Introduction
Throughout the United States, the dearth of affordable housing is a persistent issue that has proven largely resistant to traditional interventions. This blog post delineates a comprehensive strategy to ameliorate this crisis, and that recognizes the fundamental importance of land in guaranteeing all people’s right to flourish. Based largely on a program developed by Bogotá, Colombia’s National Savings Fund (FNA)’s innovative approach to affordable housing development, the approach described here relies on: 1) an entrepreneurial approach management of public land; 2) rezoning to permit multifamily developments, implementation of a Land Value Taxation (LVT); and 3), a sophisticated combination of private development financing options and advanced construction technologies to spur housing construction.
Entrepreneurial Management of Publicly Owned Land
More often than not, publicly owned land is viewed as a liability due to burdensome ongoing maintenance costs and the private market’s disinterest in its development (or redevelopment). But this perception––albeit understandable, especially among struggling municipalities, ignores land’s unique qualities as a good available in fixed, immovable quantities, access to which is a fundamental prerequisite for existence. These same qualities once led Mark Twain to offer the now famous advice, “Buy land, they’re not making it anymore,” and they make land, virtually all land, inherently valuable.
Of course, not all land is created equal. Parcels located near infrastructure, amenities, and job opportunities offer more natural opportunities for residents’ thriving than those with lesser access to such amenities. Over the long term (and unsurprisingly), this suggests that local governments should prioritize investment in infrastructure, public spaces, community facilities, and energy efficient projects. In the context of the current proposal, however, this reality demands the identification and prioritization of publicly owned parcels in prime locations for the construction of affordable housing.
Practically speaking, implementation of this strategy should draw inspiration from FNA’s example. Selected properties can be transferred to a land trust dedicated to affordable housing. with the cost of acquiring those parcels for development capped at no more than ten percent of a proposed project’s construction budget. This approach will effectively freeze land prices, suppress speculation, and circumvent capital gains taxes, thereby securing the project’s long-term affordability. The land trust could also appoint a developer’s trustee, tasked with overseeing development activities, negotiating with planning departments and other governmental authorities, and ensuring the construction of affordable housing units at significantly reduced costs.
Rezoning to Permit Multifamily Developments
Part and parcel to the success of the approach described here is ensuring that the desired development is, in fact, legal. Existing zoning ordinances often include requirements, such as minimum lot sizes, impervious cover limitations, setbacks, and parking minimums, which harken from a time when single family dwellings were the norm. Rezoning to permit higher-density development is critical to optimizing land use and to meeting the demand for affordable housing. Also important are the removal of non-zoning barriers, such as limitations on the construction of accessory dwelling units, that discourage the creation of less expensive housing options.
There are many examples throughout the U.S. of municipalities large (like Seattle, WA) and small (like Swampscott, MA) that have taken steps to make their zoning and other land use regulations more permissive in an attempt to cultivate a greater stock of affordable units. And federal policy is moving to support such efforts, as evidenced by the Housing Supply and Affordability Act (HSAA), which will establish a federal housing policy grant program that encourages local governments to eliminate exclusionary zoning and discriminatory land-use planning, thus reducing overall barriers to housing development.
In a country beset by housing unaffordability, it is imperative that municipalities large and small divest of their white picket fence aspirations and embrace a future in which denser, more affordable dwellings are the norm.
Tax Innovations to Encourage Redevelopment
Adjusting local tax regimes to encourage the development of affordable housing is another key to the success of the proposed strategy; and implementation of a Land Value Tax (LVT) is arguably the most important element of this process. Similar to a traditional property tax in that it is levied against the assessed value of privately held parcels, an LVT differs from its more conventional counterpart in its emphasis on taxing the value of a property owner’s land. Rather than applying a single rate to the combined values of land and improvements, an LVT applies a higher rate to the value of the land, and in its most pure form, untaxes improvements entirely by shifting their tax rate to zero, thus generating all revenues from land values alone.
Philosophically speaking, LVT raises revenue by taking a percentage of the annual yield of land value, which results from public investment and land-use regulations. This approach ensures that landowners contribute their fair share to public investment via taxation. And taxing land, as opposed to taxing private investment and homeownership, secures recurrent, stable, and more difficult-to-hide revenue streams, all while helping increase property values and decrease the proportion of owners in tax arrears.
As well, the practical implications of LVT implementation make it specifically suited to the task at hand. Studies have shown that adoption of an LVT increases the housing supply, reduces blight, and improves the housing stock. Evidence also indicates that LVT can boost housing production rates, eliminate land speculation, and temper housing price inflation.
How can all these desirable outcomes result from a simple tax shift? Because taxing land but not improvements discourages owners from holding onto land in a vacant or underutilized state, signaling them instead to put their properties to their “highest and best use” without fear of increased tax bills as a result of their personal investments.
The strategic implementation of an LVT as part of a multi-prong effort to create new, affordable housing serves as a cost recovery mechanism for public investments that increase the communal good, a financing tool to support future infrastructure and services, and a fiscal signal to the private sector indicating the opportunity for investment (in this case) in much needed affordable housing.
Private Development Financing Options and Tools
The fourth step of this strategy relies on a suite of specific private development financing options and tools. Borrowing from the FNA’s experience, issuing RFPs to design, build, finance, and transfer affordable housing units can attract innovative proposals from architects, developers, construction companies, and community development organizations, thereby leading to diverse and inclusive projects. Other tactics include the use of construction loans, which (as was done in Colombia) exclude land costs. And pre-selling projects to approved buyers facilitates easier financing. Finally, government policies, akin to Colombia’s Community Reinvestment Act (CRA), can mandate financial institutions to finance a significant portion of affordable housing construction costs in underserved areas, thus ensuring projects are built in desirable locations and preventing displacement.
Technological Innovation in Construction
Technological innovation is essential for increasing the quality, productivity, and affordability of housing construction. Evaluating proposals based on their technological advancements can ensure that housing units are affordable, high-quality, and easy to maintain. New construction technologies, such as off-site construction and the use of local materials, can significantly reduce costs and enhance efficiency. By incorporating these technologies, developers can quickly and cost-effectively produce more housing units, thereby meeting the growing demand for affordable housing.
Synchronizing Supply and Demand
A critical element of successful affordable housing projects is organizing the demand side. This involves minimizing the time between construction completion and occupancy. Presales can reduce finance, marketing, and related costs, ensuring a seamless transition from construction to occupancy. Creative tools, such as building parks and showrooms with exact models of forthcoming housing units, can attract buyers and streamline the sales process. And developing algorithms to match down payment assembly times with construction timelines can further synchronize supply and demand, thus reducing financial burdens and ensuring efficient resource utilization.
Conclusion
Addressing the national affordable housing crisis requires a comprehensive, innovative, and strategic approach focused at the level of the individual municipality. By combining the entrepreneurial management of publicly owned land, rezoning for multifamily developments and the innovative implementation of Land Value Taxation can significantly increase the supply of affordable housing. Coupling these strategies with private development financing options, technological innovations, and synchronized supply and demand efforts ensures the success of housing projects.
Flexible planning systems, appropriate taxation and financial regulation, creative design, innovative construction technology, and improved land management are essential components of this strategy. By adopting these best practices and lessons learned from successful urban policy initiatives, cities can create vibrant, affordable housing communities that meet residents’ needs and promote social and economic stability.
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Gabriel Nagy is a RSF Board Director and owner of NAGY Associates. Gabriel served as the Deputy Director of the National Savings Fund and as a member of the jury of the National Housing and Urban Planning Competition Carlos Lleras Restrepo from 1985-1991, along with serving as the Housing Director of the Ministry of Economic Development and the Deputy Director of Bogota’s Planning Department from 1986-1999 in Colombia.
