Listen up!

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by Nancy Oates on February 16, 2015 • Permalink

Posted in Housing, Land Use

Tagged affordability, Ephesus-Fordham, form-based zoning, Growth

Posted by Nancy Oates on February 16, 2015

http://chapelhillwatch.com/2015/02/16/listen-up/

96 Comments

David Schwartz
/ February 16, 2015

I’m not at all surprised that Hickey recommended many of the same strategies that town residents recommended during the Ephesus-Fordham hearings, because the residents’ suggestions were based on many hours of research concerning affordable housing best practices and what other communities are doing to incentivize developers to provide affordable housing. [Full disclosure: I did much of that research myself].

But the Town staff and the consultant the Town hired to write the form-based code (FBC) claimed that the incentives Hickey recommended don’t work, and that requiring developers to provide affordable housing in exchange for being able to build more units on a site (a “density bonus”) would “discourage redevelopment.”

So the FBC contains no affordable housing requirements or incentives, and the 260-unit apartment building that East-West Partners will soon begin erecting on Elliot Rd thus will not provide a single new unit of affordable housing.
Bonnie
/ February 16, 2015

So the consultant didn’t say ‘ a Penny for affordable housing’? The typical reaction is to increase taxes rather than develop a plan.

I have no data to prove this but my Impressions are that our local economy and costs for development are so high, that the council has to give density bonuses to attract any kind of development at all – affordable housing bonuses would be on top of that.

Done well, FBC could take the risk out of development and reduce developer costs. That could help. All the ideas are good.

Thanks for reporting Nancy. Dwight deserves a thank you note for bringing facts to the table.
David Schwartz
/ February 16, 2015

Bonnie,

The development costs may be high, but so is the ROI. I believe a house or apartment built in Chapel Hill sells or rents for more than an equivalent structure located most other places in the Triangle; that’s the flip side of our affordable housing shortage. So the premium associated with housing prices in CH is the payoff for incurring the higher development costs, and it shouldn’t be necessary to provide density bonuses as a further enticement. I’d be interested to see some data bearing on this question.
bonnie hauser
/ February 16, 2015

David – I don’t quite understand your point. Years of protracted debate between governments, citizens and developers adds a great deal of cost and risk to any project. That’s on top of the high prices and regs -and before any discussion about affordable units.

If the land use discussions occur beforehand and the zoning is set, it should be easier for developers to come in and build to the rules – and still make a reasonable profit.

Based on the amount of development underway, I’d guess there’s good ROI’s in Durham, Wake and Chatham.
David Schwartz
/ February 16, 2015

Bonnie,

I have no doubt that our current SUP process can be streamlined, expedited, and made more predictable. I’m also open to the idea of form-based code, if it’s done right and does not compromise development standards. But I have seen no evidence that density bonuses need to be offered in order to attract development interest and that we therefore cannot use density bonuses as an incentive to obtain affordable housing.

Quite to the contrary, Jim Ward said during a council meeting last spring that the Town has obtained something like $40 million worth of affordable housing from its negotiations with developers who were seeking special use permits that typically involved rezoning for higher density. In all these cases, the developers somehow were able to meet the town’s affordable housing requirements and still hit their profit targets. That’s why I question the suggestion that the cost of development in Chapel Hill is so onerous that we can’t expect developers to provide affordable housing in exchange for a density bonus.

I doubt that development in Chapel Hill is more costly than in the northeast or the west coast, and those place all somehow manage to attract development interest AND procure affordable housing concessions, so I don’t see why we shouldn’t be able to do the same.
Rucker
/ February 16, 2015

There is no longer any premium for chapel hill real estate when compared to Raleigh and durham prime locations. Look at the recent sale of the aloft hotel and compare it to the similar hotels that traded along with it in morrisville and Cary. The aloft commanded the lowest price per room. Apartment sales in durham and Raleigh are now blowing the doors off of anything that has ever traded in chapel hill. Chapel hill is clearly the weakest market in the triangle economy at this time.

The taxes and years of suppressed growth have served to create a very stagnant market here compared to the neighboring communities. If there has been so much affordable housing created through the SUP process then why does the problem continue to grow? Is it a mere coincidence that the only town in this region that has artificially suppressed growth over the years is the one with the affordability problem?
David Schwartz
/ February 16, 2015

Rucker,

Before we can engage in a productive discussion of this topic, we need to be working from the same facts. The conversation in this thread thus far has been about housing, so I’m not sure what relevance the sale price of hotels has to what we’re discussing.

To say that “There is no longer any premium for chapel hill real estate when compared to Raleigh and durham prime locations” is basically saying that the most expensive real estate in Durham and Raleigh is more expensive the average cost of real estate in Chapel Hill. This is obviously not a useful comparison. The most expensive real estate in Chapel Hill is also more expensive than the average cost of real estate in Durham or Raleigh. So what?

An apples-to-apples comparison would be to look at, for example, the average rent list price per square foot in each of the cities. Here’s the data:

Cary $0.88
Chapel Hill $0.94
Durham $0.84
Raleigh $0.86

So rental housing housing in Chapel Hill costs 7-12% more per square foot than in neighboring cities. That’s the Chapel Hill premium.

You can go to http://www.zillow.com/nc/home-values/ and do the same calculations for home sale prices.

As for suppressed growth, the population of Chapel Hill was about 9,000 individuals in 1950 and about 60,000 individuals now, which works out to an average annual growth rate of around 3%, considerably greater than the average growth rate of the United States as a whole over the same period. Just between 2000 and 2010, almost 10,000 new residents were added to the town’s population, and 4,000 new dwelling units. If this is what you consider “suppressed” growth, then I shudder to think what your ideal rate of growth would look like.
bonnie hauser
/ February 16, 2015

David – IMO the SUP process is broken – and arbitrary. Every property owner deserves zoning protection and should not have to rely on the good graces of the sitting council – who may or may not understand land use issues or economics. We have the same problem in the county.

I’ve participated in the rezoning of Evanston Ill, a college town roughly the size of Chapel Hill. We rezoned the entire place. We greatly increased zoning downtown, and downzoned the areas near residential communities. Took about 2 years. Citizens worked side by side with the planning board and sitting council. Then development by right was welcome and came quickly. And some projects didn’t cut it and were withdrawn.

FBC can work – but I don’t see a working process to discuss issues and develop plans that are codified in zoning.

BTW How do students affect growth over the last decade?
bonnie hauser
/ February 16, 2015

One more point. Aren’t the density “bonuses” baked into the proposed projects. Isn’t that why they are so large to begin with?
David Schwartz
/ February 17, 2015

Bonnie,

The UNC student population is equal to about half the population of Chapel Hill, but because not all UNC students reside in Chapel Hill—i.e., some live in neighboring communities and commute to campus—the proportion of town residents who are UNC students is probably less than half, but I don’t know how much less.

Between 2000 and 2010 student enrollment grew by a bit less than 5000, so about one half of the increase in resident population is attributable to growth in the student population.

I’m not sure I understand your question about the density bonuses. In general the town has an expectation that 10-15% of newly built for-sale housing (i.e., not rentals) will be offered at prices moderate income folks can afford, i.e., at or below median area household income. Developers can meet this requirement by offering the affordable units at below-market price, by making them smaller, or some combination.

I do not consider 10-15% a particularly large concession. Other communities, such as Boulder or Berkeley, get 20-25% affordable units from new high-density housing. Unless the economics here are dramatically different than in these other cities, we ought to be able to do the same.
Nancy
/ February 17, 2015

Bonnie — Does Illinois allow rent control? The problem we have in North Carolina is that the state prohibits towns from putting any restriction on rent. So if you rezoned the town, you’d get what you have in Ephesus-Fordham, density without any affordable housing. How did Evanston plan for preserving affordable housing?
Bonnie
/ February 17, 2015

David – my point is that the sudden increase in the size of projects like EF or Obey Creek is essentially a density bonus, The developers are suggesting that their proposed larger buildings are necessary to make money. If they add AH, they get an additional bonus.

My point and I think the speaker’s point is that if you take out the development risks, costs go down and smaller projects become feasible,

According to census, about 20% of the off campus population is students. Don’t know how that changed in the last 10 years but it is one of the elephants in the room on AH. Are student incomes factored into median household incomes?

Nancy. Rent control was not an issue and I don’t know the law. At the time (around 2000), Evanston was a diverse community and allowed section 8 vouchers, There was (is) an affluent lakefront community and lots of rentals everywhere with diversity of race and income. Great transit so you could live there without a car or with one car.

One key difference was that town council elections were districted. So the neighborhoods – rich and poor – were protected by their council representatives. My representative got into bed with a developer, and we kicked her out swiftly. So we had people’s attention in the zoning conversations.
many
/ February 17, 2015

In 1997, the Illinois legislature passed and Governor Jim Edgar signed SB 531, known as the “Rent Control Preemption Act”.
David Schwartz
/ February 17, 2015

Bonnie wrote, “The developers are suggesting that their proposed larger buildings are necessary to make money. If they add AH, they get an additional bonus.” We shouldn’t take their word at face value. Rather, we should insist on seeing the numbers so we can determine for ourselves whether in fact they can only make money on large projects. And just because a developer may have promised his or her investors a 20% ROI doesn’t mean we have to make it possible for them to achieve that level of return. Perhaps a 15% or even 10% return ought to suffice.

The developer of a recently approved 100-unit mid-rise apartment project downtown called The Graduate was perfectly happy to offer 10-15% AH units, so I find it hard to believe that projects need to be on the scale of Obey Creek or the Edge to be profitable.
bonnie hauser
/ February 17, 2015

Thanks Many. Context may be useful

http://articles.chicagotribune.com/1997-09-14/business/9709140034_1_rent-increases-charge-tenants-controls-don-t-work
rucker
/ February 17, 2015

David,

You wrote “And just because a developer may have promised his or her investors a 20% ROI doesn’t mean we have to make it possible for them to achieve that level of return. Perhaps a 15% or even 10% return ought to suffice.” Development investment is far riskier than purchasing an existing, leased building and it demands a higher projected ROI. For better or worse, there aren’t any local or locally minded real estate equity investors capable of financing large scale projects. There are plenty of other good markets for them to invest in and they will simply go somewhere else if Chapel Hill has arbitrarily decided what fair returns are.

Previously, you referenced average rental rates in the Triangle markets as proof that values are higher in Chapel Hill. If we are talking about new development, those numbers are irrelevant. New apartments of any quality can’t be built for those rents today. Suburban, surface parked apartments require large swaths of land that we don’t have within the Urban Services Boundary. To build urban apartments with structured parking, it requires rents north of $1.80, over twice the “averages” you referenced. Downtown Raleigh and downtown Durham easily command those rents and Chapel Hill isn’t likely to out-compete those areas at the top of the market.

As for the relevance of the hotel sales, it relates to values vs. rents. If you look at the nightly rental rates at the three hotels sold in that transaction, The Aloft is the most expensive. Yet it sold for the lowest price. That’s because income producing property, whether it is a hotel or rental housing, is sold based on net income AFTER expenses, not gross rental rates. The taxes in Chapel Hill are killing our values, making development that much harder to pull off, even before you factor in the expensive, lengthy entitlement process or exactions from Council.
Nancy
/ February 17, 2015

Bonnie — A ban on rent control has a serious flaw in its argument if New York City is being touted as an example of how a ban on rent control will increase affordable housing. In the article you cite, from 1997, New York had 1.2 million rent-controlled apartments. In 2011, the count was 38,000. During that time, rents have sky-rocketed to ridiculous heights. A 250-square-foot apartment I lived decades ago, a 5-story walk-up tenement, now rents for $2,800 a month. It is described as a “prewar walk-up.” You would have to make well over $100,000 a year for that to be affordable. Who wins with that? Only the landlords.
bonnie hauser
/ February 17, 2015

Nancy – I’m confused. The topic was whether rent control was an issue in Illinois and Evanston. I said it wasn’t. Many found the pre-emption legislation – which passed easily. Illinois never had rent control.

I can’t speak to what’s happening in NYC now – except that DeBlasio ran on an affordable housing platform. I have no clue what he’s proposing.

Illinois never had rent control, and Chicago and surrounding areas have enjoyed diverse, affordable neighborhoods. It appears that the city is now having some problems – but they appear to be on top of it. No one is discussing rent control. Here’s a couple of articles that google produced. Its why I love Chicago. The city that works!

http://www.chicagobusiness.com/article/20141112/OPINION/141119916/lack-of-affordable-housing-in-chicago-is-everyones-problem

http://www.chicagobusiness.com/article/20141113/OPINION/141119879/why-lending-alone-wont-solve-chicagos-affordable-housing-problem
David Schwartz
/ February 18, 2015

Rucker,

I appreciate the additional information you provided regarding real estate finance. The fact that Chapel Hill can’t attract investors capable of financing large scale projects may not be such a problem given that we apparently no longer have any land left within the city on which to build new large scale projects. And is the statement actually true? Surely the University of North Carolina is a local real estate equity investor that could, if it wished, finance local large scale projects.

I referenced average rental rates because that’s the data I could find. Can you direct me to data on the average rents for new apartments in various Triangle cities.

Because Chapel Hill is relatively compact, and half the population is students, we ought to be able to build apartments near downtown and campus that do not come with parking, but to make that viable we need to provide a fuller range of retail and professional services downtown and in general make it easier and more appealing to live a car-less life in Chapel Hill.

As for taxes, our city taxes are not particularly high. It’s the high County taxes and the special school district tax that together with the city tax, add up to a hefty total tax bill. And growth is a major reason taxes are so high. As the Wake County manager recently said, growth never pays for itself, which means that the town and county residents have to pay ever-increasing taxes to subsidize the costs associated with growth. Or, if they don’t want to pay higher taxes, they suffer a decline in the quality of government services—including schools—inadequate or poorly maintained infrastructure, and a general decline in their quality of life. I refer you to a book by city planner Eben Fodor entitled “Better, not bigger.”

So, if you’ve been a cheerleader for growth in Chapel Hill over the past several years or decades, you can thank yourself for your high taxes. Perhaps if the town had in fact suppressed growth—which I don’t think it has—our taxes might be lower.

I suppose the real culprit in all of this is the highly agglomerative nature of our contemporary economy, with too many people wanting or needing to live in too few places.
rucker
/ February 18, 2015

David, thank you for your candid admission that you believe growth is the problem and can not be a part of the solution to the challenges we face as a community. That is a valid opinion, I just happen to disagree.

Given that clear position, it seems a waste of time debating fair development returns, potential alternative investors, social engineering via design, development impediments, etc. Perhaps a much higher-level debate about whether or not growth should occur is important prior to discussing how it should occur.
Terri
/ February 19, 2015

It’s such a shame that anytime rapid growth is challenged it gets labelled as a ‘no growth’ belief. The unwillingness of intelligent people to discuss this issue without labels or false assumptions is probably the biggest barrier to positive change in this community.

I encourage those of you who believe in unrestricted growth to read Donella Meadows or any of the other system scientists. If 3% a year is insufficient to keep the local economy balanced, how much more is needed? 3% a year over 20 years is going to make us part of a megalopolis in the near future. Is that the change you want? What happens to any home rule or local decision making when that occurs?

Balanced systems evolve through slow and systematic change. They are built to last, not to self-destruct.
David Schwartz
/ February 19, 2015

Rucker,

You are attributing to me a position I neither stated nor hold. Go back and read my comment again. I quoted the Wake County manager saying that growth never pays for itself, and drew the inference that growth must lead either to higher taxes or a decline in the quality of government services. You, not me, are the one complaining about high taxes. I am merely pointing out to you the inconsistency of advocating for growth while at the same time castigating the Town government for increasing taxes. You can’t have one without the other, unless all the new residents to town are childless families purchasing million dollar homes.

I’m guessing from your comments that you are not aware that most forms of growth do not produce net fiscal benefits for local governments, that growth typically ends up costing more in government services than it generates in new tax revenues. That’s why I recommended Eben Fodor’s book to you, because Fodor does a nice job of explaining the fiscal costs of growth.

For what it’s worth, I don’t happen to believe growth is either a problem or a solution. It’s simply a phenomenon, and it brings with it both benefits and costs. Thoughtful planning, which Chapel Hill used to do, entails recognizing both the benefits and the costs, and figuring out ways to maximize the former and minimize the latter. Simply ignoring the costs doesn’t make them go away.

I also believe, and have stated publicly numerous times, that because growth imposes costs on the existing residents of a community, including increased taxes, it’s important for the town government to try to ensure that the benefits of growth accrue to the community as a whole rather than being concentrated in the hands of a few. This is not a radical idea and is entirely consistent with the way Chapel Hill and Carrboro skillfully and responsibly managed growth for decades.

A high-level debate about whether growth should occur might be an interesting intellectual exercise, but I don’t know that it would be particularly useful. We may as well have a high-level debate about whether the sun should rise in the morning. Local governments have little to no control over whether growth occurs; the town can’t prohibit UNC from increasing student enrollment or from creating new jobs at the medical center, and if we don’t allow construction of new housing here, the newcomers will just reside in Chatham County or Mebane or Durham and exacerbate our already congested rush hour traffic.

Local governments do, however, have some control over the form that growth takes and over how the costs and benefits are distributed, and that’s where I’ve chosen to focus my efforts.

But I enjoy useless high-level debates as much as the next guy, so let me ask you: What are the challenges we face as a community to which growth can be part of the solution? What kinds of growth, and where?
Fred Black
/ February 19, 2015

David, curious about your statement, “Thoughtful planning, which Chapel Hill used to do,” What years are you referencing?
David Schwartz
/ February 19, 2015

Fred,

I’m thinking about the mid-1980s though the late 1990s or early 2000s, and especially the early part of that period when we had faculty from the Dept. of City and Regional Planning serving on Town Council.
Fred Black
/ February 19, 2015

I seem to remember that time in the 90s when sides were drawn over Meadowmont and how split things were, how it influenced the Foy-Pavao mayorial election, and how the planning director and his staff were severely and constantly criticized. Maybe the reputation for good planning was in the ’80s before I came.
David
/ February 19, 2015

Fred,

The Meadowmont review process was definitely divisive. There were a lot of folks who really didn’t want to see the beautiful Dubose farm turned into what Joyce Brown at the time called “high density sprawl.”

I had the opportunity recently to look over a planning staff memorandum from the 1990s regarding the Meadowmont proposal, and I was impressed by how balanced it was in its presentation of both the pros and the cons of the proposed development, and its suggestions for how the project might be modified to better serve the community. The memoranda I’ve seen concerning more recent proposals seem designed more to promote the projects than to critically evaluate their merits.
rucker
/ February 20, 2015

David,

When you refer to the time when the Council had faculty from the Department of City and Regional Planning, I assume you are referring to Professor Godschalk, who was a vocal supporter of the Ephesus Fordham plan during its review?

I haven’t read the whole book, but in reviewing the summaries and descriptions of Eben Fodor’s book, it appears he primarily concludes that suburban sprawl is revenue negative to municipalities. There appears to be some acknowledgement of social and environmental cost to industrial development even though it may be revenue positive. I didn’t see any reference to the type of development that is being proposed around Chapel Hill. In fact, the only development reviewed in Chapel Hill recently that could be described as sprawl is the patio home development on Homestead Road. That sailed through without anyone questioning its fiscal impact on the Town. Why do you suppose that is?

Regardless of whether or not I misinterpret Mr. Fodor’s conclusions, I prefer to get my economic advice from economists, not city planners. Mitch Renkow at NC State has conducted extensive research on the matter and definitively concluded that commercial development is revenue positive. And please remember that for fiscal purposes, he (like other, similar studies) categorizes apartments as commercial development because they function like commercial development (no publicly maintained subdivision streets, no public solid waste collection, on-site recreation and amenities and a fraction of the student generation compared to single-family development).

Moving back to the policy side of the conversation, local governments can absolutely prevent most growth if they so choose. No, they can’t stop the University or the hospital, but they can stop virtually everything else. In limited examples, they have done so locally. For years there has been an airport hazard overlay district on the main development parcels in Central West, even though neither the FAA nor State requires it. There was a moratorium on building in Northside for a time. Taken to the extreme, similar policies could squash all private development in Chapel Hill. So when some in the community push for policies that would halt private development, either directly through zoning overlays or moratoriums, or indirectly through policies that make it economically unviable, an honest, high-level debate hardly seems like such a boondoggle.

So, what challenges can growth address? Along with the vast majority of economists, I believe it can make us more fiscally sound. I believe it can make us more diverse and more inclusive. I believe it can make us more transit, bike and pedestrian friendly. I believe it can free up the older housing stock which is grossly overpriced compared to neighboring communities. And most importantly, I think the vast majority of the proposals in Chapel Hill right now slowly and incrementally help us achieve these goals.

I am no more for unfettered growth than you are for stopping every construction crew at the Town limits. I’ll grab my torch and pitchfork and stand shoulder to shoulder with you the second a developer proposes we get rid of the Urban Services Growth Boundary to build suburban subdivisions or a student housing developer proposes a project outside walking/biking distance to campus. I don’t think every project has to solve every problem for it to be worthwhile, either. I think most of Ephesus Fordham is an underutilized, outdated eyesore and if we can encourage it to be rebuilt in a more modern way, it doesn’t have to unilaterally solve our affordability problem and fix the flooding problem caused by all the subdivisions built in the ’60’s and ’70’s before stormwater was a word. Those goals are at odds with each other. But wouldn’t it be great if the Town had more financial resources to address those problems elsewhere?

I think redeveloping dilapidated downtown buildings taller and denser is a great idea. I think Obey Creek can help us bring a significant amount of our sales tax dollars back to Orange County in a way that looks nothing like a mall or suburban strip shopping center. I think developing on the denser side at Central West can keep people from driving so far up and down MLK to find daily necessities and eventually serve Carolina North.

Admittedly, this is a lot to be reviewing all at once. But it isn’t all going to be built immediately. I doubt Whole Foods or Eastgate is going to be torn down in the next decade. Even with the growth pressures coming from Raleigh and Durham, we aren’t going to put 1,500 new apartments on the ground all at once. The market won’t support it. But with the challenges we face and the desire for the community many of us want, we have to set the ground work for how we are going to accomplish all this, rather than waiting for development proposals to come, one at a time, and battle furiously over them on an ad hoc basis. We experienced the same phenomenon in the golden era of the 1990’s you referenced. Southern Village and Meadowmont were fierce battles that ultimately accommodated almost all of our growth for years. But now they are both built out and almost universally beloved. Preferences have changed and we no longer have any undeveloped tracts of land the size of those communities. So this round of development review looks different and will be jarring for some. But a community that doesn’t continue to evolve will slowly die.
Nancy
/ February 20, 2015

Rucker —

The Glen Lenox redevelopment technical team used Mitch Renkow’s numbers and showed that apartments in Chapel Hill are revenue negative.

The Homestead Road senior housing may have “sailed through” (I believe the developer would characterize the process differently) in part because of a payment-in-lieu to affordable housing of almost $1 million, along with a total lack of senior housing in town at present. The target market for that project makes up a big portion of the target market for much of the recent upscale businesses at U-Mall, for instance, If that target market downsizes to Durham, Wake or Chatham counties, they take their retail spending dollars with them. The town did consider the economic impact.

As for your belief that a town must evolve or die, “evolve” is not the same as “get bigger at any cost.” I’ve been participating in some events hosted by CHALT and have appreciated how people in that group hope to improve quality of life without driving out low- and moderate-income residents. Check it out at chalt.org.
rucker
/ February 20, 2015

Nancy,

You wrote, “The Glen Lenox redevelopment technical team used Mitch Renkow’s numbers and showed that apartments in Chapel Hill are revenue negative.” That statement is untrue.

Orange County and Chapel Hill officials did ask Mitch Renkow to categorize apartments as residential in his analysis for the County and Chapel Hill, which was different than most, if not all, of the other municipalities he analyzed. That study found that residential on the whole is slightly revenue negative, though much less so than other places he studied. He did not differentiate between apartments, townhomes and single-family so there is no way to draw that conclusion. Given how close residential property on the whole is to break-even in Chapel Hill, that implies that apartments are in fact revenue positive, though the report doesn’t conclude that either. Here is a link to the Mitch Renkow study:

http://www.townofchapelhill.org/home/showdocument?id=18393

And here is a link to the Glen Lennox Technical Team presentation that draws no conclusions on apartments vs. other types of residential.

http://chapelhill.granicus.com/MetaViewer.php?view_id=7&clip_id=2055&meta_id=86387

If there is another study or document that suggests otherwise, please direct me to it.
bonnie hauser
/ February 20, 2015

As I read these comments – there is a place for agreement. I believe our financial forecast models and even our tax policy needs a massive overhaul. Not to mention the underlying cost structure – which adds the overheads of 4 governments and two school systems to everything.

But the question I rarely hear answered is “What do we want to look like? Who do we want to be?” And if we could answer that, then the question is “how do we get there?”

I was moved by yesterday’s presentation by John Pucher, sponsored by Chalt. John showed the “glue” – what happens when you build infrastructure that invites ped/bike and character- rather than cars. But a closer look shows that since all our money is going down the LRT money pit, there’s nothing left for the last mile – which is the most important to the character of our towns.

I suspect if we spent more time talking about what we are “for” and created a vision for it, we’d create it.
David Schwartz
/ February 20, 2015

Rucker,

There is much good sense in what you say, and I suspect that we are perhaps not so far apart in our goals and aspirations for the town. I’ll give some serious thought to the general issues you raise in the latter paragraphs of your comment and get back to you on those.

But I think we can quickly dispense with the more technical question of the fiscal impact of multifamily housing. Residential property in Chapel Hill—inclusive or exclusive of multifamily property—is only mildly revenue negative for the simple reason that the single largest government expense, public schools, are not part of the town’s budget. Instead they are part of the County budget, which is why residential property is much more revenue negative for the County than it is for the Town.

Because we are residents of both the Town and the County, and pay property taxes to both, it’s irrelevant to us whether schools are considered a Town or a County expenditure; we pay for them either way. So when assessing the fiscal impact of a given land use in Chapel Hill, we need to consider the aggregate impact on both the Town and County finances. Do the math and you’ll find that residential development in Chapel Hill is strongly revenue negative.

And Chapel Hill or Orange County is just one data point. The American Farmland Trust published a report in 2010 summarizing the results of over 100 cost of community services studies from across the country. Only one of the studies yielded a positive revenue to expenditure ratio for residential property, and the median across all 100+ studies was $1.16 in costs for each dollar of revenue.
http://www.farmland.org/documents/Cost-of-Community-Services-08-2010.pdf

As I’ve written elsewhere, a project may still be worth doing even if it is revenue negative, just as a project may not be worth doing even if it is revenue positive. But it seems very unlikely we are going to be able to remedy our fiscal challenges by building lots of new apartment buildings. I again refer you to the Wake County Manager’s statement that growth never pays for itself. I’m inclined to think he knows whereof he speaks.

In Fodor’s book, chapter 5 discusses the fiscal impacts of growth. I’m happy to lend you my copy. You might also take a look at a document entitled “Counting the costs and benefits of growth” which was co-authored by economist Dave Shreve.

One of the report’s findings is that new commercial development is only revenue positive if it employs existing residents who were previously unemployed or underemployed. If, instead, the new commercial enterprises attract new residents to the community to work at the newly created jobs, the revenue negative residential development stimulated by the commercial development effectively cancels out the fiscal benefit of the commercial development.

http://www.asapnow.org/mimik/mimik_uploads/documents/12/2013%20ReportASAP%20version.pdf
Mark Marcoplos
/ February 21, 2015

Thanks to you all for a very interesting discussion of a complex set of issues. I’m looking forward to reading the study on growth in and around Charlottesville, VA, since that is a community that bears some resemblance to ours.

That leads me to a question that comes to mind often for me. Which counties, regions, or communities that are similar to ours have achieved the twin goals of being revenue positive and highly “liveable”?
rucker
/ February 21, 2015

David,

I’m glad to hear you found my perspectives reasonable and look forward to hearing more of your thoughts.

On the cost of apartments to the school system, indeed, let’s do the math. I think it shows overwhelmingly that apartments must be revenue positive to the school system. All the necessary data points aren’t there, but with the information that is available and making some reasonable assumptions, we should be able to arrive at a logical conclusion.

Let’s start with the student generation rates used for SAPFO. Generation rates for single-family attached are .603 students per home for single-family detached and .350 for single family attached (townhomes). The multi-family rate (apartments) is .070, somewhere between one fifth and one tenth the rate of student generation per household. Let’s split the difference and say single-family homes generate 7 times more students on average than apartments, though the difference is probably greater than that because we are so heavily weighted to detached homes.

Since taxes are based on value, we can use average values to figure out a given property type’s relative contribution to the schools. Owner occupied (virtually all single-family attached and single-family detached) average home values in Chapel Hill are about $330,000. We will have to agree on a reasonable estimate of the average value of an apartment, as that data is not readily available. But, given recent apartment sales that have made headlines, it would be hard to argue the average apartment is worth less than $100,000.

So, if the average single-family home generates 7 times more students than the average apartment, and the average apartment is worth between one third and one fourth of the average single-family home, then the average apartment generates roughly twice the tax dollars to the school system per student.

Now, we need to look at the things we know about the broader tax base to determine whether or not it is reasonable to think apartments pay for themselves as it relates to schools.

1) We know that our percentage of tax revenue that generates no school children (commercial property tax) is extremely low at both the County and Town levels.

2) We know that the schools must balance their budgets every year.

3) We estimate that apartments generate twice the revenue per student compared to single-family.

Given that our commercial contribution is so low and the contribution per student is twice in apartments as it is the rest of the residential tax base, it seems highly unlikely that apartments could be revenue negative and the schools could still pay their bills.
Bonnie
/ February 21, 2015

David

While I agree that in general, single family development with lots of kids is revenue negative, there’s a balance that needs to be struck. Given our burdensome cost structure and formulas, anything is revenue negative,

But there are more subtle issues at play . One is overcapacity of service infrastructure (think public works), another is a high proportion of tax exempt property, a third is lack of commercial tax base, and finally what the pro growth guys are saying. – lack of scale. These plus others that are creating an imbalance in local costs and taxes

When your running at a loss, you can’t “make it up in volume”. Personally, I’d like to see leaders fix the cost structure and manage growth a little more strategically.

I’m glad you point out the combined tax effect.
Deborah Fulghieri
/ February 21, 2015

Rucker (wo-immer-das-ist) posts the 2007 Tischler Bise Student Generation Rates, which were specifically found to understate what is called “student generation.”

The 2014 School Adequate Public Facilities Ordinance Report, certified May 2014, http://www.orangecountync.gov/planning/documents/2014SAPFOTACReport.pdf on page 41 acknowledged, “Both Orange County and Chapel Hill Carrboro City Schools recognize a larger increase in students generated from developments in both districts, particularly the multi-family housing.”

The report acknowledges that it is time to initiate another study to ensure that up-to-date information is used for SAPFO and impact fee purposes.

Since the 2007 SAPFO understated student generation, especially for multi-family housing, rucker’s analysis based upon it is false.
rucker
/ February 21, 2015

Deborah,

It is unfair to categorize my calculations as “false” without offering some evidence to the contrary. I used the best available information and qualified that it was not a precise calculation. Its the best estimate I have seen using the best available data.

Yes, due to the anecdotal observation that a few communities have exceeded student generation projections, the School Board has asked to update the numbers. But they also acknowledge there are other communities that have generated fewer students than projected. Nobody really knows what has happened since 2007 since the last formal estimate was done. But even if they are 20% or 40% different, it doesn’t change the calculation enough to change the conclusion. It is a stretch to say that housing trends have changed more than that in the last 8 years.

One of the main reasons I decided to engage in this message board is that it has been repeated ad nauseam that apartments are revenue negative with absolutely no evidence to back that claim up. It has been repeated so many times here, by CHALT supporters, in Chapel Hill News letters, etc, that I fear the public and Council may start to believe it. It’s a convenient talking point if you are opposed to a project that contains apartments, but there is nothing supporting the claim and it doesn’t pass the logical sniff test.
Runner
/ February 21, 2015

Rucker

You don’t belong here. You are using facts to create opinion. Most posters here use their opinion to create facts.

This blog has become a “not in my backyard”…”we liked in better in the old days”…”Robert Stancil and Roger Perry control everything” whine fest.
Terri
/ February 22, 2015

It seems to me that two pieces of information are needed to determine whether anything is revenue positive, neutral or negative: The cost of services consumed and the revenue generated. Property tax is clearly the highest revenue generated for apartments and schools may be the highest cost service but it’s not the only service that needs to be considered. Presumably, apartment dwellers will depend heavily on transit and as we’ve learned recently CH Transit has not planned for capital expenses for a service with growing demand. Then there are social services which are also grossly underfunded.

Shouldn’t we have a much better grasp on costs before jumping to conclusions about benefits?
Deborah Fulghieri
/ February 22, 2015

rucker (w-y-R),
The 2014 Orange County planning document that I linked to IS the evidence. It is not an “anecdotal observation,” as you put it; it was based on actual, counted students in each of the schools in all of Orange County compared to several projection methods that were used to anticipate school use, and it shows that in the numerous tables shown in the report.

I used the word “false” in the mathematical sense (this is a college town).

I think in the end, the reasons for putting up type x or type y of housing should not be for the purpose of generating tax revenue, i.e. economic development as defined by TOCH. There is considerable demand for student housing near campus and considerable apartment building is taking place near campus. Building apartments in order to increase tax revenue is counterproductive. It assumes the 2 golden geese, CHCCS school district’s good reputation, and UNC/UNCH increasing employment, will continue and thus generate housing demand for apartments. But people want to live in houses if they can. Certainly every member of TOCH Council lives in a single family home, and those of them who once lived in multiunit housing made an informed choice based on experience. It would be nice to address this realistically.
rucker
/ February 22, 2015

Deborah,

You are making things up. There isn’t one shred of data in the 2014 SAPFO report about student generation from different housing types. The statement on page 41 is the definition of anecdotal. They think they have observed a trend but don’t have the numbers or any understanding of the causation if the observations are indeed true. It was so anecdotal that they didn’t recommend a change to the generation rates. They thought it might be a good idea to gather the data you claim are in the report, but aren’t.

More importantly, who has suggested that we should encourage apartment development for the tax revenues? I’ve never heard that. There are myriad reasons we need some new apartments, but that’s not one of them. We are having this conversation because those who are opposed to development including apartments have said that we shouldn’t approve them because they are revenue negative to Town finances. As I said previously, it has been repeated so many times on this blog and other outlets that people are starting to think there are data to support it, but there aren’t.

I don’t understand the two golden geese you reference at all. The quality of our school system has very little to do with apartment dwellers, because as we have covered, very few of them have school aged children even if the generation rates need some updating. And are you telling me employment growth at UNC and the hospital isn’t going to continue? When has it ever not grown? As long as our state and national population continue to grow, you can bet the University and hospital are going to keep growing.

People want to live in houses? Seriously? I have two young kids and live in a house, but the day they graduate high school, you better believe my wife and I are getting rid of our house. And much of my generation feels the same. I just hope there is an apartment or condo I can afford available then.

I guess Runner is right, sadly. Data that don’t support the anti-growth narrative have no place on this blog, CHALT meetings, or other places the vocal minority congregate. I’ll leave you all to your echo chamber.
Nancy Oates
/ February 22, 2015

Rucker —
“[W]ho has suggested that we should encourage apartment development for the tax revenues?” Answer: Roger Stancil, every applicant wanting to build or expand apartment buildings in the past few years, and 6 of 9 council members. The crux of this whole discussion is applicants, town staff and a majority of council members want us to believe that apartments will increase tax revenue. And read your own arguments about apartments being considered revenue-positive commercial property. But experts who have run the numbers say otherwise, and some of us believe the hard data from people who know this subject in depth.
rucker
/ February 22, 2015

Nancy,

Who are these experts? Where is this data? I’ve asked that in several of my previous posts with no response. Mr Schwartz has at least produced some studies that show suburban sprawl is revenue negative (I think we all know that). Nothing that analyzes different types of residential, though.

I follow local politics and have never seen any Town staff or Council Member argue for apartments for their tax value. I have only responded to misinformation, never suggested we should encourage apartments for their tax benefits. We just shouldn’t reject them based on frequently repeated statements made without basis.
Nancy Oates
/ February 22, 2015

Rucker — Watch the Town Council meetings as I do, and you will observe that at some point in the rezoning/SUP process the applicant, town staff or a council member, sometimes people from all three categories, gives an estimate of increased tax revenue by building the project. You’ll see it in 140 West, 123 West Franklin, Shortbread Lofts, The Graduate, Bicycle (now called Lux), Timber Hollow, Ephesus Fordham, Central West, The Edge, and on and on and on.

This back-and-forth we’re having reminds me of how Ronald Reagan, when confronted with a problem he didn’t know how to deal with, would chuckle softly and declare it not a problem.
rucker
/ February 22, 2015

Nancy,

I thought you had experts and data? How about a quote from a Council Member or staff? Repeat it enough times to each other in a room with your friends and you can start to believe anything.
David
/ February 22, 2015

Rucker,

Let’s consider your argument one statement one at a time:

1) We know that our percentage of tax revenue that generates no school children (commercial property tax) is extremely low at both the County and Town levels.

This is more true at Town level than at the County level. The imbalance between residential and commercial property is much greater for Chapel Hill and Carrboro than for Hillsborough or the rural County. But because Chapel Hill and Carrboro account for such a large proportion of the County’s total land valuation, the statement is generally true for the County as well.

2) We know that the schools must balance their budgets every year.

They balance their operational budget, which is mainly salaries and supplies. But you are omitting capital improvements, which includes repairs and upgrades to existing facilities and construction of new schools. Because these expenses are not incurred every year, and because the usable life of a new school will exceed the tenure of any given student who attends it, the accounting is a bit trickier, but I think it’s safe to say that these capital expenses are a significant proportion of the overall cost to the community of adding additional students to the population. Perhaps Bonnie or someone familiar with the County’s school finances can chime in and tell us how including capital expenses alters the calculation.

If you regularly read this blog, you know that we are about to get hit with a tax increase to raise the $125 million needed to carry out much-needed maintenance on existing school facilities, because in the past money in the budget that would have gone to maintenance has instead been diverted to build new schools necessitated by growth in the district’s student population.

This speaks to your statement that “. . . it seems highly unlikely that apartments could be revenue negative and the schools could still pay their bills.” The schools can’t pay their bills. That’s why our taxes are about to go up.

3) We estimate that apartments generate twice the revenue per student compared to single-family.

Talking about apartments as a general category is probably not all that useful for our purposes. Some apartment complexes, such as Shortbread Lofts or LUX, exclusively house undergraduates, and their student-generation rate is effectively zero. But others, such as Foxcroft or Notting Hill, have lots of families with kids. So when we are trying to determine the student-generation rate of a new apartment building, we need to know who is likely to be living there.

It is certainly possible to purposefully design apartments to have low student-generation rates by making them unappealing to families, such as by providing the units with only bedroom or restricting occupancy to those over 55 yrs of age, but that flies in the face of your desire for inclusiveness and diversity.

So, for the reasons discussed above, I’m not ready to concede that apartments in Chapel Hill are revenue neutral either with respect to school finances or with respect to Town and County expenses as a whole.

Some other considerations:

1. The Wake County Manager—not some neighborhood activist or fuzzy-headed anti-growth zealot—the friggin’ Wake County Manager says that growth never pays for itself. Unless you have reason to believe he is misinformed, or lying, or that he was misquoted, that really ought to be the end of the discussion.

2. Lots of apartments have been built in Chapel Hill in recent years. If they are revenue positive for the Town and County as you suggest, we ought either to have seen our taxes go down by now, or a significant increase in government services with taxes remaining the same. We’ve experienced neither.

3. See #1.

4. Your argument would be much more persuasive if you could adduce one or two examples of cities that did in fact improve their net fiscal position over the long term by building lots of mid-rise or high-rise apartment buildings. If apartments are revenue positive as you claim, examples should be easy to find.

5. See #1.

6. While apartments might be revenue positive under some circumstances, there is no question at all that retail, office, and industrial property is revenue positive, and much more so than any apartment building can ever be. So if, in fact, our goal is to promote new development that eases the tax burden on residential property owners, then we ought to be encouraging and approving those projects that give us the biggest fiscal bang for the buck, and not squandering the limited land we have available for new development on projects that, if they are revenue positive at all, are only mildly so.
rucker
/ February 23, 2015

David,

I have enjoyed the conversation with you. It sounds like we have arrived at the shared conclusion that apartments are revenue positive for Town operational expenses. The math is a bit fuzzier for the schools and whether it is a small winner or loser is dependent on a given projects form. I can live with that if you can.

I’m sure we will continue to disagree on what form of development we find desirable for reasons unrelated to municipal finances, and that is fine. Those are matters of opinion, not fact. However, as you have clearly gained the respect of people who agree with you on matters of development, I hope you will correct them when they make the erroneous statement, “we all know that apartments are revenue losers for the Town”. I will do the same if I ever hear a developer try and use a fiscal argument to push a family-friendly apartment proposal.

No need to beat this one to death, but please forgive me if a brief quote from the Wake County Manager doesn’t convince me. Even if he is the best county manager in the world, that is not a credential that gives him standing to make that statement without leaning on someone with expertise in economics and the research to back it up.
David Schwartz
/ February 23, 2015

Rucker,

I am more comfortable with the phrase, “apartments *can be* revenue positive for Town operational expenses,” but I accept your comment in the spirit of compromise in which it was intended.

I don’t think Jim Hartmann, the Wake County Manager, needs to lean on anyone. He has served as manager for several jurisdictions that have experienced rapid growth, including Alexandria, VA, and his statement presumably is based on what he himself observed.

But if you want to hear a card-carrying economist present evidence and analysis concerning the fiscal impacts of growth, mark your calendar for the evening of April 29. Dave Shreve will be speaking on the subject at the CH Public Library from 6-8 pm. I’ll be there, and if you attend, I hope you’ll come introduce yourself to me.

By the way, in one of your earlier posts to this thread you mentioned that you would oppose extending the town’s urban services boundary, by which I assume you mean you would oppose rezoning the rural buffer for higher density development. If that is, in fact, your position, you may want to start writing letters to the Mayor and Council, because, according to comments made at the recent annual Council retreat, several Council members seem to be entertaining the idea of opening the RB to development.
many
/ February 23, 2015

David,

Regarding the RB. would you oppose the expansion of the urban services boundary if a like area of RB were extended elsewhere in the county? In other words; is the RB cast in stone or does it have some elastic properties in a like-kind exchange?
Terri
/ February 23, 2015

The town of Chapel Hill cannot unilaterally open the rural boundary to development. The county has proposed some minor uses. Chapel Hill and Hillsborough were supportive of the plan; Carrboro was not. Unless all 4 groups agree, nothing will change.
many
/ February 23, 2015

I would still be interested in Davids position on the concept of the RB being fixed or elastic.

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