Land Value Capture for Affordable Housing

Nico Calavita, Professor EmeritusSan Diego State University

Solutions 2013 National Conference on State and Local Housing Policy

Land Value (Re)Capture

• What is Land Value Capture • History/Comparative• How It Works• Negotiation-Based Case Study: Santa

Monica• Plan-Based Case Study: The San

Francisco Eastern Neighborhoods Plan

Land Value Capture

Government actions (value creation)

Increases in land value

Community benefits (value capture)

Government actions that increase land values include (Value creation):

1) Construction of infrastructure and public facilities Value capture: Special-Assessment Financing

2) Plan changes/upzonings (entitlements) Value capture: Community Benefits

So, how do we capture, at least a portion, of this increase?

At the time of:

1) a plan change (the approval of a specific plan, for example); OR

2) a rezoning/upzoning;

the locality requires/negotiates:

Public/community benefits (value capture)

Such as…

Possible community benefits (Santa Monica)

Affordable/workforce housing GHG Emission and congestion reduction Social, cultural & educational facilities Community Physical Improvements

(Enhanced open space and streetscape/ quality pedestrian & biking connections)

Historic preservation

Where did the idea of Land Value Recapture come from?

Henry George 1839-1897

Most famous work: Progress and Poverty

Cause of poverty: Land Rent

Proponent of Land Value Taxation (Single tax)John Stuart Mill (Unearned increments in land value)

World wide success

Implementation of land value taxation has not been easy

One example: Great Britain – Tortured history

End of 19th century: Concerns about “Unearned increments in land value”1909 first planning legislation: Tax 100% of “Betterment value”

It was the start of attempts 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 Planning 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? Great Britain (continued)

“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

Other countries?

• Europe – Similarly to G.B., shift to the recapture of land values “through the planning system”

• South America. In some countries, such as Brasil, 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

Density Bonuses?

If that it is true, why don’t we use the terms: “Land Value Recapture”? Or “Betterment”? Or “Unearned Increments”? Or “Planning Gain”?

(In Spanish: “Plusvalias”)(In Italian: “Plusvalore”)

• Planning culture• American pragmatism

How does land value capture work?

Two typical approaches:

1) Rezoning/Upzoning --- Negotiation based (development agreements)

Disadvantages-- • Possible lack of expertise of planners• Transparency & accountability problems with

locality/developers negotiations

Possible Advantages-- • Flexibility – You can get more

Localities with negotiation-based land value captureVancouver - Santa Monica

Long-standing tradition of community benefits achieved through development agreements

They include:

• Parks & park improvements• Child care centers• Community health access

Santa Monica Land Use and Circulation Element (LUCE) - Adopted in 2010

Fundamental goal: Additional development and increased densities must contribute to, not detract, from the community

• Focus development on the boulevards to maximize high frequency transit and proximity of residents and workers to daily needs

• In exchange for allowing incremental increases (two tiers above a base height of 32 feet) the developer must provide community benefits

How “much” ($) community benefits?

• Every project is required to produce an economic analysis of the “enhanced value” the project is creating as a result of greater height and FAR, with pro formas that identify the “internal rate of return”

• The developer prepares the economic analysis. Peer reviewed by city’s consultants

23 development agreements – Most projects located downtown and the Bergamotte (former industrial) area

• The “enhanced value” analyses become the basis for the determination of the appropriate level of community benefits

• Largely based on five priority areas and extensive community participation process

Possible community benefits (Santa Monica)

Affordable/workforce housing GHG Emission and congestion reduction Social, cultural & educational facilities Community Physical Improvements

(Enhanced open space and streetscape/ quality pedestrian & biking connections)

Historic preservation

Problems with development agreements in Santa Monica

• Santa Monica is working now on an additional alternative (conditional use permit/adjudicative discretionary approval) that would tie increased densities to a point system

How does land value capture work?

2) Plan based – Specific Plans/Community Plans, etc.

Advantages – • Transparency & accountability• Faster processing of projects

Disadvantages—• Minimizes potential extraction

Plan-based Land Value Recapture

The Eastern Neighborhoods Plan in San Francisco

San FranciscoA culture of planning exactions/linkages (based on what

is usually a very strong market – per square foot):

• 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;

$250,000 in-lieu-fee for a 1-bedroom unit)

Origins of ENP: 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

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”

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 result was the:

The 2008 Eastern Neighborhood Plan

• Appropriate political juncture (Willie Brown-District Elections)

• Planning Department staff in charge sympathetic

San Francisco Eastern Neighborhoods Plan

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 more

Fee levels

Tier Residential Non-residential• 1 $8/gsf $6/gsf• 2 $12/gsf $10/gsf• 3 $16/gsf $14/gsf

In formerly industrial zones the use change to different types of mixed use requires higher IH requirements

Height Districts

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)

How are community benefits through value capture different from Development Impact Fees

(DIFs)/Inclusionary/Commercial Linkage Fees?

1. Community benefits are additional benefits

2. Community benefit levels are established at the time of plan changes/upzonings. DIFs, IH, etc. are due at the time of subdivision approval or later

Developers have paid the rezoned value for the land

Issues with LVR

• Faced with reduced land prices, will landowners keep land from the market?

• How do you value land and community benefits?

• What does the desire to engage in LVR exactly mean?