Smart shoppers

As a value shopper, I perked up my ears at economist David Shreve’s message Nancy Oatesthat we should choose new development projects because we want what they will bring to the town, not because we mistakenly think they will bring in additional revenue.

Shreve, president of Advocates for a Sustainable Albemarle Population and a former professor of economic policy at the University of Virginia, spoke at the library last week in a lecture sponsored by the community advocacy group Chapel Hill Alliance for a Livable Town (CHALT). He lives in the Albemarle County town in Virginia of Charlottesville, a college town about the same size as Chapel Hill that shares many similarities to us. As a member of Albemarle County’s Economic Development Authority, he pays close attention to development issues and has been involved in a major study of the costs of growth.

The study revealed that the only types of land use that bring in more tax revenue than a municipality spends in services are office/retail, light industrial and agriculture, and that assumes that those uses do not increase population. Often businesses relocating to a new town will bring their own people to fill the higher-paying jobs and sometimes have to recruit from surrounding towns to fill their lower-paying positions.

When it comes to residential development, the high-rise, high-rent apartment buildings that Dwight Bassett and Chamber of Commerce representatives believe to be revenue positive actually cost almost twice as much in services for every dollar brought in from property taxes.

The Charlottesville study calculated a break-even point of what a home would have to cost in order to generate enough tax revenue to pay for the services it needs: $668,671. Shreve said Chapel Hill’s break-even point likely would be similar.

Shreve’s numbers show what the technical team hired during the Glen Lennox approval process already presented to Town Council, and what economists, urban planners and the Wake County manager all know to be true: We can’t grow ourselves out of debt.

Every town has an optimal population, and Shreve encouraged Chapel Hill leaders to figure out what that number is and build that optimal size into the town’s planning process.

Because Charlottesville is surrounded by mountains, it has had to plan its growth thoughtfully. It doesn’t have the luxury of sending its citizens to the next town over to shop or shoving its low-wage workers out to commute from another county to find housing. It pays attention to what each development costs in terms of tax dollars and natural resources. All cities depend on places that aren’t cities to get their clean water, clean air and food. Shreve advocated for placing the economy in the natural world, not the other way around.

When it comes to new development, our elected officials need to remember that we are the customers. It’s up to developers to offer us products that meet our needs. Otherwise, we’re not buying.

To view the presentation, go to: https://vimeo.com/album/3375157/sort:preset/format:detail.
– Nancy Oates

Share and Enjoy:
  • Print
  • Digg
  • StumbleUpon
  • del.icio.us
  • Facebook
  • Yahoo! Buzz
  • Twitter
  • Google Bookmarks
Leave a comment

30 Comments

  1. Tom field

     /  May 5, 2015

    Unfortunately the Council is always in apologetic mode as developers moan about their costs and can’t understand why we we don’t want their bright, ugly new projects designed to make the developer richer and the town poorer. Particularly offensive is Roger Perry who self-righteously expects our respect and praise for selfishly profiting at the town’s expense.

  2. Don Evans

     /  May 5, 2015

    How long can Dwight Bassett continue to give the town bad advice and keep his job?

    I guess for as long as the Town Council continues to buy into the Roger Perry philosophy of development for the developers, not the town’s residents.

  3. many

     /  May 5, 2015

    Poor Roger, the Rodney Dangerfield of Chapel Hill developers. Roger is in business to make money which is his corporation’s primary function. Roger is the poster child, but not the root cause for what is wrong with the whole picture. Simply blaming Roger, misses the point; which is if you rely on developers to self-police; you will ultimately get North Raleigh……or worse. It’s the Town that is supposed to weigh the puts and takes as representatives of the citizens. Town planning, the manager, the mayor, the town council and ultimately the voters are responsible, that is Nancy’s point.

    All in all, Roger has some decent projects. That is why they sell. Roger’s developments realize the market of residential and small boutique shopping at the fringes of Chapel Hill, so the big box stores are still conveniently right across the line, but out of reach from the local taxes, keeping the cost but not the tax revenue in town (why is it that this picture is never painted when people discuss sustainability?). Roger (and some other misguided individuals) also promote light rail making it easier to import the lower wage worker and at the same time export tax revenue. No wonder infrastructure (e.g. storm water, transportation, fire, police, school facilities, bike trails) are decaying and getting worse.

    The town refuses to, or is incapable of developing and promoting a plan or holding out for a vision that leverages the employment, values and quality of life strengths of this university town, instead choosing to clear the way for the path of least resistance. Letting the wish be the father of the thought; they fail to acknowledge the disconnect created by not balancing commercial development with residential all along. Then they are surprised and in panic mode over tax shortfalls created by the infrastructure needs while at the same time wailing on about affordability and overreacting when citizens question their decisions.

  4. Terri

     /  May 6, 2015

    Roger appeals to the social-consciousness of the council members. He gives them some of what they want, affordable housing units, without argument and then gets the rest of what he wants. And council doesn’t seem to understand that the higher costs for his ‘not affordable’ units has meant that EWP is a major contributor to the unacknowledged pressure on middle income housing. Roger is a smart and creative negotiator. Can’t say the same for the other end of the negotiating.

  5. Nancy

     /  May 6, 2015

    Agreed that Perry is a great negotiator, and he is eating council for lunch. For all council’s talk about affordable housing, do we have even one unit more than we did since Zinn built affordable houses in Larkspur more than 10 years ago?

  6. Joey

     /  May 6, 2015

    Since 2000 CARRBORO has added +- 110 affordable housing units and +- 150 size limited units. Claremont, Winmore, Ballentine, Pacifica, etc.

    Chapel Hill has added Greenbridge, Montclair, probably more…

  7. Terri

     /  May 6, 2015

    Joey–how many affordable housing units have been lost in that same time frame?

  8. Joey

     /  May 6, 2015

    What do you mean by lost?

  9. Terri

     /  May 6, 2015

    Northside used to be full of affordable homes, not anymore. Collins Crossing used to be affordable, not so much anymore. Gentrification is changing the profile of the community. When we lose more than is created, it’s a net loss that needs to be acknowledged.

  10. Joey

     /  May 6, 2015

    Now Northside is full of affordable student rentals!

  11. Nancy

     /  May 6, 2015

    As a for instance, Eller Capital bought 3 apartment complexes in Chapel Hill that housed graduate students, teachers, and moderate-income families, as well as some Section 8 recipients. Eller does not accept Section 8, so all of those people had to move, and Eller doubled the rents as it renovated, pushing many more people out.

    As for Northside’s “affordable” student rentals, they are only affordable if more tenants than are legally allowed live there. Those illegal rentals often pose a safety hazard to students because there aren’t sufficient exits and no smoke alarms or sprinkler systems. Modest homes that rent for $2,400-$3,400 a month aren’t affordable.

  12. anon

     /  May 7, 2015

    council doesn’t have to rezone , they choose to, usually getting a ton more residential than otherwise legally possible. My advice to council is learn to vote no.
    The edge was as “ideal” a location left for big commercial or office in chapel hill but instead will be a huge residential expansion from what’s there currently (empty land or a couple houses).
    The breadman lot will likely have no more commercial square footage than what’s there now, but will probably multiply residential square footage a lot. UNC has the space on it’s own land to house all its undergrads, why the town explicitly wants to rezone current commercial to undergrad housing is silly.

  13. David Schwartz

     /  May 7, 2015

    anon,

    The council’s action is silly only with respect to the town’s long-term public interest. In the short term, they will be able to point to a shiny new building on what they will say was previously a “blighted” area, increased property valuations, and thus increased tax revenues. The costs, fiscal and otherwise, will only become apparent later, and so are discounted, if they are considered at all.

  14. many

     /  May 7, 2015

    Competition and choice that are the essential parts of classical supply and demand is all at the high end in Chapel Hill.

    Chapel Hills small size and limited area for development, land use rules and neighborhood concerns drive the supply model toward high end low density. Low vacancy rates driven by student demand drives investment in small multi-tenant housing which is generally unsuitable for families. Higher taxes and fees in Chapel Hill are regressive to those at lower income levels. In commuting (despite what TTA would have you believe) is not a major factor in the cost differential between Chapel Hill and other markets.

  15. David Schwartz

     /  May 7, 2015

    “Chapel Hills small size and limited area for development, land use rules and neighborhood concerns drive the supply model toward high end low density.”

    many,

    We actually have a fair amount of affordable single-family housing in Chapel Hill, much of it built—and built well—between 1950 and 1990. One-third of the single family homes in Chapel Hill (about 4000 units) are valued at less than $250,000, which is within reach of households earning the median area income. Problem is, a very large percentage of these homes are not available for moderate income households to purchase because they are now investor-owned student rentals. Half the UNC student population lives off-campus. If UNC were to house the same proportion of its students on campus as does Duke (80%), we would see a significant increase in the town’s supply of moderately priced single-family homes without having to cut down a single tree.

  16. many

     /  May 7, 2015

    David,

    I was speaking of recent trends and rental housing. I think you will agree that $250K buys a lot more house and less taxes in neighboring towns and you seem to agree that Mr. Market is saying a $250K investment is better made in student housing than in family housing.

    Duke and UNC are not a like comparison. Duke has a student population less than 1/3rd that of UNC, and I dare say Duke students are generally from means greater than UNC students.

  17. Mark Marcoplos

     /  May 7, 2015

    It’s cheaper for students to live off campus. Plus they have more freedom. Can cook their own food. No TA’s.

  18. David Schwartz

     /  May 7, 2015

    many,

    I do agree that $250K buys more house and lower taxes in neighboring town that have a stronger commercial tax base relative to their population, and it’s a bit of a puzzle. The principle of capitalization holds that, all else being equal, higher taxes should be reflected in lower purchase prices, i.e., rational buyers should be willing to pay more for a house in a lower tax jurisdiction than for the same house in a higher tax jurisdiction. But in Chapel Hill we find enough people willing to pay high home prices for the privilege of paying high taxes. Doesn’t make sense.

    As the perceived quality of life and of schools in neighboring lower-tax towns improves, fewer people may be willing to pay the premium to live in Chapel Hill, and our home prices may fall in the way that the principle of capitalization predicts. That would be bad for investors and Realtors, but good for home buyers that value the government services our high taxes support.

  19. many

     /  May 7, 2015

    Hi David,

    I agree the market is upside down in the sense you describe and I agree with the likely market equilibrium scenario you outline.

    Unfortunately what I also see is a degradation in the government services as I outlined in my earlier post (and perhaps it’s also that other areas services are catching up). I also see a lack of leadership recognition about what makes Chapel Hill unique in the area and how to differentiate that difference, resulting in housing becoming more fungible.

    As Nancy points out, I think this primarily due to group think on the part of the town council. I would also go further to say it is due to what amounts to a one party electoral system with some of the most powerful and longest serving beginning as appointed incumbents.

  20. David

     /  May 7, 2015

    “it is due to what amounts to a one party electoral system with some of the most powerful and longest serving beginning as appointed incumbents.”

    We’re working on changing that. The council now has an opportunity to appoint someone to Matt’s seat who does recognize what makes CH unique in the area and how to enhance rather than dilute that difference, or, better yet, they can leave the seat vacant and let the people decide in November who should represent them.

  21. Bruce Springsteen

     /  May 8, 2015

    Matt C was different from the rest of TC so why would the TC appoint someone like Matt C instead of like themselves?

    And as far as TC leaving the seat vacant for the voters to decide in November, there is precedent for TC to appoint someone to the empty seat and then let them run with the advantage of incumbency come election-time so given that they did it the last time they had the chance I don’t see why they wouldn’t do it again. At the meeting recently where each candidate wanting the Matt C vacant seat spoke their piece they all said they’d run in November (one candidate was absent from that meeting) so I think it’s obvious that TC is going to appoint whoever they like best with the idea that that person will pretty much be able to stay on TC as long as they wish.

  22. Bruce Springsteen

     /  May 8, 2015

    David Schwartz, the reason all things aren’t equal with respect to CH and neighboring towns is because neighboring towns aren’t the home to UNC. Anything is worth a lot more if it’s close to UNC. There are a bunch of million dollar houses within a mile of UNC that wouldn’t be worth half that if UNC was somewhere other than Chapel Hill. Proximity to UNC is a big factor especially since whatever supply there is is kept limited.

    That said, I think UNC can only take you so far in terms of housing prices. Someone checking numbers would know better but it’s my perception from talking to people that the housing market outside CH has picked up more than the housing market inside CH the last year or two. People will pay a premium to a certain degree but when the premium becomes too high they won’t pay it any more and I think that’s reflected in the variations in the bounce back of the housing market.

    In a separate note, I realize it’s probably bad form to complain about a characteristic of a message board that someone provides to you for free but it would be nice if there was a “Reply” button so that when you address a post of an earlier post you could just hit “Reply” and everyone could see what you’re replying to instead of having to name the person you’re replying to at the beginning of each post.

  23. David

     /  May 8, 2015

    Consider what will happen if the relative attractiveness of Chapel Hill falls to the point that home values here not only fail to keep up, percentage-wise, with values in neighboring communities, but actually decrease in absolute terms. Residential property tax revenue will decrease, and the tax rate will need to be increased simply to maintain the current expenditure level, let alone increase it. The increased tax rates will further depress home prices, which will necessitate further tax rate increases or service reductions, and so on in a vicious circle.

    I think there is a real risk of something like this happening if we don’t get new folks on council who have a firmer grasp of the complex dynamics of economics and finance and who consequently are less prone to simply parrot and embrace the superficial and often erroneous assertions fed to them by folks like Aaron Nelson of the Chamber.

    An example: I lost faith in Mark Kleinschmidt’s leadership a little over a year ago when he looked me in the eye and asserted with no trace of irony that apartments are commercial, not residential property, so that the construction of seven-story apartment buildings throughout Ephesus-Fordham would be consistent with the goal of expanding the nonresidential tax base.

  24. many

     /  May 8, 2015

    “Matt C was different from the rest of TC so why would the TC appoint someone like Matt C instead of like themselves?”

    Exactly.

    While I support Verla, Valerie, Graig etc and think they are good leaders. The complaint I have is that the policy of appointments (All of the above were appointed at one time) seems to undermine an essential democratic principle. I do not know of a solution other than to leave vacant positions open, but the appointment game has always bothered me and I think it tends to discourage competition, choice and promote the group think Nancy pointed to. Given the greater diversity at the state level, group think is less of an issue, but in town I think it is definitely an issue.

    Chapel Hill has some hard decisions ahead of it. It needs to move forward but at the same time leverage what it is. UNC is on the ropes from scandal and the political changes in Raleigh. The tax base is being compromised by nearby municipalities that have already seen, planned and implemented change, developers are nibbling away at the edges of what makes Chapel Hill unique unchecked.

    No, its not all doom and gloom. Chapel Hill is very lucky to be wealthy in money, spirit and intelligence. What we need are elected officials willing and able to think differently and communicate that different thought effectively.

    Communicating the need for change, coming up with a vision/direction so people can make plans, then making it happen will take leadership, debate and questioning on the part of the town council and I for one just do not see it.

  25. Bruce Springsteen

     /  May 8, 2015

    I think to a degree that is already what has happened (high residential taxes eventually beget even higher taxes). CH can get away with it because of the fact that UNC is located here guarantees a constant injection of money from the outside. (It’s interesting how the people that are so pro-local about everything don’t have a problem with the giant non-local thing the entire town centers around.)

  26. David Schwartz

     /  May 8, 2015

    many,

    I hope that you are encouraging residents who you feel would contribute the needed leadership, debate, and questioning to run for council this fall. Have you considered standing for election yourself?

  27. David Schwartz

     /  May 8, 2015

    Bruce,

    When Dave Shreve spoke here last week he argued that progressive redistribution is essential to the successful and sustainable functioning of a capitalist economy, an idea he traced all the way back to Adam Smith. He went on to say that one of the reasons that college towns have historically been insulated from shocks to the larger economy is because their local economies are based on redistribution in the form of tuition, state allocations, and, increasingly, government grants.

  28. many

     /  May 8, 2015

    Hi David,

    I encourage choice as much as I am able. Choice of political candidates (leadership) being no exception.

    I am not cut out to run for office, I have a face made for radio. I volunteer a lot though and I really like working in my community at the local grass roots level.

    I agree with Shreve’s analysis of college town social history and that is one reason I love living here. What leadership needs to include in their calculus though, is that increasing connectivity, big data, analytics and the internet of intranets (some call it the internet of things) is a highly disruptive economic force (more so that the industrial revolution) and higher education is not immune. I suspect that as John Chambers said (in the late 1990s) the next “killer app” is education. University towns can either embrace it or ignore it at their own peril.

    Taxes are a similar issue. How much of that commercial tax base will still be valuable when people are buying everything online? Will we move to point of use rather than point of sale taxes? Probably, but how will that affect municipalities? I posit that the amount of local taxes being avoided by online shopping is almost as significant as those shopping across the line already and it is growing.

    Point is; we are not planning for what we expect and I find that disturbing.

  29. David

     /  May 9, 2015

    many,

    Another thing Shreve mentioned is that property taxes are a relic from a time when most wealth took the form of land and real property and that it’s nowadays a regressive and inefficient form of raising revenue to fund government. He argues that local jurisdictions should do as the federal and state governments have done and switch to a progressive income tax.

    Here in NC we would need authorization from the state legislature to levy an income tax, and I can’t imagine the current general assembly embracing the idea, but it’s worth pondering what current problems would dissolve and what new ones would arise if we made such a switch.

    For example, if we funded town government via income taxes instead of property taxes, we wouldn’t have so many low-wealth, low-income residents leaving town because of their inability to pay taxes on houses that have appreciated in value (e.g., Northside).

  30. many

     /  May 9, 2015

    Interesting viewpoint. I think a mostly true observation about property taxes, although corporations and franchises are probably not included in Shreve’s statement.

    When it comes to income taxes I see the opposite occurring in this state and elsewhere.

    The IRS is in the process of being eviscerated. NCLeg has made some pretty substantial tax rate reductions intended to encourage economic development. Increasingly, only higher income payroll workers pay income tax (not to be confused with payroll taxes which go to Social Security and Medicare insurances). Credits or outright cash is given to lower income families.

    More and more, taxes and fees are paid at the point of sale or transaction and there is pressure to increase the number of items sales tax is paid on.

    Despite the EU being a poster child for bad economic decisions, we seem to be drifting toward some form a simpler (and more easily enforced) consumption VAT or GST in an attempt to collect a tax at each point of production. (note I said simpler, not better or less).

    I am not at all sure there is a single reason Northside residents are selling out. For example, I suspect it is the aging of the population and the ability to sell at a premium and purchase better elsewhere as much as an inability to pay taxes (although they are high).

    I wholeheartedly support the notion of an ongoing dialog about what problems would dissolve and what new ones would arise under a few likely upcoming scenarios. I suggest Chapel Hill is a unique place where the UNC School of Government, economists (such as Karl Smith), technologies (someone the caliber of Fred Brooks, or Brooks himself) and Chapel Hill Township could partner, coming up with concrete directions benefiting both. (for example, in the shadow of pending advancements in transportation technology and changes in the way we work and shop, a 3 billion dollar 17 mile light rail might not emerge as a recommendation)

Leave a Reply

Your email address will not be published. Required fields are marked *