At Lincoln House September 2015

Making inclusionary housing work

From Seattle to San Francisco to Chicago to Portland, Maine, debates are raging over inclusionary housing - the requirement that developers reserve a percentage of new residential development as affordable. Some say the policy discourages development, or, in an argument that could reach the Supreme Court, threatens property rights. Meanwhile, New York City Mayor Bill de Blasio faces dual criticisms that his inclusionary housing proposal goes too far, or not far enough.

Today the Lincoln Institute released a new report, Inclusionary Housing: Creating and Maintaining Equitable Communities, that separates myth from fact, charting a path forward for policymakers and showing how inclusionary housing can be used effectively to reduce economic segregation.

"In hot-market cities, skyrocketing housing prices push middle class and low income residents far away from well-paying jobs, reliable transportation, good schools and safe neighborhoods," said Lincoln Institute President George W. "Mac" McCarthy. "Inclusionary housing alone will not solve our housing crisis, but it is one of the few bulwarks we have against the effects of gentrification - and, only if we preserve the units that we work so hard to create."

Through a review of literature and case studies, author Rick Jacobus of Cornerstone Partnership offers solutions for overcoming the major political, technical, legal and practical barriers to successful inclusionary housing programs.

"More than 500 communities have used inclusionary housing policies to help maintain the vibrancy and diversity of neighborhoods in transition, and we've learned much along the way," Jacobus says. "Research shows that if programs are thoughtfully designed and implemented, they can be a valuable tool at a time when affordable housing is desperately needed."

In particular, the report addresses the concern that inclusionary housing can impede new construction by making development less profitable. According to the report, many cities have avoided such impacts by allowing flexibility in how developers comply and offering incentives, such as the ability to build at greater densities.

Other key findings and recommendations in the report include:

  • Rapid construction of market rate housing actually fuels the need for more affordable housing by changing the character of neighborhoods.
  • Inclusionary housing programs have been challenged in court, but programs can be thoughtfully designed to minimize legal risks.
  • Follow-up in the form of enforcement and stewardship is critical. Some communities have created thousands of affordable homes, only to see them disappear after subsequent sales.

The Lincoln Institute has for many years developed strategies to establish permanently affordable housing, including the establishment of community land trusts and other shared-equity arrangements. The effort is in recognition of the ongoing housing affordability crisis in many cities. Stratospheric rents and home prices in hot real estate markets are displacing longtime residents and changing the character of cities and neighborhoods.

Value capture catching on

The concept of value capture, which recognizes the increases in property value triggered by government action and public investments, has been in the news of late, not coincidentally right here in our backyard. The Massachusetts transportation secretary, Stephanie Pollack, floated the idea as a way of confronting cost overruns in the proposed Green Line light rail extension north of Boston. The state has established a Value Capture Commission to explore ways of engaging the private sector in the financing of critical transportation infrastructure. The City of Cambridge similarly suggested that private developers and landowners might contribute more directly to transit operations that are such a critical element in the success of such booming areas as Kendall Square.

Our research on value capture in the context of land-based financing tools goes back many years, and the idea has a prominent place in the promotion of municipal fiscal health. Martim Smolka, director of the Program on Latin America and the Caribbean, and author of the report Implementing Value Capture in Latin America, has been conducting research, courses, lectures, and workshops, most recently in Sao Paulo, where additional floor-area ratio (FAR) is auctioned in a stock market. Those discussions have centered on several common concerns in the implementation of value capture, such as whether charges to property owners are passed along to consumers in the form of higher prices, or doubts about the ability of local officials to determine the precise land value increment linked to government action.

Next month, Lincoln Institute president George W. "Mac" McCarthy will make a presentation at Meeting of the Minds in Richmond, California covering land-based financing tools to allow cities to make critical investments in infrastructure. Armando Carbonell, chairman of the Department of Planning and Urban Form, will also present on value capture at the 45th Anniversary of the Loeb Fellowship in Cambridge, Mass. Financing of urban development, a pillar in the global cities summit Habitat 3, will be a focus for senior research associate Enrique Silva at the Urban Thinkers Campus in New York City. And value capture will also be the subject of an upcoming talk at TEDxBeaconStreet. In addition, the Latin America program is commissioning further research on value capture, and conducting more workshops and online courses.

Unintended consequences of Colorado tax limits

Tax and expenditure limits enacted as part of a 1992 voter initiative have led to inconsistent and unequal property tax burdens in Colorado, with state taxpayers increasingly subsidizing a handful of often-wealthy school districts, according to new research published by the Lincoln Institute of Land Policy. Moreover, more than 80 percent of Coloradans pay more in school property taxes than they would if voters had never enacted the Taxpayer Bill of Rights (TABOR), the state's signature tax and expenditure limit approved in 1992, according to the research.

"Since the early 1990s, Colorado has enacted layers of reform in pursuit of two conflicting goals - lower property taxes and well-funded public schools," said Phyllis Resnick, lead economist for the Colorado Futures Center at Colorado State University and lead author of the Lincoln Institute working paper, Measuring the Impact of Tax and Expenditure Limits on Public School Finance in Colorado. "The result is greater inequality and inconsistency, and surprisingly, a greater tax burden for most Coloradans."

Resnick and co-authors Charles Brown and Deborah Godshall analyzed the impact of reforms intended to reduce property tax burdens and control spending for public education. Using a mathematical simulation, they also modeled what tax burdens would be without two property tax related provisions of the Taxpayer Bill of Rights, a 1992 state constitutional amendment that limited taxes and spending for all units of government and barred tax rate increases without voter approval.

Highlights of the research include:

  • Taxpayers in 74 school districts - representing 81% of the state's population - now pay more in school property taxes than they would if the Taxpayer Bill of Rights were never enacted.
  • In most districts where property taxes have decreased, a greater share of school costs are now paid out of the state's general fund.
  • Among the 21 school districts with the lowest school property taxes, residential taxpayers have enjoyed property tax reductions from 59 percent to 97 percent since 1993, and nine of these districts are in the top quartile for household income in the state.
  • Disparities in school funding among districts have increased with the more frequent use of override levies, particularly in school districts that have benefited from lower base property taxes subsidized by greater state aid.

"As these results show, Colorado's experience should serve as a cautionary tale for other states as they consider enacting tax and expenditure limitations," Resnick said. "In many cases, Colorado's property tax limits relied on simple formulas that failed to take into account the complex factors affecting school district financing, such as changing local economic conditions and volatile school enrollment. As a result, these limits have served mostly to redistribute - rather than reduce - Coloradans' tax burden."

The paper, which can be downloaded at the Lincoln Institute website, along with a research summary that includes infographics, garnered wide press coverage, including in the Denver Post, and prompted editorials calling for reform.

Odds & Ends

This Associated Press story on Chicago Mayor Rahm Emanuel's pitch for the property tax cites our research ... Martim Smolka, director of LAC, was on the radio (audio in Spanish) in Mexico last week to discuss the importance of land-based financing tools and the proper treatment of building rights for the planned reuse of the land currently occupied by Mexico City International Airport ... Senior fellow Joan Youngman untangles the aftermath of Oregon's property tax revolts ... The Lincoln Institute briefed members of Congress and staff on municipal fiscal health with Pittsburgh Mayor Bill Peduto and former Detroit Emergency Manager Kevyn Orr (recap courtesy of Rep. Dan Kildee (MI-05) ... ValueWalk looks at rising home values, based in part on our Land and Property Values database ... The Century Foundation cites our Fiscally Standardized Cities database in a discussion about how to fix post-Katrina New Orleans transit ... Lincoln Institute fellows Daphne Kenyon on property tax exemptions and Andy Reschovsky on Nebraska's public finance system ... This month's highlighted working paper: Local Public Goods and Property Tax Compliance, by Marco Gonzalez-Navarro and Climent Quintana-Domeque.

— ANTHONY FLINT, Lincoln Institute of Land Policy

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