Land Value Capture

Nico Calavita, Professor EmeritusSan Diego State University

Crafting the New NormalDecember 7 – 2012 -- San Diego

Land Value Capture

Government actions (value creation)

Increases in land value

Community benefits (value capture)

Government activities that increase land values include (value creation):

1) Construction of infrastructure and public facilities

2) Plan changes/upzonings

Golden Triangle

Costa Verde

Seattle’s Manifesto

Seattle is a very attractive place for new commercial and housing development. Rezoning or upzoning can provide significant economic benefit to property owners and developers and the public should share in those benefits. As sound public policy, an appropriate portion of this benefit should be captured for public reinvestment.

Where did this idea come from?

Henry George 1839-1897

Most famous work: Progress and Poverty

Cause of poverty: Land Rent

Proponent of Land Value Taxation (Single tax)

World wide success

Lincoln Institute of Land Policy founded by Cleveland industrialist John C. Lincoln (1866-1959) in 1947

Programs:• Valuation and Taxation• Planning and Urban Form• International Studies

Schalkenbach Foundation established in 1925 – New York

CA & San Diego Roots

• Former City of San Diego Councilman

Floyd Morrow• Common Ground

& Basic Economic Education

Implementation of land value taxation has not been easy

Mechanics of recapture have been troublesome

One example: Great Britain – Tortured history

End of 19th century: Concerns about “Unearned increments”

1909 first planning legislation: Tax “Betterment value”

It was the start of attempts over 70 years to tackle what proved to be an extraordinarily intractable problem

Great Britain (continued)

• 1970s –Planning agreements & “planning gain”

• 1980s – Affordable housing added to the package of benefits through informal negotiations

Sect. 106 of the 1990 Town and Country Act: General right of localities to require financial contributions toward the mitigation of the costs of development, plus affordable housing

Shift from a tax on land to the extraction of the profits of development

Who pays?

“S106 aims to ensure the transfer of planning gain, or betterment, from the landowner to the local authority via the developer.” (Sarah Monk. 2010. “Affordable housing through the planning system: The role of Section 106,” in Inclusionary Housing in International Perspective)

• The price of the land is enhanced by the planning permission• But reduced by the S106 commitment• The landowner still receives a higher price for the land

“Different councils adopt differing policies as to what percentage of social housing may be required, the level of development which triggers such provision and the method of calculating financial contributions. As inevitably, it falls to the landowner to fund these provisions, by reduction of the sale price, there is often lengthy and sometimes acrimonious discussion as to the need for and the amount of the provision.” (page 3)

Negotiation-based – Criticisms in UK

• “Negotiated bribery corrupting the planning system”

• “Much of the planning gain that is obtained is bad practice, violating the fundamental principle that planning permissions cannot be bought or sold”

Result (still UK)

• Recent enactment of legislation that mandates fixed-standard charges locally mandated by the planning authority namely, the Community Infrastructure Levy. (Similar to US Development Impact Fees?)

• Negotiations allowed only for affordable housing and site specific contributions

Greater transparency, simplicity, predictability, fairness and efficiency??

Negotiation-based: Vancouver (It works?!?!?)

• Most development is a site-specific zoning

• Resulting land value increases (the land “lift”) is largely recaptured (the rule of thumb is 80%) in the form of Community Amenity Contributions (CACs) – Voluntary, kind of

• The CACs are determined through negotiation, based on a project pro forma

Vancouver

Responsible and flexible

Presumably:• It does not discourage development, while• Maximizing potential extraction

Key to its success: An experienced and sophisticated staff

Other countries?

• Europe – Similarly to G.B., move from attempts at direct taxation to recapture of land values “through the planning system”

• South America. In some countries, such as Brasil and Columbia, zoning is for sale

US“We actually do a lot of value capture in the

U.S., we just don’t use the term” Gregory K. Ingram, president of the Lincoln Land Institute (quoted in Mark Bergen’s “Money Grab: How Can Cities Recapture Investment in Public Infrastructure?” In Forefront, published by Next American City on line)

How? Development Impact Fees, Commercial (Job-housing) Linkage Fees, Inclusionary Housing, etc.

Why we don’t use the term?

Who pays the cost of development Impact Fees, Commercial Linkage Fees, Inclusionary Housing ?

Incidence Controversy

How are they different from the British/Vancouver experience in terms of development process timing?

Fees not paid at the time of rezoning. Developers pay them at the time of subdivision processing (or even later)

They have paid the rezoned value for the land

• The result is immense opposition from the development industry and the business community

• In the case of Commercial Linkage Fees it is the fear of losing economic competitiveness by raising the cost of commercial development that makes commercial linkage fees so politically difficult to enact

• Vitriolic opposition of residential developers to IH, and that leads to incentives, such as…

Fee waivers, reductions or deferralsFast-tract permit approvals

Ad hoc density bonusesFinancial incentives

But these incentives have public costs

Incentives and cost-offsets displace costs onto the public, either directly or indirectly

Density bonuses

When superimposed on existing planning framework, they raise three major areas of concern:

1) They undermine the planning process and existing regulations

2) They may lower the level of service of public facilities and infrastructure

3) They frustrate citizen participation in the planning process

What if?Alternative: IH as a land value recapture mechanism

through rezonings or land use changes, taking into account that planning is a dynamic process

Now IH is superimposed on an existing framework Cost-offsets and incentives implicitly assume a

static and rigid view of urban planning

The same thing for job-housing/commercial linkage fees

• Apply them at the time of a rezoning (negotiation-based) or a land use change; when a specific plan, community plan or a general plan is approved