Value capture debate

San Francisco Supervisor Aaron Peskin, at hearing on SB 827

Does the proposed California housing bill SB827 not let cities "recapture value" from development?

It's a key point of controversy in the current intense debate over SB 827 ("Transit Zoning Bill"), one of the most ambitious housing reform initiatives in the US in decades.

This article gathers a discussion around the question, on Twitter, March 12-14. 2018 -- following a meeting about it that day at the San Francico City Council; with some referenced material and followups.

For an older, more self-contained discussion of the core issue, see Nico Calavita and Alan Mallach. "Inclusionary Housing, Incentives, and Land Value Recapture." Land Lines (Lincoln Institute of Land Use Policy), 2009. Also, see main Value capture article

Context

On Monday, March 12, San Francisco's Board of Supervisors held a hearing on a proposed resolution to oppose state housing bill SB 827. This bill, introduced by SF State Senator Scott Wiener and sponsored + co-authored by California YIMBY, aims to address housing affordability and environmental goals by enabling a large-scale increase in housing production -- of potentially millions of new homes -- and focusing that housing in high-density developments in transit-served urban areas. To do so, it would automatically upzone, i.e. allow taller and denser residential buildings of up to eight floors, within 1/2 mile of a major transit station or 1/4 mile of any regular transit route. It would override local governments' traditional "local control," in certain key respects: building height, number of units, and parking requirements; and in many urban areas of the state it could dramatically increase building heights and housing density.

Local governments, it turns out...have thoughts on this.

"SF lawmaker threatens to sue state if transit-oriented development bill passes." SF Examiner's, Joe Fitzgerald Rodriguez, March 12, 2018 6:23 pm. http://www.sfexaminer.com/sf-lawmaker-threatens-sue-state-transportation-development-bill-sb-827-passes/.

"Supervisor [Peskin] also critiqued the bill for not preserving a mechanism for The City to require developers to fund more affordable housing in exchange for being allowed to build taller, and thereby more lucrative, homes." "Rather than supporting Peskin’s resolution opposing SB 827, however, Tang proposed an amendment for The City to urge amendments to the bill instead, to “protect” San Francisco’s charter authority to approve housing and “recapture value” from developers to build more affordable housing."

Note, as a legal matter, according to the doctrine of sovereign immunity, cities may sue states mainly on the grounds that a deliberate state action violates the state constitution. San Francisco occasionally does this, but not so far successfully.

Today's Twitter contestants

Richard Hall	Richard Hall @rihallix Founder of the neighborhood group Quiet and Safe San Rafael, former President of the Vista Marin Homeowners Association and a supporter of measured growth. San Rafael, CA.	Scott Graves	Scott Graves @SHGraves29 Director of Research, California Budget & Policy Center. Sacramento, CA.
Lisa Schweitzer	Lisa Schweitzer @drschweitzer Urbanist and Professor of Urban Planning at USC. Los Angeles.	Greg Morrow	Greg Morrow @gregmorrow Executive Director, Institute of Real Estate; Academic Director, MSRE; Executive Professor, Graziadio Business School, Pepperdine University. Los Angeles.
Mott Smith	Mott Smith @mottsmith Developer and planner at Civic Enterprise. civicenterprise.com. Adjunct professor at USC. Los Angeles.	Dan Immergluck	Dan Immergluck @DanImmergluck Professor, Urban Studies Institute, Georgia State University. Atlanta.
Annie Fryman	Annie Fryman @anniefryman Policy Aide, Office of State Senator Scott Weiner (primary author of SB 827 Transit Zoning Bill). San Francisco & Sacramento.	Tim McCormick	Tim McCormick @tmccormick editor of YIMBYwiki. Oakland, CA, and Portland, OR.

More about the context and city council hearing, from Tim Redmond in his online publication 48 Hills. Redmond was formerly the editor of the now defunct Bay City Guardian, considered an organ of the traditional SF progresssive left; both he and 48 Hills contributors are generally steady opponents of Senator Scott Wiener and the YIMBY movement, part of what you might call California's "new progressives":
"Hearing on Wiener housing bill points to the roots of this crisis." 48 Hills, March 12, 2018.

"Supes' committee, with two members missing, hears critical discussion on a measure that would upzone most of the city -- without providing the tools to prevent massive displacement."

"Peskin: 'When the city confers a financial benefit on landlords, we have a responsibility to recapture that benefit for the good of the public.' "In other words: If you upzone land, the owners can sell for more money. We are talking about billions of dollars in increased wealth for people who currently own property in San Franicisco...But the Wiener bill gives the city no ability to capture any of that value; in fact, it would prohibit the city from mandating higher affordable housing levels, or raising transit impact fees, or doing anything else to give the public some of the benefit of this huge giveaway."

Does the housing bill not allow cities to "capture value" it creates?

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Various legal rulings and legislations bear upon what and when fees or exactments can be imposed upon development. Generally, courts have found that fees must have an "essential nexus" i.e. relationship to the development and its impacts ("Nollan test," from case of that name) and "rough proportionality" to the impact costs ("Dolan test"). Impact / development fees ostensibly are assessed for, and are sufficient for, public infrastructure costs associated with development, such as roads and water/sewage facilities.

Inclusionary housing requirements may in many cases be a more costly 'fee' imposed on development, i.e. capturing a larger portion of value increase from upzoning and development.

The legal guidelines around this also include requiring a showing of "nexus" between the requirements and the project's impact. 2017 California legislation expanded the ability of local governments to apply inclusionary requirements to rental housing. However, it also required state-level review and approval of policies mandating above a certain percentage of units in a building to be income-restricted.

What is value capture, anyway: a tax on land value, fees assessed on developers, or both?

Lisa Schweitzer submits an objection:

Martim O. Smolka [2015]. "Value Capture a Land Based Tool to Finance Urban Development." Presentation at Ryerson University, International Property Tax Institute & Centre for Urban Research and Land Development. Toronto, February 2, 2015. https://munkschool.utoronto.ca/imfg/uploads/306/mos_vc_toronto_feb_15.pdf

YIMBYwiki suggests the general argument for broad value capture of land value increase due to upzoning (or roughly equivalently 'entitlements,' which mean government approval for specific projects).

referenced article:
Nico Calavita and Alan Mallach. "Inclusionary Housing, Incentives, and Land Value Recapture. Land Lines (Lincoln Institute of Land Use Policy), 2009. https://www.lincolninst.edu/sites/default/files/pubfiles/1552_777_Article%203.pdf.

"We suggest that a better approach is to link [value capture such as] inclusionary housing to the ongoing process of rezoning—either by the developer or by local government initiative—thus treating it explicitly as a vehicle for recapturing for public benefit some part of the gain in land value resulting from public action."

"While developers often maintain that renters or buyers of market-rate units bear the cost of Inclusionary Housing [or other fees and requirements], economists point out that the developer and/or the seller of raw land to the developer should, under most circumstances, absorb part or all of these costs. There seems to be agreement in the literature that “in the long run . . . most of the costs will be passed backward to the owners of land” (Mallach 1984, 88)."

"Is the reduction of land costs a desirable outcome of IH? Put differently, does the imposition of IH actually reduce land value from some level intrinsic to the land, or does it represent the recapture of an increment in land value associated with governmental action?"

"It is widely argued that increases in land values do not generally result from the owner’s unaided efforts, but rather from public investments and government decisions, and are therefore in whole or part “unearned.” This argument is accepted in many European countries, leading to the adoption of regulations that attempt to recapture or eliminate what are considered to be windfall profits associated with land development." "In the United States, where the “right to develop” is far more central to the concept of property rights than is the case in most European countries, land value recapture is not widely recognized as a part of planning practice and land development."

As an example of a broader definition of value capture, as suggested by Dan Immergluck, here's a definition from the previously-cited presentation by Smolka [2015]. "Value Capture a Land Based Tool to Finance Urban Development":

"Definition of value capture: Value capture refers to the recovery by the public of the land value increments (unearned income or plusvalías) generated by actions other than the landowner’s direct investments."

Back to the political question: does bill not let cities "capture value"?

back to, is the "value capture" objection on SB827 valid?

referring to: Schweitzer, Lisa. "What I’d fix about SB827, aka that white paper has sooooooo been written already." 02/09/2018. https://lisaschweitzer.com/2018/02/09/what-id-fix-about-sb827-aka-that-white-paper-has-sooooooo-been-written-already/.

The political debate reflects not only a natural inclination for local governments to retain their powers, but more philosophical arguments about what counts as a "public action" and whether effects of such actions should be 'captured' for public use.

Richard Hall quotes a report from ABAG (Association of Bay Area Governments" that articulates the viewpoint of public value capture:

ABAG. "California Housing Element Policy Best Practices" Version 1.2, August 21, 2014 https://abag.ca.gov/files/HousingElementPoliciesBestPracticesv2.pdf

The practice of granting upzoning in exchange for some type of public benefit is sometimes called "Incentive Zoning" or "Public Benefit Zoning," and this concept underlies California's Density bonus law, to which SB827 was presented as analogous by its sponsors.

These terms noted in report cited by follow-up tweet from Richard Hall:

ABAG (Association of Bay Area Governments). "Incentive Zoning/Density Bonus and Public Benefit Zoning." [excerpt from unknown source, ca 2014]. https://abag.ca.gov/files/IncentiveZoning.pdf.

Richard mentions a possibly broader concept of "Zoning for dollars":

How to reform California property tax

an essentially separate thread emerged midway through this, about whether land value gain as for example under SB 827 can "tax people out of their homes." Lisa Schweitzer discusses reasons it need not, which she expanded upon in a blog post the next day:

"Land value taxation, Prop 13 reform and single family homeowners." Lisaschweitzer.com, 03/13/2018

How this article was made, and how to edit it

thanks to Scott Graves and Richard Hall for feedback on draft version.

General notes:
Twitter conversations like the one presented here are often multiple, interwoven and branching, so it takes some interpretation to turn it into a single 'thread' with a beginning and end. (what is sometimes called 'Storyify'-ing, after the former product which did this). This is tricky, but also in itself an interesting exercise in trying to understand people's points and contexts.

There are various predecessor and 'side' conversations we might have included. Each tweet presented in this article does, however, link to its original on Twitter (on the tweet as displayed here, the date+time links to original, same as on Twitter); so you can use Twitter to explore what other interactions have occurred around it.

Editing

Tweets are incorporated into this YIMBYwiki article using MediaWiki's Widgets extension and a twitter-displaying widget. This pulls in the tweet content. To include a tweet, you get it's tweet ID (number code in the URL for it) and, editing the article page in Source view, add it like this:

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or with this option added to excluded conversation (i.e. tweet that this tweet was replying to, if any).

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Editing a YIMBYwiki page that include tweets is a bit tricky: the tweets don't show up in normal visual editing view, they have to be handled in Source view, where they appear as above. So far, we find the easiest way to edit pages is, is to view the page in another window, find the ID of the tweet nearest where you want to edit; then in the Edit window, in Source view for the last 4 digits of that ID, to locate where you need to do your edits.

References

ABAG (Association of Bay Area Governments). "California Housing Element Policy Best Practices" Version 1.2, August 21, 201
https://abag.ca.gov/files/HousingElementPoliciesBestPracticesv2.pdf.
ABAG. "Incentive Zoning/Density Bonus and Public Benefit Zoning." [excerpt from unknown source, ca 2014]. https://abag.ca.gov/files/IncentiveZoning.pdf.
Calavita, Nico, and Alan Mallach. "Inclusionary Housing, Incentives, and Land Value Recapture. Land Lines (Lincoln Institute of Land Use Policy), 2009. https://www.lincolninst.edu/sites/default/files/pubfiles/1552_777_Article%203.pdf.
Redmond, Tim. "Hearing on Wiener housing bill points to the roots of this crisis." 48 Hills, March 12, 2018.
https://48hills.org/2018/03/hearing-wiener-housing-bill-points-roots-crisis/.
Rodriguez, Joe Fitzgerald. "SF lawmaker threatens to sue state if transit-oriented development bill passes." SF Examiner, March 12, 2018 6:23 pm. http://www.sfexaminer.com/sf-lawmaker-threatens-sue-state-transportation-development-bill-sb-827-passes/.
Schweitzer, Lisa. "What I’d fix about SB827, aka that white paper has sooooooo been written already." 02/09/2018. https://lisaschweitzer.com/2018/02/09/what-id-fix-about-sb827-aka-that-white-paper-has-sooooooo-been-written-already/.
Schweitzer, Lisa. "Land value taxation, Prop 13 reform and single family homeowners." 03/13/2018 https://lisaschweitzer.com/2018/03/13/land-value-taxation-prop-13-reform-and-single-family-homeowners/
Smolka, Martim O.[2015]. "Value Capture a Land Based Tool to Finance Urban Development." Presentation at Ryerson University, International Property Tax Institute & Centre for Urban Research and Land Development. Toronto, February 2, 2015. https://munkschool.utoronto.ca/imfg/uploads/306/mos_vc_toronto_feb_15.pdf.

Context

Today's Twitter contestants

Does the housing bill not allow cities to "capture value" it creates?

What is value capture, anyway: a tax on land value, fees assessed on developers, or both?

Back to the political question: does bill not let cities "capture value"?

How to reform California property tax

How this article was made, and how to edit it

Editing

See also

References