In the course of our extensive market and case studies for downtown residential development, The Danter Company has established a checklist of 23 items that help us judge whether a downtown market is ready for residential development. In this article, the second of a series, we will look at government/regulatory factors.
Factor #6 – Development-Friendly Administration (Permits, Codes, Zoning, etc.)
Local government can create a climate that encourages development, or it can place a series of costly hoops to jump through. Cities that are willing to work with developers and guide them through the process, or who have reduced the number of regulatory hurdles, benefit not only from the resulting housing and revitalization, but also from establishing a community of housing development professionals dedicated to creating and preserving downtown housing. Once the word gets out in the development community that City Hall is easy to work with, then the development community will bring the City more, and more innovative downtown housing projects.
Factor #7 – Economic Incentives (Tax Abatement, TIF)
In addition to streamlining the regulatory process and working with developers, city governments can provide economic incentives to encourage the development process along. Two economic incentives we have seen used to great effect are tax abatement and tax increment financing (TIF).
Tax abatement can be used not only to reduce or eliminate property taxes for acquisition and improvement, but also to provide incentive for buyers to move downtown. Downtown housing generally is more costly, and a tax abatement can make the difference between a household buying in the suburbs and buying downtown. The City of Columbus, for example, offers a 75% property tax abatement for the first 10 years.
Tax abatements are particularly important for creating a continuum of housing for city residents and workers that includes affordable housing. Creating a good base of Downtown, affordable housing is in a city’s long-term interest. Affordable housing is most effective when it puts households nearest the largest employment base. In addition, as households in downtown affordable housing improve their circumstances they can become a base of support for move-up market-rate housing – if suitable housing is available. One of the major problems we see in downtowns across America is that there is often large a gap in the housing continuum. There may be a significant base of housing developed using government programs such as the Low Income Housing Tax Credit program, but there are few opportunities for those households, once their circumstances improve to stay downtown, and so they must move to some other part of town or out to the suburbs to find housing they can afford. Using tax abatements to decrease development costs can be used to decrease the cost of finished housing and keep those households downtown.
TIFs allow for the city to finance improvement costs with future tax revenue, thus providing a significant tool for cities to finance infrastructure improvements that can open up areas for development, particularly blighted areas.
Factor #8 – Publicly-Owned Property Available For Development
Underused and unused public property can be offered to private developers in order to seed development. One good example from Columbus is the Arena District. When Columbus finally decided to demolish the vacant and deteriorating Ohio Penitentiary, a large block of infill land became available, and the end result of the process is the flourishing residential/entertainment Arena District.
Not every city has such a large parcel for redevelopment – however, most governments have significant real estate holdings, and are constantly in a state of flux – belt-tightening often leads to consolidation and expansion often leads to new construction. Either way, a city/county/state government often finds itself with unused property that can be used to seed development. Adaptive reuse of these properties for housing can be used to jump-start downtown housing development and can often lead to revitalizing a whole district.
Factor #9 – Government Offices Located Downtown
When government offices are located downtown, there is a large contingent at City Hall that is familiar with downtown and invested in downtown development. We are seeing cities and counties moving offices to the periphery or the suburbs, and this indicates a declining commitment to downtown.
Next in the series – Students and Downtown Housing