In past issues, I have frequently bemoaned our cultural affinity for simple solutions to complex problems and reminded readers that there is no easy fix for the housing affordability crisis. But in the spirit of New Year’s resolutions—and recognizing that it’s easy to pillory “flavor of the month” solutions and harder to put forth viable alternatives—I’ll take a stab at describing an approach to housing that I think can be effective.

Complex problems need to be attacked on multiple fronts. To confront the affordable housing crisis, we need to do three things, at a minimum. First, we must defend and preserve our current stock of affordable housing. Second, we must identify and fix systemic problems that impede our ability to produce new housing. Third, we need to identify and cultivate new opportunities, incentives, and approaches that expand our productive potential and facilitate production.

We need to build a portfolio of solutions with multiple policies in each of these categories. The most recent issue of Land Lines documents a few ways policy makers are doing that. It includes a feature on the increasing calls for zoning reform at the state level—and local resistance to those calls—by Anthony Flint. Loren Berlin offers a story on a heroic undertaking by the Port of Cincinnati to keep the city’s single-family housing stock available for purchase by local families and out of the hands of outside investors. Jon Gorey examines efforts to preserve and expand manufactured housing, a mostly overlooked but critical component of the nation’s affordable housing supply. For my part, I’ll offer a contribution to the third category, a land-centric approach with great potential to expand production: adaptive reuse of commercial buildings.

According to the commerce industry organization ICSC, there are 115,857 shopping centers in the United States. This includes 1,220 large malls (with an average of around 900,000 square feet of retail space and 70 acres of land); 68,936 strip malls (averaging 13,000 feet of retail space and two acres of land); and thousands of other discount centers, factory outlets, and neighborhood centers (accounting for more than 4 billion square feet of retail space and 400,000 acres of land). Even before the pandemic, a significant share of these centers was imperiled by online retail. Real estate insiders have long predicted that one-quarter of large U.S. malls were at risk of closing, and the pandemic only accelerated this decline. Although vacant malls became convenient sites for mass COVID testing and vaccinations, insiders began to predict that more than one-third of large malls would be vacant or abandoned in the next few years.

Crisis and opportunity are frequent bedfellows. The retail crisis offers what might be our best opportunity to solve the housing crisis. For example, in the San Francisco Bay Area, one of the toughest housing markets in the country, Peter Calthorpe estimates that we could build a quarter of a million new housing units by repurposing underutilized retail space along a single roadway—El Camino Real—that runs some 40 miles from San Jose to San Francisco through 16 municipalities. This would help alleviate the severe housing shortage in the region, and it would create sufficient residential density to support public transit, contributing to state and national efforts to mitigate the climate crisis. And the residential growth might generate sufficient foot traffic to support multiple commercial uses. With this three-fer, the big question is, why hasn’t redevelopment of El Camino Real already begun? Mostly because of multiple manmade, complicating factors.

As I’ve noted before, redevelopment is much harder than development on greenfield sites. One needs to undo whatever had been done on the site, while orienting multiple stakeholders with different interests toward a shared vision. To make matters worse, there are significant manmade roadblocks. First, adverse fiscal incentives interfere with jurisdictions’ willingness to consider changing land uses. Commercial property generates a big share of local revenue, not only through property taxes, but also through the local share of the sales tax and other fees and charges. Residential redevelopment might replace only a small share of the lost revenue. Second, redevelopment projects are difficult to finance. New visionary projects might excite developers; they signal uncertainty and risk for lenders and underwriters. Third, redeveloping a commercial corridor into residential or mixed-use requires zoning changes, which are notoriously fraught. In the case of El Camino Real, 16 zoning boards would need to approve rezoning for the project to proceed. While it might not require unanimous participation among all 16 cities and towns, a critical mass would be needed for the redevelopment to manifest its potential.

Just because it is hard does not mean redeveloping commercial properties into higher-density, mixed-use developments cannot be done. Each of the noted obstacles can be overcome, and all have been overcome in other places. For example, one of the largest development projects in the country, the Tysons Partnership in Tysons, Virginia, is redeveloping a 2,700+-acre commercial district into a transit-friendly, mixed-use development. The project has been underway for more than a decade and already includes 11 multifamily residential buildings. The Partnership plans to quadruple the residential population of the formerly prototypical “edge city,” which housed around 25,000 people but employed around 125,000. They are leveraging four new stops on the Silver Line of the Washington Metro to become the urban center of Fairfax County, hoping to become the poster child for the “new new urbanism.”

In Memphis, a Sears distribution center that was abandoned for almost three decades was redeveloped into a “vertical urban village” called Crosstown Concourse. The 10-story building on 16 acres of land now hosts a charter school, a performing arts center, more than 600,000 square feet of commercial space, and 270 apartments. It is already catalyzing new development in the neighborhoods that surround it.

Outside of Seattle, developers are building a new anchor tenant for the suburban Alderwood Mall—300 apartments with underground parking. This will compensate for the loss of their former anchor, Sears; provide much-needed housing in a hugely stressed housing market; and provide a base of consumers to shop in the remaining stores in the struggling mall.

Although they might not be as lengthy as El Camino Real, there are hundreds and hundreds of underutilized commercial corridors across the country. If we could redevelop them as medium-density, mixed-use developments, we could put a huge dent in the current national housing deficit. There is also no shortage of abandoned or underutilized commercial buildings like Sears Crosstown; half-vacant commercial districts like Tysons; and struggling or abandoned megamalls like Alderwood that offer similar prime opportunities for redevelopment.

By my very conservative estimates, if we redevelop 20 percent of these commercial sites to low- to medium-density mixed-use standards (10 homes per acre), we could add 1.1 million new housing units and preserve millions of square feet of commercial space with a better shot at vibrancy. If we redevelop 25 percent of the sites at 15 homes per acre, we could add 2.1 million housing units. And if we could redevelop 30 percent of the sites at 20 homes per acre, we could add 3.4 million new housing units.

This is not a technical challenge. We cracked the code on adaptive reuse decades ago. We need to simplify the process to facilitate scaled redevelopment and establish new, more effective public-private partnerships to get it done. The public sector needs to step up to de-risk projects through accelerated permitting, co-financing, and smart financial incentives. The private sector needs to quit trying to build on virgin land and find more creative ways to redevelop obsolete sites. If you want to visualize the kinds of developments that are possible, look no further than Julie Campoli’s masterpiece Made for Walking, published by the Lincoln Institute in 2012. With thousands of sites to choose from, we can establish how to produce and reproduce the kinds of neighborhoods described in the book and reduce the perceived risks of development with each successful project.

The beleaguered commercial sector offers most of the elements needed to address our current housing crisis. It has land that is already served by basic infrastructure—water, sewer, power—and that is usually accessible to transit or otherwise surrounded by parking. It often sits in prime locations. By mixing uses, we offer two huge benefits for the commercial side: workers and customers. But the societal benefits are even more profound. So let’s pursue this strategy, along with single-family zoning reform and affordable housing preservation, and see if we can resolve the national housing crisis once and for all.

George W. McCarthy is president and CEO of the Lincoln Institute of Land Policy. 

Image: A crowd gathers for the opening of Crosstown Concourse, a former Sears distribution center in Memphis, Tennessee, that was redeveloped into a mixed-use space containing a charter school, retail space, apartments, and a performing arts center. Credit: Crosstown Concourse.

Every year, the Board of Directors of the Port of Greater Cincinnati Development Authority makes dozens of resolutions. Most relate to buying or renovating specific properties, approving budgets, creating committees, and other standard orders of business. But in December 2021, the board issued a different kind of decision. Resolution 2021-34 authorized the agency, commonly known as the Port, to proceed with an unprecedented and ambitious plan: securing and spending up to $16.25 million to purchase and rehabilitate a portfolio of 194 single-family rental properties in a handful of largely low- and moderate-income neighborhoods in and around Cincinnati.

It would be a bold move for any local government authority to buy so many properties at once, but especially for an agency without experience owning occupied homes. The Port, jointly established in 2000 by the City of Cincinnati and Hamilton County to promote economic development in the metro area, operates a land bank that manages hundreds of properties at any given time, redeveloping them and returning them to productive use; it also invests in the construction and renovation of single-family homes and commercial and industrial properties. But this would be something altogether different. The vast majority of these homes would come with tenants.

Then again, that was the point: to try something different, to fight back against the institutional investors who have been buying up the area’s affordable housing stock. Today, outside investors purchase about one in five single-family homes in Cincinnati. This mirrors a national trend: institutional investors made 24 percent of single-family home purchases in 2021. The results of this property grab are the same in Cincinnati and across the country: higher rents, lower rates of individual homeownership, and less affordable neighborhoods.

The Port took action because it wanted to keep these 194 properties—which are located throughout the city and county, with many concentrated in the neighborhoods of Price Hill, Westwood, and Springfield Township—out of the hands of corporate buyers. The agency also wanted to preserve the pathways to affordable homeownership that these homes could offer current tenants and other local residents.

A dozen private investors were bidding on the portfolio, and the Port was concerned that most intended to continue with the previous owner’s business model of absentee landlords, bare-minimum maintenance, market-rate rents, and hostile eviction practices, a cash-cow approach for investors that wreaks havoc on local housing markets. The Port team knew it would need to act quickly and aggressively to win the bid.

This is the story of how a local, quasi-public agency pulled off a bit of a coup against powerful market forces, of what comes next when that agency suddenly becomes a landlord, and of the lessons the Port’s experience could offer other cities grappling with increasing corporate ownership of the nation’s limited supply of affordable homes.

Predatory Investors in Legacy Cities

To understand how the Port came to own these properties, it’s important to consider what was happening in Cincinnati when the portfolio became available. The local housing market was, and still is, one with relatively low home prices. In October 2021, the median home sale price was $213,000 in Cincinnati, compared to $378,000 nationally.

This creates the perfect market conditions for institutional investors to swoop in, says Alison Goebel, executive director of the Greater Ohio Policy Center. “Investors think they will get a good return here, especially the ones who are coming from outside of Ohio and are used to seeing higher home prices,” Goebel says. “They see that the home prices here are low enough that they can afford to buy a bunch of properties and make money on the rents, but the prices aren’t so low as to give them pause. They see it as a good deal.”

These market conditions are not unique to Cincinnati, says Goebel, who has coauthored two Lincoln Institute Policy Focus Reports on the challenges and opportunities facing postindustrial cities in the United States (Equitably Developing America’s Smaller Legacy Cities and Revitalizing America’s Smaller Legacy Cities). Also known as legacy cities, such places experienced substantial economic and population decline in the second half of the 20th century. Most of these former economic powerhouses are in the Midwest and Northeast; they vary significantly in size, from very large cities like Detroit and Baltimore to smaller ones like Gary, Indiana, and Worcester, Massachusetts. Roughly 17 million people live in legacy cities, with per capita and household incomes that tend to be lower than those in non-legacy cities, making access to affordable homeownership both more critical and further out of reach.

Both the Port and the Greater Ohio Policy Center are participants in the first national community of practice established by the Lincoln Institute’s Accelerating Community Investment initiative (ACI), which seeks to mobilize investment in low- and moderate-income communities and bring new partners to the community investment ecosystem. “Building stronger community investment ecosystems is essential for achieving more equitable redevelopment in places across the nation,” says Robert J. “R.J.” McGrail, senior research fellow at the Lincoln Institute and director of the ACI initiative. “This work is especially important now, when low-income and moderate-income communities are facing new challenges from deep-pocketed institutional investors.”

The staff at the Port had long been aware of the increasing presence of outside investors in the local housing market. In early 2021, they decided to do some digging. By analyzing property records from the Hamilton County Auditor’s office, the Port discovered that institutional investors owned more than 4,000 homes in the area. As was the case in cities across the country, many single-family homes that had been registered as owner-occupied a decade earlier were now listed as rental properties.

Further research also confirmed a troubling suspicion: an opaque connection seemed to exist among the most negligent property owners. The Port team was able to map networks of limited liability corporations (LLCs), many of which were related to just a few central entities. In some cases, properties were transferred between LLCs multiple times a year. These investor-owned properties were primarily concentrated in low- to moderate-income neighborhoods.

The Port staff and board were still digesting this information when a call came from Colliers, which was managing a portfolio of foreclosed rental homes. The properties had most recently been owned by Raineth Housing, an institutional investor based in Los Angeles that had gained local notoriety for being delinquent on its property taxes and neglecting maintenance to the point where its properties had become, in the words of a lawsuit filed by the city in 2019, a “public nuisance.” Now they were going up for sale. Would the Port want to bid on them?

“My deep conviction is that we should use the powers and expertise of this agency to make the biggest positive impact we possibly can,” said Laura Brunner, president and CEO of the Port. “So when we were suddenly faced with the opportunity to do something that was possible and where, in this case, we saw a moral imperative to act, there was no chance in the world that we would say no.”

Putting a Plan Together

Neither the Port’s budget nor its strategic plan included the acquisition of nearly 200 occupied single-family homes, so the staff had to move swiftly to pull together a bid. After securing informal support from the Port’s board, Brunner and her team met with more than a dozen area organizations active in the housing space to confirm that what the Port wanted to do made sense from their respective positions in the community. Those groups included the Legal Aid Society of Greater Cincinnati, the nonprofit community development corporation Price Hill Will, the Cincinnati Metropolitan Housing Authority, the Home Ownership Center of Greater Cincinnati, and Working in Neighborhoods, a nonprofit founded by the Catholic community Sisters of Charity.

The Port pledged that it would keep rents at their current rates for a year—the average rent for the homes was $750—and work with tenants who were behind on their rent, rather than evicting them. Port staff also reassured the organizations that their commitment to supporting the tenants and their path to homeownership was sincere.

The purchase is an important part of the Port’s effort to address the racial homeownership gap in Cincinnati, where roughly 33 percent of Black households own their homes, compared to 73 percent of white households. “The racial wealth gap is the biggest problem we have in this county,” Brunner says. “We believe that real estate is the fastest way to solve it.”

With support from the nonprofits and after confirming that the portfolio—which included thousands of homes in St. Louis, Kansas City, and Cincinnati—could be broken up to allow the Port to bid only on the 194 in the Cincinnati area, Brunner approached her board of directors for formal approval. She says the board—which has 12 members representing the business sector, half appointed by the city and half by the county—was “incredibly supportive from the beginning.” One of the big questions, though, was how to finance the deal.

“We knew we couldn’t look at every home. But we got some history on the financials, which gave us an idea of what we were dealing with,” says Todd Castellini, the Port’s vice president of public finance and industrial development. Castellini estimates that Port staff got to inspect about 30 of the properties. “We knew the homes weren’t in perfect condition, so we made a very conservative assumption as to what the homes needed. Some needed a lot, some needed a little, and some needed everything in between. Then we did some cash-flow analysis, and then made it even more conservative, and that’s how we got comfortable with the deal. We approached the deal not looking to make money on it but to break even, and we are confident we can do that.”

Port staff concluded that they needed to borrow $16.25 million—$15.5 million to purchase the homes and $750,000 for repairs and improvements, though the Port planned to cover the bulk of those deferred maintenance expenses with rental income. For the financing, the Port issued bonds with a term of 30 months, which would allow adequate time to assess, upgrade, and eventually begin selling the properties.

The Port was able to sell the bonds quickly, with the entire issuance purchased by a local entity that has been buying Port-issued bonds for the last several years. This longstanding relationship was critical, says Castellini: “They understand us. They’ve seen our financials. They know how we work. So it was easy for them to analyze us and the deal and to act quickly.”

Having secured a buyer for the bonds, Brunner and her team submitted an offer to buy the portfolio for $15 million. On the morning of the final bid, at the suggestion of the board, they increased their offer by $500,000 to make it more competitive. Critically, the Port offered a short timeframe for closing the deal, which worked to its advantage. Though three private equity firms also each offered $15.5 million, those bidders required a longer due diligence period, positioning the Port’s offer as the highest and best.

Not only had the Port won the sale, but this quasi-public agency had foiled a dozen institutional investors, a nearly unprecedented feat in the world of real estate investment. “Honestly, I think the acquisition—the whole project, really—is emblematic of many things we have done,” says Brunner. “I’d be wracked with guilt if we had just said that it was too hard or too risky or all the ‘what ifs.’ We have years of history of smaller examples, and this is just a more dramatic one.”

Taking Ownership

Since closing on the deal, the Port’s staff has learned a great deal about the portfolio. Many more of the homes were vacant than was represented, creating both opportunity—it’s easier to fix up empty houses—and challenge, since rental income was part of the financing formula. And many of the occupied homes are in worse shape than expected. Consequently, Brunner estimates that the Port’s improvement costs will likely be at least double what they originally anticipated, bringing the project total closer to $17 million.

LyDonna Turner, who lives with her children and grandchild in one of the houses now owned by the Port, confirmed that she had told the previous landlords about a broken garage door, a collapsed cabinet under her kitchen sink, and a problem with mice, but they never addressed the issues. Her situation is just one example of a backlog of 160 maintenance problems waiting to be addressed when the Port took ownership.

“On the one hand, that’s a financial challenge,” Brunner concedes. “On the other hand, those conditions really reinforce that we needed to be the buyer. We can’t just have all of these houses that are literally deteriorating in these neighborhoods.”

To maintain transparency and gain advice on a multitude of topics, from eviction prevention to homeownership training to potential tenant sourcing, the Port established an advisory committee. The agency also hired an experienced property manager who will handle operations and provide residents with the kind of attention and support they hadn’t received in the past. “It took us a long time to find a property manager willing to be as empathetic and responsive as we are,” Brunner says.

The Port has also partnered with local organizations to offer tenant credit counseling and homeownership preparation initiatives. Goebel notes that the city has a particularly strong nonprofit sector, and says that ecosystem of partners will be essential to helping current tenants become homeowners or finding new homebuyers.

At least 80 percent of the occupied properties were behind on rent payments when the Port took over the portfolio, with roughly 20 percent at least one year delinquent. The Port was able to provide rental assistance to close that gap, thanks to $600,000 of American Recovery Plan Act (ARPA) funds provided via the county’s Community Action Agency.

Though the houses may end up selling for closer to $130,000 than to the initially projected $120,000, they will still cost significantly less than Cincinnati’s current median single-family home price, which has continued to rise and had reached $230,000 by late 2022. And this will all happen without subsidies, Brunner is quick to add.

“Every other house we have ever sold we have had to subsidize,” she said. “Typically, that’s the way we have lived. But our pro forma shows that we can pay off our debt with a combination of rental income and the sale of the homes. Honestly, it boggled our minds for quite some time that 200 houses can be converted to homeownership without public subsidy. But they can.”

Nevertheless, Port staff are exploring the possibility of securing grants from the City of Cincinnati and Hamilton County for down payment assistance and to help lower the homebuyers’ purchase price.

The demand is certainly there, says Turner, who hopes to buy her own home one day. “I do have a couple of friends who have been looking to buy homes but haven’t been successful. So I think it’s a good idea for the Port to buy these homes and to offer them to the tenants first.”

Building Out the Portfolio

Since news of the Port’s purchase broke—and spread, earning coverage in national outlets including NPR and the Wall Street Journal—the agency has heard from receivers and property owners interested in discussing similar deals. At press time, the team was working to acquire a second portfolio of foreclosed homes, and it is eager to expand as much as the realities of financing allow.

With a property manager on board and tenant counseling in place, “it [would be logistically] easy for us to add properties to our portfolio,” Brunner says. “Honestly, I would like nothing more than to buy all 4,000 investor-owned properties that are in our county and get them all out. We may not be there yet, but the opportunity to add that many new homeowners to our market is significant.”

But building out the portfolio in a meaningful way will require corporate or philanthropic involvement, Brunner says. Last year, Brunner and her team participated in an ACI Local Investor Challenge, where they pitched the idea of a fund that could finance more opportunistic investments and, Brunner says, made connections that could help make that fund a reality.

Even as the agency explores the possibility of scaling up, questions remain about the current portfolio. For example, how can the agency ensure that properties remain affordable over the long term? According to Brunner, the Port is considering deed restrictions but has not yet settled on the best strategy for ensuring affordability—and, perhaps more critically, sustaining resident ownership. “We are less concerned with how long the buyer stays in the home and more concerned with who they sell it to,” she says. “We don’t want these homes sold back to investors.”

The Port is also reexamining how best to finance mortgages once the time comes. Port staff initially assumed that partner organizations would originate and service the mortgage loans. They are now considering keeping those activities in house to allow for more flexible underwriting guidelines and more “compassionate” collections, Brunner says. By self-servicing mortgages, the Port could help the individual mortgage holders establish a stronger borrowing and repayment history, and could eventually issue mortgage revenue bonds to repay the debt from the acquisition of the homes. Replacing the acquisition financing with a more traditional mortgage-backed security structure would allow the Port to reach a larger potential market of mission-oriented buyers.

That kind of shift could create a more sustainable business model for the Port and others interested in following the agency’s lead, says McGrail of ACI. “If the Port can move the financing out of the public sector and into the capital markets without risk to the mortgage holder, that becomes a strategy that is fully a market solution, and that feels potentially transformative to me in the bigger picture,” he says. “That feels like an actionable, testable, provable solution for getting the wrong type of property owners swapped out for the right ones.”

A Replicable Model?

For all Brunner’s enthusiasm, she is nevertheless aware of the David and Goliath dynamic underpinning the project and what that could mean for its scalability or replicability. “On the one hand, our acquisition of this portfolio is a big deal. On the other hand, we are talking about 200 houses and $15.5 million. That’s small potatoes in the grand scheme of this national challenge. And the fact that the purchase stands out so dramatically makes me wonder a lot about who the entities are out there that can move the needle on this problem.”

Brett Theodos, senior fellow and director of the Community Economic Development Hub at the Urban Institute, has a few ideas on that front. “There are land banks and sophisticated community development corporations and some development finance agencies that could serve this function,” he says. “With different actors there are different constraints. Most of them can issue bonds, but the question is whether they would work to push this sort of project forward. For those agencies, it isn’t altogether a new flavor combination so much as a willingness to say, ‘Yes, we have this purpose, too, and we are willing to put in the muscle to make it happen.’”

In other words, the Port’s acquisition is likely neither the story of a one-off victory for the public good, nor an easy formula that other cities can follow to facilitate these sorts of acquisitions. But housing experts agree that while some of the circumstances in Cincinnati may be rare, the fundamental strategy is replicable.

“It’s important to remember that this was a portfolio that was [in] foreclosure, so it was essentially a fire sale,” says Goebel. “These types of sales do happen, whether due to foreclosure or because the owner wants to retire, but they aren’t dependable. I’d say that in Ohio, we hear about these sorts of portfolios of single-family rental properties popping up for sale every 12 to 18 months.” When they do become available, it’s not a given that the broker or others involved would think to alert a quasi-public agency.

A second relatively unique piece of the story is the Port’s statutory construct, says McGrail. “The Ohio port authority statute has amongst the most robust set of powers I’ve ever seen in a public finance entity,” he explains. “In addition to giving port authorities the typical public finance powers needed to issue bonds, Ohio’s legislature has given them broad tax powers, allowed them to operate as land banks, and empowered them to be able to hold and redevelop a range of real estate across asset classes, including both commercial and residential property.”

He is quick to add that those powers are made more meaningful by the way Brunner and her senior leadership team use them. “They are a dynamic, multi-credentialed team that has adopted a community-first lens in a way that I think is a little unique for a quasi-public agency, because they do a lot of asking and listening before acting—and that understanding of local needs creates more tolerance for pursuing risk-adjusted goals.”

The Port’s board of directors deserves credit too, says Goebel. They could have easily stopped the project in its tracks. Instead, they not only approved it but also provided crucial guidance on the structure of the Port’s bid. “They need as many kudos for that as they can get,” she notes.

As this experiment continues to unfold in Cincinnati, Theodos urges other cities and investors to consider taking action, noting that plenty of housing markets need this sort of intervention. “The tide—these investors—is coming in quickly, and we are swimming very much upstream,” he says. “The Port is reacting in real time to directly address the problem, which is exactly what we need. We need it again and again, every number of months, and in every city.”

About the Accelerating Community Investment Initiative

The Lincoln Institute launched the Accelerating Community Investment (ACI) initiative in 2021 to mobilize investment in low- and moderate-income communities, especially those that have been excluded from access to mainstream financial and wealth-building resources. ACI began by convening a national community of practice, with more than 40 agencies and institutions participating from 14 states; the group has met virtually and in person to build partnerships, identify new investment opportunities, and share experiences and advice. The initiative has also held three Local Investor Challenges, spotlighting community investment opportunities in Cincinnati, New Orleans, and Texas. These sessions provide community of practice participants the chance to pitch investment-ready projects to the local investment community and get direct feedback—on the pitch and the projects—from potential investors. “The investor summit ACI held in Cincinnati led to a lot of relationships that could potentially allow us to scale our investment much more significantly,” says Laura Brunner, CEO of the Port of Greater Cincinnati Development Authority. “The relationships I have made through them have been invaluable.” In the year ahead, ACI will complete the initial eight-session run of its community of practice and share results, hold additional Local Investor Challenges, and make plans for new activities that support its goal of accelerating community investment across the nation. To learn more about ACI, contact program director Robert “R. J.” McGrail: ACI@lincolninst.edu.

Loren Berlin is a writer and communications consultant specializing in housing and economic opportunity. 

Image: Downtown Cincinnati from the Price Hills neighborhood, where many of the homes purchased by the Port are located. Credit: East Price Hill Improvement Association.

C

El caos climático afecta a personas en todo el mundo, incluidos los Estados Unidos, y ya es hora de que se haga algo al respecto. Para evitar los impactos más catastróficos de esta crisis mundial, debemos neutralizar las emisiones para el 2050, lo que implica invertir en energía limpia, usar transporte eléctrico, mejorar la eficiencia energética de los edificios y eliminar los gases de efecto invernadero de la atmósfera.

Para neutralizar las emisiones, se deberán lograr cambios sin precedentes en cuanto al uso del suelo y realizar inversiones de la misma magnitud. Por ejemplo, el Instituto de Tecnología de Massachusetts (MIT, por su sigla en inglés) calcula que se necesitan 3.237.485 hectáreas de suelo para satisfacer las demandas energéticas de 2050 de los Estados Unidos con energía fotovoltaica; es decir, solo tres veces el área de todos los campos de golf del país, 40 por ciento del área total de los techos o 16 por ciento del área que cubren las carreteras principales. Si bien no planeamos cubrir todas las necesidades energéticas de esta manera, estas comparaciones brindan la oportunidad de medir el desafío y ajustar nuestras expectativas respecto de si podemos superarlo o no. Y podemos.

En cuanto a cómo lo pagaremos, hace poco, la consultora internacional McKinsey estimó que neutralizar las emisiones costaría US$ 275 billones (casi tres veces el PIB mundial) de inversiones públicas y privadas en nuevos sistemas de energía y uso del suelo durante las próximas tres décadas, lo que equivale a US$ 3,5 billones anuales más que el gasto actual. A modo de comparación, a valores actuales, se gastaron US$ 500.000 millones en seis décadas para construir el Sistema Interestatal de Autopistas de los EE.UU., casi US$ 180.000 millones para reconstruir los países de la Organización para la Cooperación y el Desarrollo Económicos (OCDE) en las dos décadas posteriores a la Segunda Guerra Mundial, US$ 675.000 millones para financiar el New Deal (Nuevo Trato) en la década de 1930 y US$ 850.000 millones en la Ley de Reinversión y Recuperación de los Estados Unidos durante la década posterior a 2009. En otras palabras, las inversiones anuales adicionales superarán el total de estas gestiones, que solo fueron posibles una vez en la vida y que tomaron una década o más en completarse, cada una de ellas. Sin embargo, a diferencia de estos proyectos, este esfuerzo requiere contribuciones privadas significativas para apoyar una inversión pública sin precedentes.

Cuando nos topamos con desafíos financieros inabordables, como la inversión en infraestructura necesaria para servir a 2.000 millones de habitantes urbanos nuevos en las próximas tres décadas, siempre respondo con las mismas cinco palabras: la respuesta es el suelo. Desde nuestra creación hace más de 75 años, el Instituto Lincoln se centra en cómo el suelo obtiene su valor. En los últimos años, notamos un aumento exponencial del interés en el potencial que ofrece la recuperación de plusvalías, la recuperación pública de la fracción del valor del suelo correspondiente a acciones públicas. Lugares tan diversos como Seúl (Corea) y San Pablo (Brasil) han demostrado cómo la recuperación de plusvalías puede pagar necesidades de infraestructura esenciales pero que parecen imposibles de lograr. Sabemos que invertir en la descarbonización puede aumentar el valor del suelo y que esto le permite al público recuperar una fracción de este valor para pagar la inversión.

Si bien el sector público se esfuerza por recuperar su legítima porción sobre las plusvalías generadas de manera pública, los propietarios privados obtienen beneficios mayores mediante el arbitraje de información, algo que sin dudas ejerce más poder en el momento de determinar el valor del suelo. Cómo los gestores de políticas responden a la conexión entre la información y el valor del suelo, si es que lo hacen, afectará en gran medida cuánto costará neutralizar las emisiones de carbono para 2050 y cómo lo pagaremos. Esto nos lleva a una herramienta de financiamiento con base en el suelo un poco diferente que demostró ser eficaz para contrarrestar la especulación del suelo y que podría ser más rentable que la recuperación de plusvalías generadas de manera pública: el impuesto sobre la plusvalía (LVIT, por su sigla en inglés). Antes de que entremos en detalles sobre esta herramienta, centrémonos en el problema que debe abordar.

La información se encuentra en el centro de la recuperación de plusvalías privada, que suele llamarse especulación al descubierto, y lleva siglos financiando el desarrollo del suelo. Todos saben que los tres determinantes principales del valor del suelo son la ubicación, la ubicación y la ubicación. La información más relevante de la especulación sobre el suelo es el conocimiento detallado sobre lo que ocurrirá en ubicaciones específicas. En la década de 1960, Walt Disney Company usó empresas fantasma para comprar en secreto 10.926 hectáreas de humedales en el centro de Florida, a un costo promedio de US$ 200 por media hectárea, a fin de construir Walt Disney World Resort. Disney solo necesitaba 4.046 hectáreas para el desarrollo, pero sabía que la noticia de su inversión aumentaría los precios del suelo en toda la región. La empresa mantuvo en secreto sus intenciones para recuperar las plusvalías para sí, mientras negociaba con el estado de Florida el control privado sin precedentes del desarrollo en su suelo. Este acuerdo ahora está en riesgo por los conflictos políticos con el estado. Cuando se anunció el futuro desarrollo, el mismo suelo pasó a valer US$ 80.000 por media hectárea, un beneficio inesperado de más de US$ 2.000 millones por una inversión de apenas un poco más de US$ 5 millones. Disney arrendó el suelo adicional a fin de cubrir los costos de expandir las atracciones que incluyeron el parque temático Epcot, entre otras cosas.

La crisis climática y la posibilidad de extinciones en masa abrieron un nuevo frente en la especulación sobre el suelo. Informes como El cambio climático y la tierra del Grupo Intergubernamental de Expertos sobre el Cambio Climático, que documenta laboriosamente los efectos positivos y negativos del clima sobre el suelo en todo el mundo, son como un dulce para los inversionistas que buscan adquirir suelo que se beneficiará gracias al cambio climático. El suelo que tiene el privilegio de contar con recursos escasos, como el agua; terrenos más altos para aquellos que escapan de la subida del nivel del mar o hábitats críticos que son el objetivo de esfuerzos de conservación son los blancos principales de los especuladores. Irónicamente, los defensores del medioambiente fomentan, sin querer, la especulación, ya que generan estadísticas detalladas para guiar los esfuerzos de conservación o generar la voluntad política de fomentar la resiliencia ante el cambio climático que los inversionistas privados usan para su beneficio.

Dejando de lado las cuestiones éticas por un momento, las implicaciones prácticas de la especulación sobre el suelo son devastadoras. Conservar el suelo para abordar la crisis climática o las extinciones en masa ya es una propuesta costosa. Como dijo Christoph Nolte, un científico de datos socio-medioambientales de la Universidad de Boston, la Ley de Espacios Abiertos de los Estados Unidos (Great American Outdoors Act) de 2020 de US$ 4.500 millones estaba diseñada para brindar fondos suficientes, a fin de proteger el hábitat de todas las especies en peligro de extinción en los Estados Unidos. Según sus cálculos, los fondos solo protegerán al cinco por ciento del suelo necesario porque el valor del suelo ya es muy superior a lo estimado.

Cada dólar que ganan los especuladores del suelo representa un dólar más de inversión pública, privada y filantrópica que se necesitará para proteger el hábitat crítico o mitigar la crisis climática. Si los gestores de políticas tienen intenciones reales de mitigar el cambio climático o conservar el suelo y los recursos hídricos, no pueden permitir que los inversionistas privados estén 10 pasos más adelante que el público.

Hay una forma sencilla de evitar los astronómicos beneficios inesperados de la especulación sobre el suelo. Entre los muchos instrumentos eficaces sobre políticas de suelo que estudiamos, el LVIT (una herramienta conocida y probada) es la mejor solución para minimizar la especulación sobre el suelo. El LVIT, un impuesto sobre las ganancias obtenidas mediante el valor del suelo, se aplicó a tasas tan altas como el 90 por ciento en lugares como Taiwán, donde el impuesto ahora varía del 40 al 60 por ciento. La renta que genera el LVIT puede invertirse en la resiliencia ante el cambio climático o la protección del hábitat, lo que garantiza que estas plusvalías se usen para el beneficio público. Otras políticas de suelo, como las limitaciones a la propiedad extranjera del suelo que minimiza la especulación internacional, son buenos complementos del LVIT.

Para mitigar la crisis climática y evitar la extinción en masa, se requerirán cambios sin precedentes en el uso del suelo en todo el mundo. En números anteriores, comenté los esfuerzos ambiciosos para proteger el 30 por ciento del suelo y los recursos hídricos de la Tierra para 2030, y la mitad para 2050. También debemos transformar el paisaje en pos de las especies que migran por cuestiones climáticas y la producción de energía renovable. Sin medidas proactivas que minimicen el impacto de la especulación privada sobre el suelo, destruiremos las buenas intenciones públicas y vaciaremos las arcas filantrópicas antes de que podamos avanzar en la reducción del calentamiento global o la protección de las especies, incluido el homo sapiens. Ya resulta extremadamente difícil generar la voluntad política para abordar las amenazas existentes. ¿Por qué actuaríamos descuidadamente para permitir que otros aumenten el costo de nuestros esfuerzos para su propio beneficio privado? Ya sabemos que la solución para reducir la especulación sobre el suelo es un LVIT agresivo. ¿Tendremos la valentía necesaria para usarlo?

Una primera versión de este artículo se publicó en la revista Public Finance, la revista del Chartered Institute of Public Finance and Accountancy (CIPFA) con base en Londres.

Fotografía: En Hsinchu y otras ciudades de Taiwán, se utilizó el impuesto sobre la plusvalía o LVIT para contrarrestar la especulación con respecto al suelo. Crédito: Sean Pavone vía iStock/Getty Images Plus.

A coalition of 21 leading national affordable housing groups is acknowledging improvements to Fannie Mae and Freddie Mac’s Duty to Serve (DTS) Underserved Market Plans for 2022-2024 but calling on the government-sponsored enterprises to go further to reach underserved housing markets. 

The Underserved Mortgage Markets Coalition (UMMC) released a scorecard to evaluate the enterprises’ newest Duty to Serve plans, which were produced April 27. The Scorecard for the Approved DTS Plans 2022-2024 evaluates the enterprises’ commitment to innovating and developing effective solutions to meet their responsibilities under Duty to Serve, a federal regulation that requires the enterprises to prioritize and improve affordable housing finance opportunities in three historically neglected markets: manufactured housing, affordable housing preservation, and rural housing. 

The scorecard recognizes significant improvement in the latest plans compared with the versions released a year earlier. However, the scorecard finds that Fannie Mae and Freddie Mac failed to fully implement a majority of the improvements recommended in the Blueprint for Impactful Duty to Serve Plans, which the UMMC released January 20. 

For example, neither Fannie Mae nor Freddie Mac substantially increased its commitment to help manufactured housing homeowners obtain traditional mortgages, and neither adopted the recommendation to target 10 percent of their loan purchase to low- and moderate-income families in areas with high energy cost burdens. 
 
The UMMC recommends that Fannie Mae and Freddie Mac carefully consider the scorecard in determining how to improve their Duty to Serve plans, and that the Federal Housing Finance Agency (FHFA) take the scorecard into account in evaluating the enterprises’ performance. Consistent with UMMC’s intention of working collaboratively with Fannie Mae and Freddie Mac, the coalition hopes that both companies will work collaboratively to amend their DTS plans so that the UMMC can issue an updated DTS scorecard with higher scores. 

 
Founded in October of 2021, the UMMC consists of 21 leading U.S. affordable housing organizations seeking to hold Fannie Mae and Freddie Mac accountable to their founding purpose: to bring housing finance opportunities to American families not traditionally served by the private market. The UMMC identified numerous flaws in the enterprises’ previous Duty to Serve plans, released in May of 2021, and supported FHFA’s decision in January of 2022 to reject those plans. It is now working with the enterprises and other stakeholders to use the power of the federal government to improve housing affordability and boost homeownership. 

Image: Balconies of a modern apartment. Credit: ImageGap via Getty Images.

The property tax has great potential as a source of local government revenue in Asia, but its implementation has been uneven. The Lincoln Institute’s new book Property Tax in Asia: Policy and Practice provides the first comprehensive analysis of how this essential fiscal instrument has performed throughout the world’s largest continent. 

Written by a team of leading experts and edited by William McCluskey, Roy Bahl, and Riël Franzsen, the book provides a comparative analysis and detailed recommendations, with 13 in-depth case studies covering a region that is home to nearly half the world’s population. 

“Our case studies of these 13 countries and regions found that methods to modernize the property tax vary widely among them, including how they capture its advantage as a revenue-raising measure and make it an instrument for rationalizing land use policy and promoting social equity,” the editors write. 

A resource for scholars and policy makers alike, the book provides the most thorough review to date of the laws, administrative practices, reform proposals, technologies, and political debates that shape the property tax across countries of all sizes and income levels.  

The book finds that, in general, wealthier countries such as Japan, Korea, and Singapore have well-functioning property tax systems, although they face challenges—for example, unclear ownership of Japan’s growing number of abandoned homes. In China and Vietnam, which do not allow private ownership of land, local governments rely heavily on one-time land-use fees, which are less reliable and stable than recurrent taxes. In addition, many lower-income countries suffer from narrow tax bases, undervaluation of property, poor compliance, and political challenges. 

To represent roughly 50 countries, the editors selected 13 cases in based on the use of the property tax, innovative administration, use of technology, and history with the property tax. The case studies include all the largest economies in South and East Asia, all jurisdictions with recurrent property taxes of at least 1 percent of GDP, and a range of lower-income countries throughout Asia. The cases include China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Pakistan, the Philippines, Singapore, Taiwan, Thailand, and Vietnam. 

Acknowledging that conditions vary widely, the book recommends the following 10 directions for reform: 

• Develop a property and land tax strategy 
• Take a comprehensive approach to reform 
• Clarify the different roles of national, provincial, and local government 
• Eliminate unnecessary tax exemptions 
• Simplify the tax rate structure 
• Rationalize the use of property transfer taxes 
• Improve the quality of valuations and compliance with statutory revaluation cycles 
• Improve voluntary compliance with the property tax 
• Simplify and improve public management 
• Harness the power of information technology 

Property Tax in Asia: Policy and Practice is the latest in a series of Lincoln Institute books analyzing the property tax in large regions of the globe, including Property Tax in Africa: Status, Challenges, and Prospects (2017) and Property Tax Systems in Latin America and the Caribbean (published in Spanish, 2016). 

Image: View of Mt. Fuji, Tokyo Tower and crowded buildings in downtown Tokyo. Credit: yongyuan via Getty Images.

Small and midsize legacy cities, once written off as relics of an industrial past, are important actors as climate change plays out in the United States. As much as one-third of the U.S. population lives in these metro areas, which are home to fertile farmland, abundant fresh water, productive capacity and culture, and comparatively cool weather. As climate change accelerates, these resources will attract people displaced from other parts of the country and the world. 

To succeed as “climate havens,” legacy cities must protect their assets, which also include relatively affordable housing, historic downtowns, and often overbuilt infrastructure, while simultaneously developing strategies to foster climate resilience, environmental justice, and green economic development. However, these cities face a serious threat that could undermine such efforts: large-scale speculative real estate investment that could put housing out of reach for all but the most affluent.  

Corporate and institutional investors expanded their role in the housing market more than a decade ago, picking up foreclosed and distressed properties across the country at rock-bottom prices during the Great Recession, then renting or reselling them after the recovery. Today they are consolidating even more property and power, a trend marked by rising real estate ownership by limited liability corporations (LLCs), the increasing sophistication of algorithmic tools for amassing different types of property in aggregate, and increased reliance on driving up rents, rather than house-flipping, to extract profits. Leaders in legacy cities, preoccupied with dramatic population loss for decades and enthusiastically welcoming investment now, could be caught unprepared to handle a land grab that benefits only the wealthy, displacing most everyone else—particularly Black and brown residents. 

According to the Department of Housing and Urban Development’s Rental Housing Finance Survey data, individual ownership of rental property fell from 92 percent in 1991 to 72 percent in 2017, with evidence suggesting that it has dropped further since. LLCs, which states authorized in large numbers beginning in the 1990s, account for much of this shift. They are a particularly common ownership structure for apartment dwellings of five or more units and, more recently, for single-family housing and mobile-home parks. These impersonal “equity-mining” operations convert owner-occupied housing to rentals, price out current renters with higher rents through devices such as block purchasing in targeted neighborhoods, and keep first-time homeowners off the market by reducing the available housing stock—all with virtually no accountability due to limited liability protections.  

Most of this activity has taken place in growing metropolitan areas, mainly across the South and on the coasts, but legacy cities are emerging targets. Detroit, which has slowed gutting population loss in recent years, was among the 10 U.S. metropolitan areas where private equity accounted for the highest share of purchased homes in 2021. With 19 percent of its home sales made to investors, Detroit found itself in the company of fast-growing cities including Phoenix, Las Vegas, Miami, and Atlanta.  

The predominantly Black east side of Cleveland, and the city’s eastern first-ring suburbs, have also been hit hard. Between 2004 and 2020, the proportion of housing purchases made by private equity in Cuyahoga County rose from 7.2 percent to 21.1 percent; on the east side, investor purchases stood at a staggering 46 percent by 2020. Since 2016, Springfield, Massachusetts, with a poverty rate of about 25 percent, has experienced 1,200 single-family private equity home purchases, more than any other city in the state; that figure doesn’t even include purchases of foreclosed properties. 

A number of conditions account for this housing market speculation. According to ProPublica reporting, private equity firms have record levels of unallocated capital available for real estate. Investors are also betting on a rising rental market as population outpaces housing supply. The pandemic has played a role too, leaving struggling individual landlords and owner-occupant sellers vulnerable to cash-paying private equity investors. Most housing in smaller legacy cities is single-family, which is currently targeted by private equity. And in a time-honored land-use dynamic, urban “improvements”—such as Springfield’s downtown MGM casino complex and potential East-West rail connection to Boston—tend to attract additional investment.  

Countering this speculative, wealth-extracting land grab—a damaging trend that climate change will only exacerbate, as investors eye properties expected to remain viable amid calamitous changes elsewhere—is critical to the long-term economic health of smaller legacy cities. They should consider taking or supporting steps including the following: 

• requiring greater transparency in LLC ownership, partnerships, and practices, as legislation recently filed in New York State aims to do
• ensuring that municipal housing codes require access to a local agent in charge, along with “owner” information, and provide for and/or more readily apply both criminal and civil penalties for code violations
• encouraging full implementation of the 2020 Corporate Transparency Act, which Congress passed to make ownership information reported to the U.S. Treasury Department’s Financial Crimes Enforcement Network public, so that neglectful corporate landlords can be more easily tracked and held accountable. 

Policy makers also need to remedy the structural forces that have gotten us here by increasing housing supply to meet demand, particularly at the lower end of the market; planning to preserve affordability and prevent displacement of vulnerable residents; and linking housing to community wealth-building through tools like community land trusts.  

Although much uncertainty clouds our climate future, we know many millions of people will be displaced, and the assets of smaller legacy cities will make them appealing destinations. Such cities must plan for that future now by safeguarding their land and people from the private equity invasion. 

Catherine Tumber, author of Small, Gritty, and Green: The Promise of America’s Smaller Industrial Cities in a Low-Carbon World (MIT Press, 2012) is coauthor of a forthcoming Policy Focus Report from the Lincoln Institute on greening small and midsize legacy cities in the United States. To learn more about her work, visit catherinetumber.com. 

Image: In Springfield, Massachusetts, and other U.S. legacy cities, institutional investors are muscling in on the real estate market. Credit: halbergman via iStock/Getty Images Plus.