Making the most of Ephesus-Fordham

Last week, someone using the name Jon Miller wrote to Town Council, concerned that proposed changes to the Ephesus-Fordham form-based code would weaken it. I responded that the modifications would strengthen it — taxpayers have a $10 million loan to repay from increased net tax revenue, and the four projects planned or underway won’t generate sufficient, if any, net revenue. We need to encourage higher-value buildings. Former council candidate David Schwartz adds more detail to bolster my argument. Schwartz writes:

Council has been presented with projections that Village Plaza apartments — now called Alexan — will be revenue negative for Chapel Hill taxpayers. A year ago, Orange County planning staff conducted a fiscal impact analysis of the entire Ephesus-Fordham redevelopment and found it to be net revenue negative.

Read the staff memo here: http://www.orangecountync.gov/January_27__2015.pdf

Here’s the key passage:

“Based on information provided, the County would potentially receive incremental property tax revenues over three phases of the Project of approximately $14 million. County expenditures, based on current County financial policies and guidelines, would total $23 million prior to the requested debt contribution. After paying the requested debt contribution of $400,840 over 20 years, Attachment B-1 reflects Scenario 1 where the County would net a deficit of incremental tax revenues of $10.4 million. This scenario includes the cost impact of providing County services affected by the project, as well as the 48.1% target impact of General Fund revenues provided to Education, and the costs to fund the additional students in each phase of the project at the current per pupil amount of $3,571 per pupil.

After paying the requested debt contribution of $400,840 over 20 years, Attachment B-2 reflects Scenario 2 where the County would net a deficit of incremental tax revenues of $6.9 million. This scenario only includes the 48.1% target to Education and the costs of the additional students in each phase of the project.”

The Orange County analysis assumes that residential property accounts for around 60% of the total redevelopment. Because the apartment building is more than 90% residential, we can infer that this one project will be even more revenue negative than the Ephesus-Fordham redevelopment as a whole.

There is a widespread consensus among planners and economists that residential property, whether single family or multifamily, greenfield or infill, is revenue negative. No evidence exists to suggest that redevelopment in Chapel Hill is an exception.

If the appraised tax value of a dwelling unit is high enough — in Chapel Hill, probably more than $500,000 — a residence can be net positive. But almost all of the more than 5,000 new units already in the pipeline will have appraised values well below that break-even point. The County staff’s analysis of Ephesus-Fordham and the Town staff’s analysis of Obey Creek are probably the best guides for the likely fiscal impact of all this new housing.

Any residential land use, even very high-end housing, will be less fiscally beneficial than commercial or industrial land use. With residential property making up over 80% of Chapel Hill’s tax base, we need to encourage new development that does more than just break even; we need to be promoting development that generates revenue far in excess of the costs it imposes, and that means commercial/industrial. That’s why the Town Planning Commission has recommended that the residential component of any new development not exceed 33%.
– David Schwartz

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19 Comments

  1. DOM

     /  March 15, 2016

    “If the appraised tax value of a dwelling unit is high enough — in Chapel Hill, probably more than $500,000 — a residence can be net positive. But almost all of the more than 5,000 new units already in the pipeline will have appraised values well below that break-even point.”

    So, what Mr. Schwartz is saying is that, for any new residence to justify its presence in Chapel Hill, it has to be at least $500,000 in value. This means that only private homes built on a minimum third-acre lot should be allowed. If that isn’t elitism at its worst, please point out my error in coming to that conclusion.

  2. BikesBelongInCH

     /  March 15, 2016

    Would like to see the breakdown of break-even point vs. the type of residence. Finding it very hard to imagine that density does not play a huge role in this analysis. Cannot believe that a multi-family building does not have a substantially lower break-even point than single-family homes.

  3. DOM

     /  March 15, 2016

    “Cannot believe that a multi-family building does not have a substantially lower break-even point than single-family homes.”

    I think that’s because it’s definitely not so. Will the numbers behind the curtain please reveal themselves?

  4. Nancy

     /  March 15, 2016

    Bikes and DOM — People who live in multifamily housing still send their children to public school. They still use town parks & recreation facilities and programs. They still go to the library. They still ride public transportation, and they drive cars along town roads that need to be maintained, plowed in the winter and cleared of leaves and debris. They still call the police, and they sometimes need million-dollar fire trucks with extra round-the-clock staff because their buildings are so tall. Just a few reasons poking out behind the curtain.

  5. TERRY D.

     /  March 15, 2016

    So, taking that rationale a step further, only allowing construction of $6,000,000 homes on 3 acre lots would be the ideal solution to our tax problem. That would make many people who already have their piece of the southern part of heaven very happy; their houses would just keep going up in value.

    Shutting down high-density multi-family only helps people who already live here. I for one would like to see a lot more diversity and vitality than we have now.

  6. Bikes,

    It may well be that apartments in general have a lower break-even point than do single family homes. High-density housing requires less road, water and sewer infrastructure than does an equivalent amount of lower density housing, and apartments typically generate fewer school children than do single family homes. But apartments can have a lower break-even point and still be revenue negative, because they also generate less property tax revenue than do single family homes, i.e., they tend to have lower appraised value than do single family homes. And neither I nor Nancy are suggesting that, instead of building thousands of new apartments, Chapel Hill should be adding thousands of new single family homes.

    The claim that the Alexan apartments in particular and the Ephesus-Fordham redevelopment in general will produce a fiscal deficit comes not from me but from Orange County planning staff. I encourage you to read the fiscal impact memo (there’s a link to it in the blog post) and assess whether the staff’s cost and revenue assumptions seem reasonable.

    I recently found a sophisticated, unpublished, fiscal impact study based on data from Florida which found that, while single family homes and condominiums produce fiscal deficit, multifamily housing is fiscally neutral (http://coss.fsu.edu/keith-ihlanfeldt/wp-content/uploads/2015/04/The-Fiscal-Impacts-of-Alternative-Land-Uses.pdf). However, the study did not include capital or operational expenditures associated with the public schools.

    As I said in the blog post, approving new development that simply breaks even isn’t good enough. The only way we are going to be able to slow the growth of residential property taxes and make it possible for middle- and lower-income homeowners to be able to remain in Chapel Hill is to bias new development toward land uses that generate revenue well in excess of the costs they incur.

    This is not a new idea; it has been the town’s official economic development policy for a decade. But there has been a disconnect between our elected officials’ stated goals in this regard and their actions.

  7. Bruce Springsteen

     /  March 16, 2016

    Okay, I’ve got the solution. We could tear down all the houses in town and build one $1,000,000,000,000 house on 1,000,000 acres and all our revenue problems will be solved. Plus we’d have the most walkable town anywhere.

    But seriously, I hate to say it but this is to some degree a “closing the barn door after the horse is out” kind of thing. Surrounding counties have been putting up businesses right on our doorstep for years and those business are established and successful and unless new businesses in town offer a better deal, people won’t shop at the new businesses. Sure, we can put in some new niche businesses that will do well, but the low hanging fruit of high volume businesses selling things people need to live are already spoken for.

  8. DOM

     /  March 16, 2016

    I find it so ironic that the same contingent that was so against commercial development in the past twenty years is now claiming it’s the only solution.

    During the Central West small area plan discussions in 2013, the most vocal of the “concerned citizens” claimed that any serious retail/commercial was inappropriate for the area. Same with almost all the other Future Focus areas that were identified during the 2020 process back in 2012

  9. rucker

     /  March 16, 2016

    DOM, now that the ship has mostly sailed on commercial development for Chapel Hill and its very difficult if not almost impossible to pull off on any sizeable scale, it’s safe for this contingent to now be “all in” on it. LOL

  10. Nancy

     /  March 16, 2016

    DOM, the real irony is the Chapel Hill-Carrboro Chamber of Commerce trying to limit commercial development in Ephesus-Fordham by objecting to tweaks that make form-based code conducive to high-value commercial development. Fortunately, voters elected a few of us to council who are supportive of increased commercial development, something CHALT, for instance, has been trumpeting since it was formed.

  11. anon

     /  March 16, 2016

    the largest single item is education in our tax bill.
    that’s one of the two reasons commercial is “desired” =
    no kids to send to school although they pay school tax.

    And the reality is that yes, 2 people in a 10 million dollar house are going to be more tax revenue positive than 2 people in a $100,000 house. That is not saying the priority should be only have expensive houses, but reality is reality.

    Also, usually the developers pay for water and sewer installation so compactness in itself is not a big money saver for the town.

  12. anon

     /  March 16, 2016

    @rucker

    people were pretty vocal that the Edge was a great spot right at I-40 for massive commercial and was a travesty to put mostly residential there.

    it was the voted out folks that captained the Edge ship out of town

  13. plurimus

     /  March 16, 2016

    Why is it that when someone says commercial, people think retail? I think retail is on shaky ground due to the growth of online shopping.

    To me, commercial should be focused on office space, light manufacturing and R&D lab space. The town then becomes somewhat of a campus environment for many small innovative business that take advantage of the changes in the economy and technology, have a model that no longer needs the floor space of the size built in RTP.

  14. Nancy wrote, “The real irony is the Chapel Hill-Carrboro Chamber of Commerce trying to limit commercial development in Ephesus-Fordham by objecting to tweaks that make form-based code conducive to high-value commercial development.”

    It’s only ironic if you imagine that the Chamber is sincerely interested in promoting broad community prosperity. But surely no one, not even Rucker, is that naive.

  15. DOM

     /  March 16, 2016

    “Fortunately, voters elected a few of us to council who are supportive of increased commercial development, something CHALT, for instance, has been trumpeting since it was formed.”

    Nancy, I’m afraid I have to agree with rucker’s statement that it’s now safe for [CHALT] to be all in on commercial development. CHALT was formed as a direct result of its founding members’ failure to stop any meaningful development during the Central West committee’s year-long efforts. Throughout the process, that small minority opposed almost any meaningful retail and/or commercial there and that’s why the majority of the small area plan calls for mostly high-density residential.

  16. Nancy

     /  March 16, 2016

    DOM, if you are one of the organizers of CHALT, of course I’ll defer to your insider knowledge. Otherwise, please know that CHALT caught my attention because it was a group of folks who understand that if we don’t increase the commercial tax base, residential property taxes are going to price out all but the very wealthy. Many people don’t understand why our residential property taxes are so high, and I felt so relieved to know that here was a group of people who understood and was advocating for change.

  17. DOM

     /  March 17, 2016

    Nancy –

    So in your opinion, do we curtail any further residential growth (with the exception of $500K+ single family homes) until we grow the commercial tax base?

  18. Nancy

     /  March 17, 2016

    DOM, I think part of the reason I was elected was that I don’t deal in absolutes. I see the need for flexibility and understand that a proposal may work in some situations but not in others. That said, we have 6,500 residences already approved to build. At Chapel Hill’s historical growth rate, that’s a 20-year supply of housing. It’s time now to put similar energy into encouraging growth in the commercial sector. It’s the low-hanging fruit to afford quality-of-life places and services (parkland, shoveled sidewalks) without raising taxes.

  19. DOM

     /  March 17, 2016

    Nancy, I’m glad to hear you’re open to new ideas and don’t deal in absolutes.

    I hope you can understand why some folks would be concerned by CHALT’s somewhat rigid stance on any new projects in town.

    As I mentioned in an earlier post, the forbears of the current CHALT leadership were very active in trying to keep any meaningful development possibilities out of the Central West small area plan.

    At one point, they presented an alternative “Citizen’s Plan” that recommended a maximum of just nine houses (that means 2/3 acre per unit!) on a tract of land that may eventually serve as an assisted living facility for seniors at costs substantially more economical than any other options in Chapel Hill.

    I’ll let you decide which of those alternatives is better for Chapel Hill’s future.

    Unless we remain open to new ideas and out-of-the-box opportunities, we are destined to become one large gated community that serves a limited number and type of people.

    Again, it’s very uplifting to hear you’re open and flexible to those new ideas and opportunities!

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