Tools for Ensuring Equitable Urban Investments - National and International Models

1. Land Value Capture
Nico Calavita, Professor Emeritus
San Diego State University
Crafting the New Normal
December 7 – 2012 -- San Diego

2. Land Value Capture
Government actions (value creation)
Increases in land value
Community benefits (value capture)

3. Government activities that increase land values
include (value creation):
1) Construction of infrastructure and public
facilities
2) Plan changes/upzonings

4. Golden Triangle

5. Costa Verde

6. 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?

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. 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

9. CA & San Diego
Roots
• Former City of San
Diego Councilman
Floyd Morrow
• Common Ground
& Basic Economic
Education

10. 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

11. 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

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. “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. 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. 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??

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 through
negotiation, based on a project pro forma

17. Vancouver
Responsible and flexible
Presumably:
• It does not discourage development, while
• Maximizing potential extraction
Key to its success: An experienced and sophisticated staff

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. 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. 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

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. Fee waivers, reductions or deferrals
Fast-tract permit approvals
Ad hoc density bonuses
Financial incentives
But these incentives have public costs
Incentives and cost-offsets displace costs onto
the public, either directly or indirectly

23. 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

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 process
Now IH is superimposed on an existing framework
Cost-offsets and incentives implicitly assume a
static and rigid view of urban planning

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