This is the first of a 2 part guest post from geopower aka Danny Lazzareschi. Danny and I connected back in the renorealtyblog.com days, and have a 5 year spirited discussion ongoing about Reno Development policy and politics. In this first part, he looks at some general factors and best redevelopment practices. Part 2 will look a little more specifically at Reno. There are lots of great links that will challenge you think a little differently about what sort of redevelopment is effective and appropriate.
Right now Reno is facing a dual challenge of housing affordability and public service funding. To continue to fund the police, fire, water and sewer systems, the city staff, planning commission and council are under tremendous pressure to approve continuous development and the attendant service fees. Most of the developments proposed and in construction are on the margins of the city and serve the high-end of Reno’s citizens. The median listing price in new homes in Reno is $424k, and the average sale price is $477k according to my relatively unscientific review. The average household has an income of $47k. If a family with average income has zero preexisting debt and has saved a $20k down-payment, they could afford payments on a $234k house. The only new homes for sale that I’m aware of in that range are the smallest BR townhouses at Upstream, of which there are maybe a half-dozen units. The average new home being built is targeting people who make double the average income. At first glance it might seem that the development style and public revenue crunch have nothing to do with each other, or that a solution to one would exacerbate the other. After all, don’t high end housing developments pay more in taxes, and improve the city balance sheet as we build more of them? Doesn’t building low-income workforce housing mean letting the hippies undermine city finances with socialism?
In fact, many cities that are considered socially progressive and state the intention to protect and develop mixed income neighborhoods are actually doing lots of counterproductive things. The West Coast liberal bastions typically have worse affordability crunches than Reno. San Francisco and Berkeley have very aggressive renter protections, but both have essentially fully built-out cities that require redevelopment and increased density to accommodate growth. Their strong historic and neighborhood protections have effectively shut off the ability to tear down an old building to build something incrementally denser. Take for example these two stories from Berkeley this year: A court battle to tear down a SFR and replace with 3 units, and a landmarking against the will of property owners: http://www.berkeleyside.com/2017/09/08/long-legal-dispute-berkeley-approves-application-build-3-homes-haskell-street/ http://www.berkeleyside.com/2017/02/24/property-owner-fights-berkeley-landmark-designation-with-lawsuit/ Strong renter protections on top of no growth only creates a class of winners among long-term renters at the expense of new arrivals, or anyone who’s forced to move for personal reasons. Maybe that’s marginally fairer than the only winners being incumbent owners watching property values skyrocket, but it isn’t close to an affordability solution.
Preventing housing growth as the population and economy grow just means costs rise as demand outstrips supply. Reno is not constrained physically the same way Bay Area cities are, and a lot of our growth has been outward at low density on the margins. Pacific Northwest cities, Portland in particular, have promoted denser redevelopment over sprawl. Oregon and Washington passed laws mandating Urban Growth Boundaries on their cities that are periodically adjusted outward for planned growth. https://oregonencyclopedia.org/articles/urban_growth_boundary/ A lot of European countries do something similar by making it difficult to convert agricultural and forest land to housing (this of course wouldn’t work here where a lot of peripheral land proposed for development is relatively unused desert.)
Urban Growth Boundaries have been called out for a few problems, in particular promoting sprawling growth in nearby towns too small to be required to have their own boundary. I think the underlying goal for the city should not be arbitrary density but following the Strong Towns model of fiscal sustainability ( https://www.strongtowns.org/ ) that new development should be dense enough that the taxes coming from it can continue to pay for the services it requires. This isn’t true of the typical SFR development: https://www.strongtowns.org/journal/2016/9/2/a-thousand-hidden-subsidies
While Reno clearly needs to build new housing to meet the needs of our growing city, the typical high-end SFR development on the edge of the city benefits from huge structural subsidies that aren’t obvious on the surface. First, our planning process is so complex, that by far the easiest way to develop is hiring a team of professionals to manage it, and spreading the cost across a lot of units. Secondarily, neighborhood complaints can so easily derail a project that it is best to focus on the edges where you can easily get large plots of land and cause minimal disturbance to existing homeowners. Finally, all developers pay fees for sewer, water, road and other public service impacts. But the fees are based on the number of units. When those units are spread out over large lots, the maintenance costs for the future city are much higher than in denser townhouses and apartments but the fees aren’t proportionally higher.
New apartment developments pay a per-unit connection fee to the sewer and per-unit monthly user fees, just like SFRs. Apartments pay 85% as much in connection fees per unit as individual SFRs do, while requiring much less supporting infrastructure. So, in practice apartments subsidize the sewer costs for SFRs. http://www.reno.gov/home/showdocument?id=437 Long-term sewer costs are borne by all users, there are no special neighborhood sewer assessments to support specific developments. Apartments pay 82% the SFR monthly fee. You may think that if an apartment showers and flushes the toilet as often as a house, it should pay 100% of the monthly fee. But the city budget shows that the Sewer enterprise fund consistently spends more on Capital (repairs) than Services (sewage plant operations.) http://www.reno.gov/home/showdocument?id=69484
SFRs take probably 3x-6x the land area to build as low-rise apartments, with new public streets and sewers to serve them, at several times the public cost, while paying only ~20% more in fees. Because they require so much less supporting infrastructure, both when first built and in the long run, denser apartment development is subsidizing SFR sewer costs. New development also pays transit impact fees based on number of units (65% as much per apartment as a new SFR http://www.reno.gov/home/showdocument?id=67090 ) and pays to purchase water rights and deed them to TMWA to serve their use needs.
Apartment buildings of course also pay property taxes that support ongoing public services. For example, the western half of Iron Blossom village, 236 units built on 10 acres in 1984, will pay $111k in property taxes this year. That many SFRs that old might pay twice that in property taxes, but require much more than twice that in roads and sewers.
The primary public service that does not collect fees to offset development impacts is schools, because the state constitution doesn’t allow it. http://www.rgj.com/story/news/2016/03/02/washoe-county-school-impact-fees/81187980/ Infill development shifts the unpaid burden of new students away from the already overcrowded schools on the periphery and to schools that are in built-out neighborhoods and under capacity: https://api.tiles.mapbox.com/v4/renogazette.mjdh1flk/page.html?access_token=pk.eyJ1IjoicmVub2dhemV0dGUiLCJhIjoiWEl5anRqcyJ9.Tttu7gZJbhpUX_pgAjczCQ#12/39.5138/-119.8361
One problem with the very dense infill development that we already have downtown and should avoid exacerbating is overzoning. When land is zoned for potential development that is worth many, many times more than the current use, the land value becomes the entire value, and there is no reason to invest in building improvement or maintenance. https://www.strongtowns.org/journal/2016/10/11/whats-the-matter-with-portland That’s basically the problem with downtown Reno from the river to I-80. Any parcel there could become a huge development, so the land owners are all waiting for their turn to make millions selling to big developers and the land sits vacant or full of unmaintained buildings becoming ever worse. The financial incentives of the zoning and development system make this the logical decision for property owners.
Part 2 to follow!