Category Archives: Financing

HOUSING JUSTICE IS CLIMATE JUSTICE

Is This What It Means To Be An American? If we acquiesce to a system that creates such glaring inequality, we are saying YES!

Instead we could pursue a Social Housing Development Authority at the federal level. I hope those maintaining HOUSING JUSTICE IS CLIMATE JUSTICE will embrace this concept and promote it with policymakers.

Is Freedom what we want?

On April 16, this sprawling homeless encampment at the edge of downtown Portland displayed a FREEDOM sign. Find it in the shade of the upper right corner.

Did Freedom go somewhere else?

By Jun 9 FREEDOM was gone! I’ve searched around in the rubble, but no trace of the sign. The very small tent that is partially hidden by two tarps is still there today.

Independence Day is usually a time when I see historical reviews examining where we’ve come from and analyzing where we may be going.  This July 4, 2021, I thought I would make my own attempt.  The scenes around me in downtown Portland, Oregon are of increasing sidewalk tents filled with humans that most of our business community wants to see swept away so that people with money will come back to downtown.. Some of them are willing to help build more shelters to get folks off the street. They hope to hide the glaring inequality our society has produced through it’s housing policy.

A few days ago, I was reminded of an underlying cause of this housing inequity situation by an ad in our statewide newspaper, The Oregonian.

Block 216 Fund II ad

This half-page ad in The Oregonian Jun 20 offering a tax break to the wealthy symbolizes a root cause of the housing crisis.

The ad invites readers to join Fund II for the 251 room Ritz-Carlton Hotel and the 132 luxury condominiums, along with 153,000 square feet of Class A office space. It’s a “Qualified Opportunity Zone Fund” –meaning that if you are wealthy enough, you can get a big tax break for such an investment. While downtown Portland’s designation as an “Opportunity Zone” was especially egregious when it was first declared, now, with all of its boarded up storefronts, such a designation for downtown would raise fewer eyebrows than it did when it first came out.  Regardless, there is no better symbol of what’s wrong with United States housing policy than this enormous tax break for the wealthy.

CALLING FOR HOUSING AND TAX POLICY CHANGE

Dorothy Brown is one of many writing about how housing policy fails Black families

Dorothy Brown author of THE WHITENESS OF WEALTH @DorothyABrown

There is now a chorus of authors, myself included, who are calling for a “Brave New US Housing Policy”—one that treats housing as a social good rather than an investment. We are critical of the way that US tax policy has been used to make housing into a commodity–leading to greater and greater financialization of what should be a social good..  One such author, tax professor, Dorothy A. Brown, testified before the U.S. Senate Finance Committee on April 20, about how current tax policy greatly disadvantages Black families.

Her book, The Whiteness of Wealth gives several solutions that would lead to more equity in the housing system. Brown makes a case for a far more progressive tax policy. The change that she feels will work is to eliminate all existing deductions and exclusions, reduce or eliminate income taxes for those taxpayers who earn less than the living wage in their geographic area and, in fact, pay those earning less the difference. This solution would not only help many in the Black community, but many in what used to be the “middle class” all races.

More recently, through a post by the PLACE Initiative, I learned about Gianpaolo Baiocchi and H. Jacob Carlson, two activist academics who came together to publish Housing Is A Social Good. Baiocchi is from NYU and Carlson is from Brown University. Not only do they offer a critique of the Biden Administration’s American Jobs Plan strategy in the housing arena, but they also offer a proactive solution.

Image from their Boston Review article

The American Jobs Plan mirrors past efforts at affordable housing that contributed to our problems and failed Black Americans. We need to take housing out of the private market. say the authors

AMERICAN JOBS PLAN OFFERS MORE OF THE SAME

The American Jobs Plan calls for a new “Neighborhood Homes Tax Credit to attract private investment in the development and rehabilitation of affordable homes for low- and moderate-income homebuyers and homeowners”–according to the Administration.

Baiocchi and Carlson point out that “… the bulk of the proposals in the American Jobs Plan … mostly mirror earlier policies to stimulate ownership and new construction of affordable housing through subsidies and tax-breaks for private developers.”

Like Dorothy A. Brown, they point out that “These mechanisms have not only contributed to our problems, but failed African Americans. For the last several decades in the United States, the highly regressive policy of tax breaks for mortgage interest, for example, has encouraged greater household indebtedness while deeply disadvantaging African Americans.”

SOCIAL HOUSING DEVELOPMENT AUTHORITY

Published Nov 2020 by NYU Gallatin, this document is a manual for how the Social Housing Development Authority would work

I will get onboard Baiocchi and Carlson’s proposal for the creation of the Social Housing Development Authority, a federal agency that would purchase distressed real estate, ensure it is livable and environmentally sound, and finance its transfer to the  social housing sector, including tenant cooperatives, community land trusts, nonprofits or public housing. And I will encourage the PLACE Initiative and other groups that I’m involved with to get aboard too.

But, before I go into greater detail, one area where the authors and I differ–they write: Through its retrofitting efforts, the SHDA would also contribute to climate mitigation efforts.” They also mention in their Notes:  “Retrofitting affordable housing is seen by many analysts as an important pillar of the Green New Deal.” I don’t disagree with those statements, but, because I believe that housing justice is climate justice, I believe their proposal relates to mitigating climate change even more than they may recognize.

Baiocchi and Carlson et al describe the institutional design of the SHDA.                                      Part 1 describes the overarching mission and organizational structure of the SHDA. Within the mission we find:                                                                                                                                               • Reverse decades of neglect, predatory practices, and discriminatory policies by focusing efforts on historically marginalized communities.                                                                                        • Invest in green infrastructure and climate mitigation by assuring that transferred properties are retrofitted.

Part 2 elaborates on how the SHDA acquires distressed properties. “It would likely prioritize housing that is at risk of predatory activity, such as what policy makers sometimes denominate “naturally occurring affordable housing” in gentrifying areas, among others.”

Part 3 outlines what happens while the SHDA holds the assets, from servicing mortgages to maintaining and rehabbing distressed property.The maintenance function of the SHDA would be a significant stimulus into the local economy through maintenance and construction jobs.”

Part 4 lays out the asset disposition process. Preferred housing providers — community land trusts, housing cooperatives,  tenant groups, non-profit housing organizations, public housing authorities, and other government agencies — gain first priority to purchase the SHDA’s assets.

Part 5 discusses two pieces of companion policy that would enhance the ability of the SHDA to carry out its mission: the repeal of the Faircloth Amendment and the establishment of a national Tenant Opportunity to Purchase (TOPA) policy.

CONCLUSION

I suspect that TAX POLICY is not something to which most of us want to pay attention. For those of us who run a small business, we may think the IRS Schedule C seems quite arcane, but, after our taxes are filed we put it out of our mind. It is the wealthy who hire tax attorneys and accountants to find every possible deduction they can take and buy into systems like the Low-Income Housing Tax Credit and Opportunity Zones Tax Credits who are the real beneficiaries. “These market-oriented programs are fundamentally costly to public coffers and, at their foundation, prioritize profit over public function”, write Baiocchi and Carlson.

With Senator Wyden (D-OR) the chair of the Senate Finance Committee, those of us in Oregon have a special responsibility to speak out against this long-entrenched, but highly inequitable system to say that our present  housing policy is NOT what we want as Americans . And Join me in calling for the Social Housing Development Authority proposed by the group from NYU Gallatin!

NOTES

My search for the root cause of the housing crisis in the US has been fueled by the writings of authors as divergent as Samuel Stein, Diana Lind,, Heather McGhee and Alan Durning in addition to those mentioned above. The books or articles by these authors all go into far more policy history than I covered above–as does the Boston Review piece linked in this post.

 

Whole New System of Land Tenure Needed

Mary Vogel/PlanGreen Testimony to Portland City Council on Relocation Assistance  Proposal – Feb. 2, 2017  

To even begin to solve the housing crisis, a whole new system of land tenure is needed.  Relocation assistance for involuntary displacements of tenants seems like a fine and just idea–until you hear the landlords side and their schemes for getting around your proposed ordinance.

I didn’t come prepared to testify today, because under the current system of housing, both sides have compelling arguments. As long as we continue to pursue a housing system that sees housing as a commodity to be bought and sold for a profit, as long as we see it as a builder of individual wealth through the accrual of speculative value, there will be such dilemmas. These are dilemmas that cannot be resolved under the present system.

Champlain Housing Trust in Burlington, VT is the largest CLT in North America. Logo compliments of CHT.

However, there is a whole new system of land tenure that has been around for over 50 years and built a tremendous body of law and custom as well as homes on the ground. That system provides security, equity and legacy to the resident, but the greatest part of the increase in value accrues to the entire community through the Community Land Trust. I wish I had some easy solutions for getting to there from here. I’m afraid that my best idea didn’t get traction and fizzled at the end of the primaries. That idea was to get Bernie Sanders, who played an important role in founding Champlain Housing Trust in Burlington, VT —now the largest Community Land Trust in the nation—to talk about this new model of land tenure to his young followers during his campaign. (See Housing Affordability – Put a Bern on It.) He could have opened so many eyes to a different system and created tremendous demand for it.

We could have built on that demand to pull Portland Community Land Trust (now Proud Ground) out of its role of needing to chase after attention amongst all the various non-profits pursuing affordable housing dollars. We could have expanded its mission from a provider of home ownership opportunities for a tiny percentage of working class people to a central role in our strategy to address housing affordability with a whole new system of land tenure.

Proud Ground CLT office on Interstate Ave. in Portland

The arrow points to the Proud Ground office in the Patton Park Apt. Building on Interstate Ave. Image compliments of Proud Ground. Unfortunately, the building itself is not part of the CLT.

At this point, in an overheated market, I’m not sure how we get there from here. But WE CAN FIGURE IT OUT COLLECTIVELY.  Each of you on the City Council commands far greater media and public attention than I do. If each Council Member learned all you can about the CLT model—perhaps sending one of your number to Burlington, Vt.  to visit Champlain Housing Trust as well as the CLT experts at Burlington Associates—meanwhile each of you study their web sites and start talking and talking about the need for this new model, .

In closing, I want to quote a Jan 17 post from Bob Morris, a friend on Facebook:  What a great time to be alive and an American! There are as many opportunities now to take an active part in making our country better and living up to our highest ideals as at any time in my life. Who will be our new Freedom Riders, lunch counter sitters, voter registrars, river keepers, forest conservators, wild animal protectors, peace spreaders, truth speakers. I can’t wait to meet them. What will you do?  I will add to Bob’s list Community Land Trust builders. . .

Feb 19, 2017 Addendum to the above testimony:  

I was delighted to find out yesterday that Vancouver, BC has been working on a plan to do what I am calling for–on the scale I am suggesting.   A Speculation-Free Zone, an article in The Globe and Mail describes the efforts of the Vancouver Community Land Trust Foundation to become an alternative to the speculative model of housing.  Their vision is to become the largest CLT in North America.

NYC Opens Door Wide to Community Land Trusts in Next City also shows the momentum of the CLT model as cities seek to find systemic solutions to their housing crisis as it is finally becoming obvious the patchwork solutions are not working.

In the late 70s/early 80s, I worked for the Institute for Community Economics, the pre-imenent group building the CLT movement in the US for several decades. I am available to consult on this model through my business, PlanGreen–if there is interest.

 

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 Splot as its builder. Photo courtesy of Orange Splot.

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!

Land Value Tax 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 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!