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Land Value (Re)Capture
Nico Calavita
Professor Emeritus
Graduate Program in City Planning
San Diego State University
April 11, 2014 -- San Diego
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Mill Valley 2040 Housing Element
9. Affordable Housing Overlay
An Affordable Housing Overlay is a zoning tool which offers a package of incentives on designated sites designed
to make the development of affordable housing more feasible. It is an “overlay” because it layers on top of base
zoning regulations, leaving in place the option for property owners to develop under the base zone, or to utilize
the voluntary incentives for the provision of affordable units. Overlay incentives are distinct from incentives
offered through State density bonus law in that they provide more certainty by providing the full set of incentives
up front and establish local commitments to encourage specific types of housing1.
The Affordable Housing Overlay will be applied to the following development site in Mill Valley:
The Redwoods Addition: This continuing care retirement community is situated on a large ten‐acre lot, and is
currently undergoing a comprehensive $45 million renovation. The non‐profit owners plan to initiate a capital
campaign in 2013 to raise funds to offset the costs of developing 49 additional independent living units for lower
income seniors, planned for the current parking lot which fronts on Miller Avenue. The Redwoods’ goal is to
increase the number of affordable units for lower income seniors beyond the current 60 Section 8 subsidized
units. To help reduce development costs and enhance affordability on the new units, the Affordable Housing
Overlay will provide the following incentives:
Increased building height allowance the finished floor rather than natural grade to account for floodplain
requirements
Reduced parking requirement of one parking space per unit
Development fee waiver
By‐right allowance for 49 additional independent living units conditioned upon
units being provided at levels affordable to lower income seniors.
Land Value Capture
Government actions (value creation)
Increases in land value
Community benefits (value capture)
Government actions that increase land values
include (Value creation):
1) Construction of infrastructure
and
public facilities
Value capture:
Special Assessment Districts
Example: Infrastructure and Public Facilities:
• Golden Triangle
Why “Golden” Triangle?
Freeways construction
• I–5
• 895
• 52
Tremendous increases
In the value of the land
Who paid the hundreds of
billions of dollars for the
freeways?
Example of Land Value Recapture
through Special Assessment Districts:
Mass Transit
• Los Angeles County Metropolitan Transportation
Authority (LACMTA)
• Two assessment districts were created in 1985
• Challenged in court, upheld by the CA Supreme
Court
• Helped finance the first 4.4-mile segment of the
Los Angeles Red Line for $130 million (9 percent)
New book
Innovation in Public Transport Finance: Property
Value Capture
Ashgate Publishing LTD
Dr. Shishir Mathur
Associate Professor
Urban and Regional Planning Department
San Jose State University
Building infrastructure is the first public
action that increases the value of the land
The second is another public action that is related
to the planning and zoning powers of local
governments, including:
Plan changes or upzonings that increase densities
or change land uses to more profitable uses
We are going to emphasize this form of land value
increases and land value recapture
Example
Costa Verde
So, how do we capture, at least a
portion, of this increase?
At the time of a plan change (the approval of a
community plan, for example) or,
upzoning, the locality negotiates/requires:
public/community benefits
Such as…
Possible community benefits (Santa Monica)
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Affordable/workforce housing
Transportation Demand Management
Historic Preservation – TDRs
Social Services/Creative Arts
Enhanced open space and streetscape
Quality pedestrian and biking connections
Shared parking solutions
The community benefits, the land owner
benefits (not as much), the developer benefits
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 community benefits 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)
How would Land Value Recapture
work?
There are two basic types:
1) Negotiation based (development agreements)
Disadvantages-• Possible lack of expertise of planners
• Transparency & accountability problems with
locality/developers negotiations
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Advantages-Flexibility – You can get more
Palmer (Costa-Hawkins does not apply)
Example: Vancouver (negotiation)
• Site specific rezoning
• The land “lift” is largely recaptured (rule of
thumb is 80%)
• Community Amenity Contribution or CAC is
determined by negotiation based on project
pro-forma
• Responsive and flexible system that ensures …
• Maximizes potential extraction
• Expert staff
Santa Monica Land Use and Circulation Element
(LUCE) - Adopted in 2010
Fundamental goal: Additional development and increased
densities must contribute to, not detract, from the community
Focus development on the boulevards to maximize high
frequency transit and proximity of residents and workers to
daily needs
In exchange for allowing incremental increases (two tiers
above a base height of 32 feet) the developer must provide
community benefits
How “much” ($) community benefits?
• Every project is required to produce an
economic analysis of the “enhanced value”
the project is creating as a result of greater
height and FAR
• The developer prepares the economic
analysis. Peer reviewed by city’s consultants
23 development agreements – Most
projects located downtown and the
Bergamotte (former industrial) area
• The “enhanced value” analyses become the
basis for the determination of the appropriate
level of community benefits
• Largely based on five priority areas and
extensive community participation process
2) Plan based – Specific Plans/Community Plans,
etc.
Advantages –
• Transparency & accountability
• Faster processing of projects
• Areawide EIRs?
Disadvantages—
• Minimizes potential extraction
• Palmer applies
Plan-based Land Value Recapture
The Eastern Neighborhoods Plan
in San Francisco
San Francisco
The Eastern Neighborhood Plan ties increased allowable intensities of
development to higher fees:
• 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
Tier
• 1
• 2
• 3
Residential
$8/gsf
$12/gsf
$16/gsf
Non-residential
$6/gsf
$10/gsf
$14/gsf
In formerly industrial zones the use change to different
types of mixed use requires higher IH requirements
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)
Land Value Recapture and Inclusionary Housing
• IH is often justified by compensating
developers for the additional costs of
providing IH
• Incentives = Public costs
– Is there a better way?
Are incentives
necessary?
Incentives and cost-offsets displace costs
onto the public, either directly or indirectly
• Financial incentives
• Fee waivers, reductions or
deferrals
• Fast-tract permit
approvals
• Density bonuses
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
• Alternative: IH as a land value recapture
mechanism through rezonings or land use
changes, taking into account that planning is a
dynamic process
• Possible two-tier IH system
• Now IH is superimposed on an existing framework
– Cost-offsets and incentives implicitly assume a
static view of urban planning
IH land value recapture in the US: A beginning at the
state level
State of Washington
• HB 2984 of 2006
• It specifically authorizes IH where it is linked to
upzonings
• In a commentary, the Housing Partnership stated
that the justification for the IH requirement “is that
the property owner has been given increased land
value by virtue of the upzone, and that increased
value is the equivalent of an incentive under a
voluntary program.”
Where does the idea of
Land Value Recapture come from?
• 19th Century ideas from the US and England
Henry George
1839-1897
Most famous work:
Progress and Poverty
Cause of poverty: Land Rent
Proponent of Land Value
Taxation (Single tax)
John Stuart Mill (Unearned
increments in land value)
World wide success
Difficult to implement in this country
We don’t use terms such as: “Value Recapture” Or
“Betterment”? Or “Planning Gain”
(In Spanish: “Plusvalias”, in Italian “Plusvalore”)
Moral aspects of “Unearned Increments”
• But, we do have an American version of LVR
Incentive Zoning or Density Bonus
Is an example of what was defined by Jerold S.
Kayden in 1992 “Market-based Regulatory
Approaches,” defined as:
“the movement from command-and-control to marketbased regulatory strategies”
• It happens when more density (and possibly other
incentives) is exchanged for community benefits
– It has to work for both the city and the developer
• For the city the challenge is to establish the right “price”
for the benefits
– As Kayden (1992 :570) points out: “The ‘price’ is too low when
the city could have obtained more amenity for the same
incentive or dispensed less incentive for the same amenity”
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Need for independent financial analysis
So….
Plan changes and upzonings increase land values
• With LVR, localities can recapture some of those
increases for community benefits
• With incentive zoning, if preceded by downzoning,
or the existing zoning is low, there is also the
possibility of land value recapture
• BUT, for both incentive zoning and LVR what is
essential is NOT to change plans/upzone
WITHOUT benefits
Case Study
Downtown San Diego Community Plan
• 2005 Draft plan is released
• Increases of 2 FARs over the earlier (1992)
were proposed in the majority of downtown,
also;
• Proposed system of FAR incentives and TDR to
provide parks, inclusionary units on site, and
preserve historic sites
Remember previous slide??
Enter C-3
• 1992 Plan Base Maximum Density maintained
when the 2006 Downtown Plan was approved
• Density Bonus Program established:
Increase in FAR possible if developers provides
benefits that include: Urban Open Space,
Affordable Housing, Three bedroom Units,
Eco-Roofs and Employment Uses
FARs for sale
In 2007 the city adopted a:
FAR Payment Bonus Program
In certain areas of downtown, developers could
choose to purchase between 1 or 2 FARs,
depending on location. For how much?
From economically justifiable $30 to $ 15 a square foot
2011 End of Redevelopment
• In 2012 the FAR for sale is expanded (where,
and by 50 percent) to help implement the
open space and park system downtown
• All the Maximum FARs in the center City PDOs
can be exceeded through the use of the state
affordable housing density bonus.
State Density Bonus Program
All the Maximum FARs in downtown can be
exceeded through the use of the state
affordable housing density bonus
Possible highest FAR in downtown is 26.1;
With 10 as a base density, 14 through the
payment and community benefits bonus
program, and 2.1 through the density bonus law
And to finish, the Housing
Element
Conundrum