Tools for Ensuring Equitable Urban Investments - the California Context

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, fai
rness 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

26. Intermission

27. Plan-based Land Value Recapture
The Eastern Neighborhoods
Plan in San Francisco

28. San Francisco
A 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)

30. 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?

31. 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

33. 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”

34. 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 Plan
Appropriate political juncture (Willie Brown-District Elections)
Planning Department staff in charge sympathetic

35. San Francisco Eastern Neighborhoods Plan

36. Eastern Neighborhoods
The 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

37. Land use changes (value creation) generate
community benefits (value capture), through the
planning 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

38. 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)

39. • Mathur, Shishir. Under contract. Property
Value Capture to Fund Public Transportation in
the USA. Surrey, U.K: Ashgate.