Agenda - Planning Commission - 07/09/2015

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ASK THE AUTHOR JOIN US ONLINE! Go online during the month of June to participate in our "Ask the Author" forum, an interactive feature of Zoning Practice. Nico Calavita will be available to answer questions about this article. Go to the APA website at planning.org and follow the links to the Ask the Author forum. From there, just submityour questions about the article to the active thread. After each thread closes at the end of the month, the archived questions and answers will be available through the Ask the Author forum. About the Author Nico Calavita is professor emeritus in the graduate program in city planning at San Diego State University. He is coauthor of Public Benefit Zoning (East Bay, Housing Organization, 2014) and Inclusionary Housing in International Perspective: Affordable Housing, Social Inclusion and Land Value Recapture (Lincoln Institute of Land Policy 2010). be pointed out that development value is not only created by zoning changes to individual parcels, but also through plan changes, es- pecially in states like California where zoning ordinances must be in conformance with land - use plans, and value capture can be "plan based." Now a new wave of IZ is emerging, char- acterized by three elements: 1) reliance on economic analysis; 2) particular attention paid to the effects of value capture on land values; and 3) utilization of extensive public participa- tion processes. ECONOMIC ANALYSES AND VALUE CAPTURE According to Cameron Gray, former director of Vancouver, British Columbia's Housing Centre, community benefits contributions "cannot be calculated or negotiated without using development economics and real estate analysis, and the question is not whether but how" (n.d., 1). Economic Analyses In order to calculate what it is economically feasible under a value capture scheme, it is necessary to compare the value of a project under existing zoning and its value after the plan change or upzoning. This is done through economic analyses that establish the costs and revenues ofa project. For example, in a residual land value analysis, costs are subtracted from the revenues, providing information about how much the developer can pay for the land and still make a profit. Comparing the residual land value before and after a rezoning, a city can de- termine the "uplift" or "enhanced value." Such determination provides the basis for the level of amenities that can be required while maintain- ing the development's financial feasibility. Oth- er methodologies may assign a particular cost to the land and calculate the developer's profit. Reminders For value capture to work, there needs to be market demand for additional development. Many communities, especially those that are struggling economically, will amend their plans to allow greater densities in the hope of luring new development. Unfortunately, once ad- ditional benefits have been granted (for free), no community benefits will be forthcoming when a city experiences a market revival. This is happening in Oakland, California, for example, where large parts of the city, including down- town, were upzoned a few years ago when the market was relatively weak. Now the market is quite strong, but city planners are still reluctant to secure community benefits from developers, DEVELOPMENT REVENUES DEVELOPMENT COST and community groups are having difficulties getting them. Decisions about the levels of amenities and incentives to be established are ultimately politi- cal ones, but they need to be based on economic analyses that establish the value of both. For planners the goal should be to seek the highest possible level of amenities without making the proposed development financially unfeasible. Past experiences indicate that political decisions might have been biased in favor of the developer because of their exclusive accessibility to devel- opment information and the political sway they enjoy in certain communities. For example, in the 198os in New York, "anticipation of bonuses fed back into higher land prices"(Cullingworth and Caves 2003,116), probably the result of developers' intuition that the value of the density bonuses would be much higher than the cost of community benefits. Higher densities generally come at a pub- lic cost. From shadows cast by tall buildings to increased street congestion, development exceeding plan -established densities is likely to lower the quality of life in a particular com- munity. Since positive externalities are also possible, planners should determine whether the value of the amenities to be gained is significantly higher than the public cost of the additional densities. Case in point: The developer of a proposed high rise in downtown Berkeley, RESIDUAL LAND VALUE Image courtesy PYATOK What the developer can pay for the land and still make a profit. California, claims that he is providing a com- munity benefit by subsidizing the continued operations of a multiplex movie theater and a children's museum that will be displaced by the new development. While the subsidies may represent an additional cost to the developer, they do not constitute an additional community benefit. VALUE CAPTURE AND LAND VALUES Upzonings or plan changes that allow higher densities are likely to increase land values. It has been argued that when public action raises the value of land, the public should "recapture" at least a portion of that increase through the provision of community benefits. This under- ZONINGPRACTICE 6.15 AMERICAN PLANNING ASSOCIATION I page3