Land Value CaptureNico Calavita, Professor Emeritus   San Diego State University   Crafting the New Normal December 7 – 20...
Land Value CaptureGovernment 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 pu...
Golden Triangle
Costa Verde
Seattle’s ManifestoSeattle is a very attractive place for new  commercial and housing development.  Rezoning or upzoning c...
Henry George   1839-1897               Most famous work:               Progress and Poverty               Cause of poverty...
Lincoln Institute of Land Policy founded by  Cleveland industrialist John C. Lincoln (1866-  1959) in 1947Programs:• Valua...
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: Grea...
Great Britain (continued)• 1970s –Planning agreements & “planning gain”•   1980s – Affordable housing added to the package...
Who pays?“S106 aims to ensure the transfer of planning  gain, or betterment, from the landowner to  the local authority vi...
“Different councils adopt differing policies as to what  percentage of social housing may be required, the level of  devel...
Negotiation-based – Criticisms in UK• “Negotiated bribery corrupting the planning  system”• “Much of the planning gain tha...
Result (still UK)• Recent enactment of legislation that mandates  fixed-standard charges locally mandated by the  planning...
Negotiation-based: Vancouver             (It works?!?!?)• Most development is a site-specific zoning• Resulting land value...
Vancouver   Responsible and flexible   Presumably:   • It does not discourage development, while   • Maximizing potential ...
Other countries?• Europe – Similarly to G.B., move from  attempts at direct taxation to recapture of  land values “through...
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 Linc...
Who pays the cost of development Impact Fees,    Commercial Linkage Fees, Inclusionary Housing ?                   Inciden...
• The result is immense opposition from the  development industry and the business  community• In the case of Commercial L...
Fee waivers, reductions or deferrals    Fast-tract permit approvals      Ad hoc density bonuses        Financial incentive...
Density bonusesWhen superimposed on existing planning  framework, they raise three major areas of  concern:1) They undermi...
What if?Alternative: IH as a land value recapture mechanism  through rezonings or land use changes, taking  into account t...
The same thing for job-   housing/commercial linkage fees• Apply them at the time of a rezoning  (negotiation-based) or a ...
Intermission
Plan-based Land Value Recapture The Eastern Neighborhoods  Plan in San Francisco
San FranciscoA culture of planning exactions/linkages (based on a  very strong market):• Commercial Linkage Fee ($20 Offic...
Appendix: Public Benefits Incentive Zoning (excerpt)“The purpose of Public Benefits Incentive Zoning is to ensure that any...
Origins: Rapid Gentrification/Displacement in               the SOMA area• Dot-com boom of the late 1990s• Super-gentrific...
Ten year campaign: Whose city?• Struggle for residents and workers to remain  in their neighborhood• Establishment of the ...
The People’s Plan for Jobs, Housing,         and Community• Now what? (The People’s Plan meets the  Official Plan—Collabor...
San Francisco Eastern Neighborhoods Plan
Eastern NeighborhoodsThe EN Plan ties increased allowable intensities of development to higher   fees Three tiers:• Tier 1...
Land use changes (value creation) generatecommunity benefits (value capture), through theplanning system (in addition to e...
Does it work always and everywhere?    No, it needs places and times with a              healthy market• But how do cities...
• Mathur, Shishir. Under contract. Property  Value Capture to Fund Public Transportation in  the USA. Surrey, U.K: Ashgate.
Nico Calavita Panel 2
Nico Calavita Panel 2
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Tools for Ensuring Equitable Urban Investments - the California Context

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Nico Calavita Panel 2

  1. 1. Land Value CaptureNico Calavita, Professor Emeritus San Diego State University Crafting the New Normal December 7 – 2012 -- San Diego
  2. 2. Land Value CaptureGovernment actions (value creation) Increases in land value Community benefits (value capture)
  3. 3. Government activities that increase land values include (value creation):1) Construction of infrastructure and public facilities2) Plan changes/upzonings
  4. 4. Golden Triangle
  5. 5. Costa Verde
  6. 6. Seattle’s ManifestoSeattle 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?
  7. 7. 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
  8. 8. Lincoln Institute of Land Policy founded by Cleveland industrialist John C. Lincoln (1866- 1959) in 1947Programs:• Valuation and Taxation• Planning and Urban Form• International StudiesSchalkenbach Foundation established in 1925 – New York
  9. 9. CA & San Diego Roots• Former City of San Diego Councilman Floyd Morrow• Common Ground & Basic Economic Education
  10. 10. Implementation of land value taxation has not been easy Mechanics of recapture have been troublesome One example: Great Britain – Tortured historyEnd 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
  11. 11. Great Britain (continued)• 1970s –Planning agreements & “planning gain”• 1980s – Affordable housing added to the package ofbenefits through informal negotiationsSect. 106 of the 1990 Town and Country Act: General right oflocalities to require financial contributions toward the mitigation ofthe costs of development, plus affordable housingShift from a tax on land to the extraction ofthe profits of development
  12. 12. 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
  13. 13. “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)
  14. 14. 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”
  15. 15. 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, fai rness and efficiency??
  16. 16. 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 throughnegotiation, based on a project pro forma
  17. 17. Vancouver Responsible and flexible Presumably: • It does not discourage development, while • Maximizing potential extractionKey to its success: An experienced and sophisticated staff
  18. 18. 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
  19. 19. 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?
  20. 20. Who pays the cost of development Impact Fees, Commercial Linkage Fees, Inclusionary Housing ? Incidence ControversyHow 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
  21. 21. • 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…
  22. 22. Fee waivers, reductions or deferrals Fast-tract permit approvals Ad hoc density bonuses Financial incentivesBut these incentives have public costsIncentives and cost-offsets displace costs ontothe public, either directly or indirectly
  23. 23. Density bonusesWhen superimposed on existing planning framework, they raise three major areas of concern:1) They undermine the planning process and existing regulations2) They may lower the level of service of public facilities and infrastructure3) They frustrate citizen participation in the planning process
  24. 24. What if?Alternative: IH as a land value recapture mechanism through rezonings or land use changes, taking into account that planning is a dynamic processNow IH is superimposed on an existing framework Cost-offsets and incentives implicitly assume a static and rigid view of urban planning
  25. 25. 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
  26. 26. Intermission
  27. 27. Plan-based Land Value Recapture The Eastern Neighborhoods Plan in San Francisco
  28. 28. San FranciscoA culture of planning exactions/linkages (based on a very strong market):• Commercial Linkage Fee ($20 Office, $18 Entertainment, $15 Hotel, $18 Retail, etc.)• Transit Impact Fee (non residential, $10)• Child Care Fees ($1)• Open Space Fees• Arts fees (1 percent of construction costs)• Inclusionary requirements (15 to 20 percent; $380,000 in-lieu-fee)
  29. 29. Appendix: Public Benefits Incentive Zoning (excerpt)“The purpose of Public Benefits Incentive Zoning is to ensure that any increased development potential resulting from a rezoning of the Mission District helps to develop a diverse, balanced, and healthy neighborhood. Where the rezoning allows an increase in density or buildable square footage, it not only confers greater development potential, but also creates greater land value for property owners and sales or rental value for developers. Increased private value is thereby conferred by a public act, but without gaining advantages for the local community. This program creates a mechanism to capture a portion of this increased land value in the form of Public Benefits that will mitigate the impact of the additional development rather than allow it to become windfall profit to the landowner. Public Benefits may take the form of affordable family and senior housing units above the required inclusionary zoning, community serving spaces, publicly accessible open space, and light industrial space where appropriate. For the purpose of this program, “rezoning” includes increases in height, bulk, buildable square footage, or density, or major changes in allowed uses.” How can we explain such sophistication?
  30. 30. Origins: Rapid Gentrification/Displacement in the SOMA area• Dot-com boom of the late 1990s• Super-gentrification in traditional working class neighborhoods• Wholesale displacement of families and businesses,• Aided by city policies that exempted “live-work” spaces in warehouses and industrial structures from processing and fee requirements Existing infrastructure of community-based organizations to build on
  31. 31. Ten year campaign: Whose city?• Struggle for residents and workers to remain in their neighborhood• Establishment of the Mission Anti- Displacement Coalition (MAC)• We don’t want to react to a city’s prepared plan• Strategy: From trying to stop what the neighborhood did not want to “What we want” and “How do we get it”
  32. 32. The People’s Plan for Jobs, Housing, and Community• Now what? (The People’s Plan meets the Official Plan—Collaboration between the City and MAC): The 2008 Eastern Neighborhood PlanAppropriate political juncture (Willie Brown-District Elections)Planning Department staff in charge sympathetic
  33. 33. San Francisco Eastern Neighborhoods Plan
  34. 34. Eastern NeighborhoodsThe EN Plan ties increased allowable intensities of development to higher fees Three tiers:• Tier 1: Increase in height of eight feet or less• Tier 2: Increase in height of nine to 28 feet• Tier 3: Increase in height of 29 feet or moreFee levelsTier Residential Non-residential• 1 $8/gsf $6/gsf• 2 $12/gsf $10/gsf• 3 $16/gsf $14/gsfIn formerly industrial zones the use change to different types of mixed use requires higher IH requirements
  35. 35. Land use changes (value creation) generatecommunity benefits (value capture), through theplanning system (in addition to existing exactions)• This approach is now applied throughout San Francisco when Area Plans or Specific Plans are updated• It reflects a more interventionist city to guarantee more equitable outcomes and offset the social and environmental costs of development
  36. 36. Does it work always and everywhere? No, it needs places and times with a healthy market• But how do cities, land owners and developers know what level of value capture is feasible?• “Community benefits cannot be calculated or negotiated without using development economics and real estate analysis, and the question is not whether but how” (Cameron Gray, former Director of Vancouver Housing Center)
  37. 37. • Mathur, Shishir. Under contract. Property Value Capture to Fund Public Transportation in the USA. Surrey, U.K: Ashgate.

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