhoods, the homes are fancy but the land value is a much greater percentage of total property value.

Shifting taxes off of buildings and onto land is progressive

IS THIS SHIFT EQUITABLE?

What kind of Project?

Are the benefits general or localized? Project might create both types of benefits.

If localized and traditional user fees are subsidized, the surplus benefits will probably be capitalized into higher land values.

Do local assessors determine separate values for buildings and land?

HOW TO PROCEED

HOW TO PROCEED

Can assessors use regression analysis to determine the proportion of land value created by various public goods & services?

Are landowners willing to pay for the benefit they will receive or can they be compelled to do so?

Can the public and public officials be educated to understand & support this approach?

MAKING ECONOMICS WORK FOR PEOPLE

1669 Columbia Rd, NW, Suite 116

Washington, DC 20009

(202) 439-4176

www.justeconomicsllc.com