|Wealth and Want|
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Like the rest of the universe, US cities keep expanding. Some time before the universe begins to contract, American metro regions may, too. What counterpart to gravity might suck suburbia back into the hole of our doughnut cities? One of the most fundamental forces in the world - money.
It was the lure of cold cash that drove urbanites out of downtown. The usual suspect, the car, was merely a convenient ride. Despite our present dependency on cars, the drive to profit is powerful enough to bring people back.
Local governments have begun to modify the profit motive. Rather than meekly pick up the ever-rising tab for expanding the infrastructure, some localities now charge developers a portion of this cost. While this move may stymie development at the edge, what’s needed is something to draw development into the urban core.
Without spending a penny of subsidy, cities can make urban renewal more profitable than suburban development. How is about as commonsensical as Einsteinian physics, but like "e=mc2", it works. The trick is to forget subsidies and lower one tax while raising another. That is, levy a tax or charge a fee to collect land value while eliminating any tax on buildings or improvements. ...
If the property tax is a centrifugal force that flings structures outward, its opposite is a land levy, a centripetal force that pulls development inward. To pay this charge, owners try to put their parcels to better use. "Owners of the most valuable sites, paying the most, try hardest," explains Tom Gihring, a Seattle-based consultant.. "Since the most valuable lots lie about the center, it is the center which draws development." In-fill happens.
The world looks different to owners dozing at the wheel, waiting for land values to rise. Title-holders keeping prime downtown sites vastly underutilized "now pay only, say, $25,000 per year in property tax for a half block," figures Dr. Mason Gaffney of the University of California at Riverside. "Post-PTS (property tax shift), these owners of parking lots and abandoned warehouses might have to part with three times that amount each year." At $75,000 per annum, no longer could they afford to let prime sites lie relatively idle. "They'll put their land to uses that generate much more revenue than does an empty building or car-covered lot," adds Gaffney. "They'll get busy building apartments, stores, offices, schools, theaters, mixing all uses together to maximize their return."
Post-PTS, would these speculators turned developers find customers? Or would potential customers continue to set up shop and home out in the cheaper 'burbs? Many house-hunters are drawn to where all the amenities are in walking distance. Many shopkeepers locate where people walk about. Other businesses collect themselves close to their suppliers and customers. There are plenty of takers for new downtown development.
At least that's what land values tell us. Land values merely reflect the desirability of locations. The more people want on, the more they must pay. The lots that people are willing to pay the most for are the heart of the city. ...
As does nature, her defenders might also want to abhor a vacuum. "Letting one city block lie fallow means paving over many suburban acres," calculates Gaffney, consultant to Alaska on oil royalties. "Conversely, using one block intensely means many outlying acres need not be used at all." ...
Might the PTS work too well? Might it spur edge-to-edge development, leaving no lot unbuilt? "While each owner may want to build, the community may prefer open space and would buy the owner out," says Batt, a retired professor. Pittsburgh, PA, taxes land six times more than buildings. The city converted its most valuable location, the Golden Triangle where the three rivers meet, into a park without developer resistance or an agonizing grassroots effort. Pittsburgh also renewed itself without federal subsidy and enjoys the lowest housing costs and crime rate of any major US city.
In New York, the city council keeps Manhattan’s Central Park unbuilt not because Greens rule the Big Apple but because property values overall are higher with the park than with luxury condos on the site. Land value is at its maximum when land use is at its optimum - mixed use including non-use. Batt adds, "the higher land value is, the more revenue there is for public benefit. Limiting a locality’s funding sources to land value puts government squarely on the side of the land’s health." ... Read the whole article
Tony Vickers: From Zee to Vee: using property tax assessments to monitor the economic landscape
The ‘real world’ in which human society exists is not confined to natural, physical phenomena. From earliest times, human beings have interacted socially and economically. As they do so, they have specialised and traded in goods and services which are the products of combinations of labour, capital, enterprise and the fourth – often forgotten but distinct – factor of all production: land.
Land comprises all natural resources, not just ‘terra firma.’ It is the universe minus man’s products. Even the simplest of human activities, sleep, requires each of us to occupy exclusively a space, a location, preferably a bed in a home of our own. But that word ‘own’ conjures emotions and political postures. ...
The author came to this field of work from a career in defence mapping, where he dealt with a wide range of applications for GIS using geospatial physical map data of variable quality from/of many countries and sources. Prior to that he was a construction engineer and planner with several firms in England generically known as ‘speculative developers’. Their core business, he learned from experience, was not necessarily to create homes, office blocks and factories but to manipulate the property market in order to profit from the uplift in land values that follows from decisions by public officials and other entrepreneurs. His on-site construction management skills were needed to produce a steady turnover, employ a minimum of labour and capital and minimise inevitable losses on operations. The real profits were made on land deals, buying speculatively and holding sites out of use until ‘ripe’ for development. ...Read the whole articleBill Batt: The Nexus of Transportation, Economic Rent, and Land Use
The conventional property tax, one taxing both land values and improvement values, is analogous to a train with an engine at each end. The tax on land value fosters improvement on the parcels with the highest market and social value, while the tax on structures discourages that very same thing. No wonder it is that economic activities is stymied most in the urban centers and manifests itself in areas where the least imposition of all has taken hold. As scholar Jessica Matthews once put it,
In a now familiar sequence, developers reach for the cheapest land, out in the cow pastures. Government is left to fill in behind with brand new infrastructure roads, sewerage systems and schools paid for in part by those whose existing roads and schools are left to decline. Property values rise in a ring that marches steadily outward from the city and fall in older suburbs inside the moving edge. Because residential development can't meet the public bills, local governments compete for commercial investment with tax discounts that deplete their revenues still further. Property taxes then rise, providing an incentive for new development. Years of such leap-frogging construction devours land at an astonishing pace.(35) ... read the whole article
Bill Batt: How Our Towns Got That Way (1996 speech)
Jessica Matthews, now with the Council on Foreign Relations, recently wrote a syndicated piece observing that:
In a now familiar sequence, developers reach for the cheapest land, out in the cow pastures. Government is left to fill in behind with brand new infrastructure roads, sewerage systems and schools paid for in part by those whose existing roads and schools are left to decline. Property values rise in a ring that marches steadily outward from the city and fall in older suburbs inside the moving edge.
Because residential development can't meet the public bills, local governments compete for commercial investment with tax discounts that deplete their revenues still further. Property taxes then rise, providing an incentive for new development.
Years of such leap-frogging construction devours land at an astonishing pace. Now if the full social opportunity cost of land occupancy were charged to landholders, the reward of (and incentive for) speculation would be obliterated, and land now locked up by speculators would be transferred to users. Users would employ more labor and engender more capital development instead of seeing it locked up in wasted space.
Absent adequate taxation the regions at the periphery are the first developed, just as Ms. Matthews observes.
The economics profession is only
now coming to recognize its
responsibility for what it has wrought. Economists are coming to
recognize the costs of sprawl, and studies show how astonishingly
inefficient the suburban lifestyle is. One review of the literature
on the subject of comparative development costs published by the
Urban Land Institute revealed that "houses built in sprawling
developments may cost 40 to 400 percent more to serve than if they
were located close to major facilities, were clustered in contiguous
areas, and incorporated a variety of housing types." ... read
the whole article
Mason Gaffney: Economics in Support of Environmentalism
Leapfrogging, floating value, and compensation
The environmental damage from those attitudes might not be so bad were it not for leapfrogging, urban disintegration, and floating value. Leapfrogging is when developers jump over the next eligible lands for urban expansion, and build farther out, here and there. This has been a problem in expanding economies ever since cities emerged from within their ancient walls and stockades, but in our times and our country it has gone to unprecedented extremes, with subsidized superhighways and universal auto ownership and truck shipping.
Alfred Gobar, savvy real estate consultant from Placentia, has recorded the amount of land actually used by city and suburban dwellers for all purposes. From this, he calculates that the entire U.S. population could live in the state of Missouri (68,965 square miles). That would be at a density of 3625 people per square mile, or 5.67 per acre. That is 7683 square feet per person. On a football gridiron, this is the area from the goal to the 16-yard line.
He is not being stingy with land, at 3625 persons per square mile. The population density of Washington, D.C., is 10,000 per square mile, with a 10-story height limit, with vast areas in parks, wide baroque avenues and vistas, several campuses, and public buildings and grounds. This is also the density of Whitefish Bay, Wisconsin, a well-preserved upper-income residential suburb of Milwaukee, with generous beaches and parks, tree-lined streets, detached dwellings, retailing, and a little industry. San Francisco, renowned for its liveability, has 15,000 per square mile. More than half the land is in non-residential uses: vast parks, golf courses, huge military/naval bases, water surface, industry, a huge regional CBD, etc., so the actual residential density is over 30,000 per square mile.
On Manhattan's upper East Side they pile up at over 100,000 per square mile. They do not crowd like this out of desperation, either. You may think of rats in cages, but some of the world's wealthiest people pay more than we could dream about to live that way. They'll pay over a million dollars for less than a little patch of ground: all they get is a stratum of space about 12 feet high on the umpteenth floor over a little patch of ground they share with many others. They could afford to live anywhere: they choose Manhattan, they actually like it there!
Take 10,000 per square mile as a reference figure, because it is easy to calculate with, and because it works in practice, as noted. You may observe and experience it. At that density, 250 million Americans would require 25,000 square miles, the land in a circle with radius of 89 miles, no more. That gives a notion of how little land is actually demanded for full urban use. It is 9.4% as big as Texas, 4.2% as big as Alaska, and 7/10 of 1% of the area of the United States.
And yet, the urban price influence of Los Angeles extends over 89 miles east-south-east clear to Temecula and Murrieta and beyond, at which point, however, it meets demand pushing north from San Diego. Urban valuation fever thus affects much more land than can ever actually be developed for urban use. Regardless, most owners come to imagine they might cash in at a high price, with high zoning, at their own convenience, with public services supplied by "the public," meaning other taxpayers. This is the meaning of "floating value."
If their land is downzoned for farming, open space, or habitat, they regard it as a "taking," and plead the 14th Amendment. Once we buy into the Sanctity (Holiness, Sacredness) of private property, we owe them. If we think of the public's buying large quantities of it to preserve habitat or open space, the price is already high above its aggregate value, and the new demand will push the price higher yet.
Here is a case showing how this works. The Los Angeles Metropolitan Transit Authority (MTA) needed the old Union Station, northeast of downtown in a run-down neighborhood, as the centerpiece of its new, integrated mass transit system. With the decline of interurban passenger rail traffic, the old station was unused. The owners, mainly Southern Pacific, asked more than MTA offered, so MTA invoked its power of eminent domain and condemned the land. The case went to judgement, and in 1984 the court awarded SP an amount about twice the going price for land in the area. The court's reason was that the coming of mass transit would raise values around the new central station, and SP should be paid as much as neighboring landowners would be able to get after the station was built.
Thus, land originally granted to SP to help subsidize mass transit was used instead to obstruct and penalize mass transit. Private property had become an end in itself, Holy and Sacred, a welfare entitlement, rather than a means to an end. MTA (the taxpayers) had to pay a price for land based on the unearned increment that its own construction and operation was expected to create in the future.
Later, MTA was to stint on subway construction, resulting in subsidence on Hollywood Boulevard, but there was no stinting on paying off SP for doing nothing: the award came to $84.7 millions. This is how the 14th Amendment works in practice, making private property an end, sanctified for its own sake, rather than a means to a higher end. It makes landowners the spoiled children of the national family, inflating the cost of every program that entails acquiring land. It means there is no chance that the public, whether through government or the Nature Conservancy, can preserve more than token areas of habitat by buying it: it would bankrupt us. ...
We have met the enemy, and it is US (Urban Sprawl). Let's analyze this beast, US.
A. Development is not identical with Sprawl
Many people carelessly equate urban growth and urban sprawl, but they are not the same, not at all. Cities may grow like the posh upper East Side of Manhattan with 100,000 per square mile, or San Francisco with 15,000, or Riverside, California with 2500, or Oklahoma City with 734. Metropolitan regions are even more varied. We have seen that 250 million Americans could fit nicely into a small part of southern California, were it compactly settled at moderate urban densities that are actually found in practice, as in the upper middle class suburb of Whitefish Bay, Wisconsin (10,000 per square mile).
Urban sprawl, which creates a psychological effect of great crowding, is not the product of development as such, but of leapfrogging. Leapfrogging means chaos, with development in the wrong places and times. Infilling, on the other hand, is anti-sprawl. It is the cure for sprawl.... read the whole article
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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper