Solving a vexing problem
September 16, 2008
This is a follow-up to an earlier column that suggested affordable housing (AH) development on public land in midvalley communities.
Since publication of the column (Soapbox, Aug. 24), I have received several responses questioning the financial feasibility of this approach and the veracity of private-sector engagement. In our region, resistance to growth is the primary obstacle to all development, political barriers consistently ranking feasibility challenge No. 1, and thus establishing an inseparable relationship between enabling public support, financial feasibility and private-sector participation.
Traditionally, there are four major private-sector development variables/constraints: the market, physical issues, finance and politics. The AH market is very strong, demonstrated by the necessity for an AH lottery. Affordable pricing, under $300,000, is dependent on small units (500 to 1,000 square feet) and high density. Market depth is unclear, but until we can retain high-quality public employees and adequately staff key businesses, our lifestyle and economy are threatened. We should build AH until that need is satisfied.
The most fundamental physical issue is sites. Regional property values preclude AH production via the conventional development process, absent enormous subsidies. AH exactions inflate all housing costs and property values, hence the conclusion to build AH on public properties.
Financing AH on publicly owned properties circumvents unfeasible land costs to satisfy a most pressing community need, but should recoup municipal land worth as return on investment and/or an AH subsidy. There are many ways to structure a public/private joint venture on public land. Here’s one example:
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Municipality subordinate land as equity for construction financing
Equity shortfall provided by the developer and/or public entity
Most dwellings AH with some market housing as developer inducement
All residential units, affordable and market, subject to a 10 percent real estate transfer
tax in year one, diminishing to 2 percent in year five where it remains in perpetuity,
the funds earmarked for AH projects (not the general fund), future affordable housing subsidies and/or an equity pool to secure the AH owner’s future
Development income distribution sequence:
– Bank ” pay off construction financing
– Real-estate broker fees/closing costs
– Public entity ” appraised land value (or retained as an AH subsidy)
– Developer soft costs
– Public and developer split net income on a predetermined basis;
Politics is the most difficult development constraint. People live here for recreation, scenery, climate, etc., and treasure the lifestyle supporting environment.
Development is perceived to erode environmental quality, consuming open space, increasing congestion, taxing public facilities/services, etc. These legitimate concerns must be balanced relative to our tourism economy, currently under siege for lack of AH.
AH on public property requires elected official initiative (to avert the prohibitive time, risk and up-front expenditure required for a developer initiative), including policy creation, project planning (with a quality developer) and entitlements as a platform for private-sector engagement.
The preponderance of the valley’s wealth is real estate. This approach allows local governments to capitalize on immense public property values to finance a crucial community need. Furthermore, the public realm is endowed with potent development tools: land capital, bond-financing rates, sales cost savings, marketing advantage of community-supported projects, etc. Public-enabling mechanisms, coupled with developer know-how, offers potential abatement for a truly vexing problem.