Sunday, May 16

The future does need to be paid for

This month's Atlantic is a special Future of the City edition with a number of thought-provoking features and essays. Before getting into the actual material, I just have to say ... it's interesting how cities have always been associated with the future, and countryside the past. We picture the gleaming skyscraper and the quaint red barn, when, in reality, today's farms are as tricked out in chemicals and high-tech machinery as a heavy pharmaceutical plant and cities are a repository for layers and layers of cultural artifacts. Still there's something about cities that stoke the imagination, and countryside a nostalgic sense of comfort. This seems appropriate to me.

Anyway,  Chris Leinberger writes a follow-up to his landmark The Next Slums? piece from 2008. As a real estate developer, he knows that the old model of building housing as quickly and cheaply as possible on the metropolitan fringe is no longer viable. On the other hand, building the kinds of walkable urban neighborhoods that are in demand (and in short supply) is difficult to do given the infrastructure and local regulatory systems currently in place. To roll with this paradigm shift, rail lines have to be built and zoning has to be reformed to open up the ensuing development potential.

His solution for doing this is simple,

"Transportation drives development, so development can and should help pay for transportation"
To me, Leinberger's argument has echos from 19th century economic reformer Henry George, only told in reverse. George noticed an injustice in the way the benefits from public improvements were distributed throughout society. Selected landowners, because they possess a natural monopoly over a particular geographical space, are able to capture much of the value of new infrastructure, parks, and other public amenities, when they have not put in the labor to produce this value. Essentially, they are just lucky or well-connected. George advocated a land value tax to redistribute the benefits back to the community, and Leinberger is saying the "landowners" should be the ones paying for the improvements in the first place.

Financing transit with private capital will certainly be complicated. In the days when a streetcar line could be extended out into fresh greenfields, it made sense of the fields owner to foot the bill for the transportation in order to bring people to his land. But retrofitting a rail system on top of existing development requires a much more complex financial calculation and enough buy-in from numerous property owners, some of whom are more interested in redeveloping than others.

Still there's lots of smart people thinking about this financing strategy. Here's a 2008 report from Reconnecting America, Capturing the Value of Transit. Another from the Victoria Transport Policy Institute in 2009, The Value Capture Approach To Stimulating Transit Oriented Development And Financing Transit Station Area Improvements. Finally, a 2009 report to the Minnesota Legislature from a group including David Levinson, Value Capture for Transportation Finance.


Anna B said...

I'm glad you mention Henry George in relation to transportation - Donald Shoup (the parking guy) talks about him a lot in relation to paying for parking as a land use in "The High Cost of Free Parking."

Laurence Aurbach said...

I zeroed in on that "transportation drives development" line also. I think both the historical and academic evidence indicate that transportation directs development to particular locations and patterns. But transportation doesn't create demand for development when demand doesn't already exist in a region.

Also, the land use plans and regulations have to be in place and they have to allow transit oriented development to proceed. Transportation won't drive any development if zoning prohibits it or if planners surround it with surface parking.

But it's a good article anyway. Everyone in real estate is wondering if the 2000s are going to come roaring back, or if we've moved on into a different market environment.

Rick Rybeck said...

In the 1990s, I worked for the District of Columbia Government. In the late 1990s, landowners near New York and Forida Avenues, NE requested that the District build a new Metrorail station in that vicinity. We informed them that we did not have the necessary funds. However, we also noted that their property values would rise and that they should contribute toward such an undertaking.

The landowners offered to contribute $25 million. It was financed by a bond that was paid off by the landowners via a special assessment district.

A few years earlier, the owner of Potomac Yards, a defunct railroad yard south of National Airport, offered to pay 100% of the cost of a new Metrorail station at that location. However, a subsequent downzoning of the parcel destroyed the economic justification for that offer.

Nonetheless, the principle that landowners can and should pay for transportation infrastructure is a sound one.