ssc2011_rick rybeck ppt
TRANSCRIPT
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
INFRASTRUCTURE IMPACT ON DEVELOPMENT
INFRASTRUCTURE IMPACT ON DEVELOPMENT
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.
Development Fees v Value Capture
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
Development Fees v Value Capture
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