Category Archives: Financing

Housing Affordability – Put a Bern on It

April 14, 2016

Bernie Sanders

Bernie Sanders speaking at the Moda Center on Aug. 9, 2015 to a crowd of 28,000. Most people don’t know that he helped to found one of the most evolutionary housing organizations in the nation. Photo by PlanGreen

Bernie Sanders is a housing affordability hero to a group of people in Burlington, VT.  As Mayor of Burlington, Bernie was able to get the city to seed the founding of the Burlington Community Land Trust (BCLT) with a $220,000 grant. Sanders was at first skeptical about the limited equity concept the BCLT promoted. But he came to see the Community Land Trust (CLT) as both a means of achieving permanent affordability as well as a new model of land tenure for America.  Now he admits that helping to found the BCLT was “the best thing I ever did as Mayor.”

Burlington Community Land Trust has since expanded into three counties around Burlington (Chittenden, Grand Isle and Franklin) and changed its name after its merger with an affordable rental non-profit in 2006 . It’s now the Champlain Housing Trust. With over $309 million in assets, CHT is the largest CLT in the nation. Its 2015 Annual Report shows that it owned 389 buildings (2227 units) of affordable rental housing, 33 commercial/industrial buildings and the land under 570 single family shared-equity homes. And it’s adding more units every year. This year, they are in process of developing another 160 permanently affordable units in a larger 700 unit development on the Burlington waterfront. In all, they control an impressive 7.6% of the Burlington area’s total housing stock.

How it works:

Champlain Housing Trust Image

Champlain Housing Trust is the largest Community Land Trust in the nation. It enables housing to be kept permanently affordable by holding title to the land under it. Image from CHT 2014 Annual Report.

Community Land Trusts are nonprofit organizations, with a board composed of representatives of the public, members of professions with technical expertise, and the tenants of the CLT. The CLT obtains land through a number of means (purchase, donations,  foreclosures, etc.) and removes it from the private, commodity speculative market. If there are not already buildings on the land, the CLT may build and either lease or sell the buildings with restrictive covenants. The CLT retains ownership of the land and sets a formula for shared equity as the properties appreciate. This formula is applied when the home on the property is sold.

As explained by Daniel Fireside writing in Dollars & Sense:  When a normal home is offered for sale on the usual terms, it does virtually nothing to make the overall housing market more affordable. A land trust home, by contrast, creates a permanently affordable property because the land it sits on is removed from the speculative market. Most of the appreciation is retained by the housing trust (and by extension, the community), rather than the individual. In this way the trust model creates a bridge between purely public and purely private property.

This limited equity model still allows a reasonable return. In Burlington, the 233 homeowners who have resold a CHT home have realized, on average, a 31% annualized IRR [internal rate of return]!  The model also allows the CLT to intercede in the case of a foreclosure. A study by the Lincoln Institute of Land Policy showed that, as of 2010, homeowners within a land trust were 10 times less likely to default on their homes than their private-market counterparts.

A New Model of Land Tenure

O'dell Apts So Burlington

Champlain Housing Trust holds the land under O’Dell Apartments in So. Burlington in permanent trust. Renters get a say in policies. Photo from Google Maps w/assistance from CHT’s Chris Donnelly.

The original impetus behind the CLT movement was to create a new institution to keep housing permanently affordable.  The first people I ever met living in a CLT in the 1980s were NOT low-income, rather middle-income professionals who saw the CLT as a better way to live while also making a statement that we need a new model of land tenure. I believe the CLT is the best tool for transforming our housing system.  By taking the land under housing off the private, commodity, speculative market, it helps to change the concept of housing from a commodity to be bought and sold for a profit. Instead it encourages us to see it as a social good that everyone needs and deserves.  Involvement in the CLT also gives both renters and homeowners a say in how properties are managed.  And it gives them a sense of community with all members of the CLT.

CLTs can work in both hot and cold markets.  John Davis, former Chair of the Board of the Institute for Community Economics¹ and now a CLT consultant, says in an interview he did for Democracy Collaborative with Steve Dubb in 2011:

Most housing and community development programs in the United States have been designed as if there is no business cycle. What community land trusts are particularly good at is preventing the loss of homes, homeowners, and public investment at both the top and the bottom of the business cycle. We run counter to the threats and dangers that a fluctuating economy imposes on low- and moderate-income people.

Proud Ground – The Portland Region’s Community Land Trust

Multifamily Woolsey Corner in the New Columbia area of Portland was developed as a Community Land Trust by Proud Ground utilizing Orange Splott as its builder. Photo courtesy of Orange Splott.

Multifamily Woolsey Corner in the New Columbia area of Portland was developed as a Community Land Trust property by Proud Ground utilizing Orange Splott as its builder. Photo courtesy of Orange Splott.

Proud Ground (a merger of Portland Community Land Trust and Clackamas Community Land Trust). It currently focuses on helping a limited subset of moderate-income people get into homeownership. (See Oregonian OpEd: One Way to Turn Moderate Income Portlanders into Homeowners by PG’s Diane Linn and Roger Henshaw). It has partnered with Bank of America to do an important study, Solving the Affordable Homeownership Gap that gives data about an out-of control housing market that is has largely been taken over by an investor class. To me, this study helps to demonstrate how unsustainable the current housing system is and why we need more systemic solutions than simply getting a few more people into such an anxiety-inducing system.  Nonetheless, Proud Ground has many ways to get involved in making housing more permanently affordable on its website.

Achieving Housing Affordability for the Long-Term

To achieve real housing affordability for all in the Portland region, we will need to move beyond promoting the Community Land Trust model solely for the moderate-income and solely for homeownership. We will need to take a cue from Champlain Housing Trust and push Proud Ground to serve both rental and owner properties and to gain far more foothold in the Portland area market.  It may be a long-term process, but we can take heart from the progress that Champlain Housing Trust has made in Burlington since 1984–nearly 8% of all housing.  Various levels of local, regional and state government and private foundations, institutions and individuals owning property will need to partner with Community Land Trusts to change our housing model.

Moda Center crowd, Aug. 9, 2015

People came from all over the region to fill the Moda Center while 9000 waited outside in the August heat. It will take this kind of enthusiasm to change our housing system! Photo by PlanGreen

Ultimately, changing our housing model won’t just happen in Burlington or in Portland. Although I do believe strongly that we all need to work for change from the bottom up, it will help greatly to have a supportive federal government to promote and achieve this concept nationwide.

Put a Bern on Housing Affordability²

Let Bernie know that you want him to promote the CLT model of housing affordability.

Let Bernie know that you want him to promote the CLT model of housing affordability.

There is already a National Community Land Trust Network (now Grounded Solutions Network) that has been bringing leaders from CLTs across the nation together to discuss issues and best practices in CLTs for many years.  They also push for policy change.  Intersections 2016 claims to be “the only national conference dedicated to permanently affordable housing and the creation and preservation of just, equitable and inclusive communities across the country and around the globe.” The conference is expected to draw more than 350 professionals to Park City, Utah, September 26-29, 2016.

Grounded Solutions Network is likely our best chance to help us understand and then achieve change that needs to happen at the federal level. Meanwhile, let Bernie know you want him to repeat “the best thing I ever did as Mayor” on a larger scale–for ALL OF US.  Let’s work to put a Bern on housing affordability.

 

Notes:

¹Founded in 1979, the Institute for Community Economics (ICE) pioneered the modern community land trust (CLT) model, Today ICE is a federally certified Community Development Financial Institution (CDFI) offering loans and more to create community land trusts. I worked for ICE in the 1990s.

²Most Portlanders will likely appreciate the take-off in my title on Portlandia’s “Put a bird on it.”  A national audience may not.

Many thanks to Chris Donnelly of Champlain Housing Trust for spending nearly an hour on the phone with me answering my questions.

Another article worth reading:  How Bernie Sanders Made Burlington Affordable  by Jake Blumbart in Slate Jan. 19, 2016.

Toronto: Florida to the Kees with Greater Portland Inc.

Oct. 17, 2015

Richard Florida

Richard Florida, Professor; Co-founder CityLab.com; Sr. editor The Atlantic speaking to our Greater Portland, Inc. group.

Our discussion of “The Next Urban Crisis”  at University of Toronto, Rotman School of Management was another highlight of my Greater Portland Inc. trip to Toronto Sept. 27-30, 2015. There we spoke with professor, author and CityLab co-founder Richard Florida as well as  Real Estate Developer, & Architect in City blogger Brandon Donnelly.  During this discussion Spacing Magazine editor Matthew Blackett  also shared some of the interesting insights I reported on in my Part 1 blog.

Richard Florida expressed his frustration with the Mayor Rob Ford era which declared that the war on the car was over and that the problem was those young, pointy-headed university folks. “In Toronto, everyone still thinks they have the right to drive,” he lamented.  “If there’s an urban crisis, it’s the suburbs,” he said.

Florida reminded us that: “Building urbanism is a lot more expensive than building sprawl” and “The new frontier is the old frontier in the center of the city.” He left us with three points to deal with the next urban crisis: 1)  Build more housing,and make it more affordable; .2)  Build more transit;  3)  Provide a livable minimum wage–reduce the huge bifurcation we see now.

Brandon Donnelly

Brandon Donnelly described the affordability crisis for families and a solution in mid-rise housing. Photo from The Guardian

Brandon Donnelly discussed with us some of the crisis in keeping housing affordable during Toronto’s fast-paced growth. There’s a pressure on prices re: low rise, but high-rise has stayed stable, he said.  He described an Avenues and Mid-rise Building study. “ We see it as a market to build more units for families who are priced out of single family homes,” he said.

He distinguished Towers 1.0 and Towers 2.0.  Towers 1.0, many built in the suburbs, did not take as middle class housing and became largely the affordable housing of today. Towers 2.0 is basically all ownership vs. all tenants in 1.0, he said.  He finds it an encouraging sign that anchor office tenants and retailers are moving into the city as well.

Mid-rise housing

This mid-rise housing was across from a string of parks similar to Portland’s Park Blocks and gets my vote for best place to live in Toronto. Photo by PlanGreen

Park across from mid-rise housing

This park was one of a string of parks across from the mid-rise housing above. It was centrally located on the way to the Distillery District. Photo by PlanGreen

Robert Reich

Robert Reich, former Sec. of Labor, UC Berkley Professor and prolific author.at the Rotman School auditorium. Photo by PlanGreen

On our way out, we had an unexpected opportunity to hear Robert Reich, who was doing a guest lecture at the Rotman School around his book, Saving Capitalism : For the Many, Not the Few. 

I was especially impressed by how many of our group stopped to listen to his talk.  “My aim is to shatter the myths that keep us from taking the action we must take, and to provide a roadmap of what we must do – to rebuild our economic system and restore our democracy.” Reich was saying.

There is  a “huge misunderstanding” that underlies  a false political dichotomy between the so-called “free market” and government intervention. “There is no choice to be made between the free market and government. Government determines the rules of the market. The real question is what those rules are going to be and who is influencing those rules and whether the market is going to be working for the vast majority as a result, or whether it’s going to be rigged in favour of a small minority.” Reich’s book was for sale at a table outside the open-sided auditorium where he was speaking.

At Rotman we had the opportunity to hear some of the most forward-thinking leaders of the day who are dealing with questions around the environment, housing, urbanism, equity, millenials, the creative class, public involvement and the economy.

Ryerson University

The Planning students who attended our reception at Ryerson University were interested in displacement, equity and resiliency issues. Photo by PlanGreen

It was a great segue to our reception and  “Sharing Best Practices between Portland and Toronto” session at Ryerson University Architecture School.  All of the students I met at the reception were from the Ryerson School of Urban and Regional Planning rather than Architecture.  Those students were looking for answers to rising housing costs, displacement, equity, brownfields, resiliency planning in an era of climate change, etc.  I stayed after the session to talk with them. Several promised to look at my blogs on mycoremediation and suggested that one of their professors might be especially interested. So far, no one has followed up but I’m still hoping to hear from them.

Jennifer Keesmaat

Jennifer Keesmatt was our featured evening speaker. Image courtesy of York University. http://yfile.news.yorku.ca/2014/11/06/chief-toronto-planner-discussed-urban-spaces-and-achieving-a-sustainable-healthy-city/

Chief planner Jennifer Keesmaat, is a longtime Toronto resident, a member of the Congress for the New Urbanism (like myself), and a pedestrian advocate.  She had been a principal in the Toronto planning consultancy Dialog prior to taking the job as Toronto’s top planner.   She is also an inveterate user of Twitter @jen_keesmaat–discreetly putting out these tweets while she was on a panel with Portland Chief Planner, Joe Zehnder:

Portland is seeking to create *greenways* throughout neighbourhoods to address stormwater issues. Think “greened” street medians.  Portland has met Kyoto carbon emission reductions, even while growing. “Your midrise is hi-rise for us.” Portland Chief Planner explains that 4 story bldings are causing consternation in his city. Wow. If only.

Mountain Equipment Coop in downtown Toronto

Mountain Equipment Coop in downtown Toronto installed an extensive green roof of 6,500ft.2 during the construction of the building in 1998. Photo courtesy City of Toronto

“I talk about Portland all of the time,” she told us.  We’re growing but our air quality is getting better – as a result of our green roof policy mitigating the heat island effect.  I cringed a bit to think that while Toronto passed the world’s first mandatory green roof program in 2010, Portland discontinued its Ecoroof Incentive in 2012.

In response to moderator Ann Marie’s question about green infrastructure and resiliency in the face of climate change, Keesmaat lamented that she has only three  people working on green streets, a superstar team, but only three.

She did add that Toronto is a city of ravines and that there is an ongoing Ravine Strategy currently being developed.  She will be holding her final Chief Planner Roundtable of 2015 (Dec. 15) on the topic of Toronto’s ravine network.  I did not get the chance to ask her about the re-naturalization of the Don River, but I plan to do that at the next opportunity–maybe via Twitter!

Universal Tax Abatement for Downtown Portland

Testimony given May 19, 2014  to Strategic Advisory Committee on the West Quadrant Plan

Neighbors in the West End portion of downtown Portland are tired of walking by block-long stretches of surface parking lots while some of our historic buildings are razed for redevelopment. One solution to this problem that the City of Portland should seriously consider is taxing land at a higher rate than buildings.

Taxing land and buildings at the same rate per square foot means that as long as you don’t put any buildings on your land, your tax bill is going to remain relatively low. If you’re a speculator, this means that you only need a modest amount of revenue (say, a few bucks a day from people driving into the city for work or to go shopping) in order to sit on that land indefinitely.  Or you might hold out until someone comes along offering your “pie-in-the-sky” price.  Either way, the effect is to keep the land out of the hands of many of those with genuine interest in putting it to productive use.

By taxing land at or near its development potential, however, owners of land being used at less than maximum productivity would be paying a disproportionate amount in taxes in order to keep it that way.

Aside from the obvious goal of raising money to pay for public services, we levy taxes

  • to discourage a particular behavior in favor of another (taxes on cigarettes and alcohol discourage consumption and thus promote lower health care costs), or
  • because a given resource is scarce while demand for it is high (i.e., the gasoline tax).

But if the city is trying to encourage development—and to attract the 70,000 more downtown residents it seeks by 2030—it hardly makes sense to place the greater tax on development behavior.

A Good Illustration: The block between SW 11th & 12th and SW Taylor and Yamhill that the

Parking Lot at Rear of Medical Dental Building pays 5x less taxes/sf than the building.

Parking Lot at Rear of Medical Dental Building pays 5x less taxes/sf than the building.

Medical Dental Building at 833 SW 11th Avenue (built 1928) sits on provides a good illustration. It is a block with a 10 story commercial building, a 2 story parking garage and a surface parking lot.

When you look closely at the property tax bill for each, it becomes clear that the conventional property tax deters development and risk-taking.

  • The surface parking lot spans 20,000 sf, and its owner pays $1.33 per-square-foot of land in annual property taxes to the city.
  • The 1928 parking garage on the same block spans roughly half the area (10,000 sf), and despite the lot’s structural improvements, pays only a bit more than the surface lot in property tax —$1.37 per-square-foot of land.
  • The Medical Dental Building (which occupies 10,000 sf of the block), however, pays $6.13 per-square-foot of land—a rate almost 5 times higher than the surface parking lot.
12 West pays 42-45x more than the parking lot diagonal from it.

12 West pays 42-45x more than the parking lot diagonal from it.

An illustration that takes into account newer construction is the corner of SW 12th & Washington where 1227 SW Washington, aka 12 West (2009), is assessed $59.90 per sf of land compared to the surface parking lot diagonally across from it that is assessed only $1.42 per sf of land occupied[i]. 12 West has a tax liability that is 42x that of the surface lot.

Parking Lot Diagonal to 12West pays 42-45x less than 12West

Parking Lot Diagonal to 12West pays 42-45x less than 12West

 

 

 

 

 

 

 

This is completely backwards. From the city’s perspective, the Medical Dental building and 12 West are the best and most preferable uses of land in their respective locations, while the surface lot is the least. And yet, looking at the tax figures one would think exactly the opposite. By simply taxing land at a higher rate than improvements, owners would be motivated to maximize the productivity of land. Parking lots would still exist of course, but they would be condensed into above- or underground garages rather than surface parking lots. In this way, by removing the penalty for development, two-rate taxation is actually a form of economic stimulus.

But two-rate taxation is about more than encouraging dense urban development and reducing sprawl. As Rick and Walt Rybeck note in Break the Boom and Bust Cycle http://bit.ly/R1CPVm, two-rate taxation also addresses the root cause of the boom-and-bust cycle of the real estate market:

Higher land taxes discourage land speculation by making it less profitable. Prior to the Great Depression, there was a nationwide real estate boom and bust. Not surprisingly, land values in major U.S. cities declined drastically. Between 1930 and 1940, land values declined in New York, 21 percent; Milwaukee, 25 percent; Cincinnati, 26 percent; New Orleans, 27 percent; Cleveland, 46 percent; Los Angeles, 50 percent, and Detroit, 58 percent. But Pittsburgh adopted a two-rate property tax in 1914. As evidence that this reform reduces speculation, Pittsburgh’s decline in total land values was only 11 percent between 1930 and 1940.

After increasing the tax differential between land and building taxes in the late 1970s (land was taxed at a rate 5.77 times higher than buildings), Pittsburgh also saw significantly increased development activity at a time when most cities its size were experiencing declines.

There are obstacles to implementation. Current law requires state enabling legislation for the two-tier land tax that I am suggesting, but there are indications that Gov. Kitzhaber would favor that.

Appendix – from Portland Maps

833 SW 11th Ave. – Medical Building

$61,291.51 taxes on 78,148 square feet on 10,000 sf of land or $6.13 sf of land

Market Value $4,976,640.00
Assessed Value $2,542,330.00

837 SW 11th Ave. – structured parking lot

$13,751.20 taxes on 20,000 sf on 10,000 sf of land or $1.38 sf of land

Market Value $1,251,810.00
Assessed Value $570,390.00

804 SW 12th Ave – City Center Parking on SW 12th between SW Yamhill & Taylor

$26,664.86 taxes on 20,000 sf or $1.33 sf of land

[i] I was not able to easily find the taxes paid on the 3 parcels that make up this corner where a City Center Parking lot operates because Portland Maps just said “No address is avaialble.” So I used the tax figure for the grassy lot next to it at SW 11th & Washington which is $1.42 per sf. This figure is higher than that for the City Center Parking lot at SW 12th & Yamhill which is $1.33 per sf. If $1.33 per sf is used, then 12West is assessed 45 times more per sf than the parking lot.

I have been a friend of Rick Rybeck (cited above) and admired his work for a long time.  But, I want to acknowledge that I borrowed the approach of looking at individual parcels and some of the language above from the Streets MN blog Tax Land, Not Buildings by Chris Keimig.  Thanks, Chris!