Wednesday, June 22, 2011

Moving Forward: Transportation policy is housing policy

by Jeffrey Lubell, Executive Director of the Center for Housing Policy

I have been struck lately by the confluence of two trends:

1. Housing affordability problems are worsening. HUD recently reported that the number of very low-income renter households with worst case needs increased by 20 percent in just two years. The Center for Housing Policy similarly found that housing affordability problems have worsened for working renters and owners. (A brief summary of both reports is available here.)

2. Budgetary pressures are increasing. The talk in Congress is about cutting discretionary spending, not adding to it. To state the obvious, there simply is no political will right now to substantially increase funding for government housing programs to meet the nation's growing housing challenges.

So what can we do?

There are a number of different ways to approach this question. I'd like to focus on one—the development of strategies for effectively assisting more families with available funding.

In thinking through some of the initial ideas I have for doing more with available funding, I've noticed they have three things in common:
  • First and foremost, they all involve working across silos to achieve a set of goals shared by multiple policy communities and constituencies - for example, housing and asset-building, housing and the environment, or housing and transportation. Bridging these silos is obviously very difficult, but also critical for developing more comprehensive solutions and expanding the base of political support for needed changes.
  • Second, they all involve a form of "value capture," taking advantage of expected changes in property values or incomes to implement solutions that are paid for in whole or in part by those increases.
  • Third, they all require thinking very differently about some aspect of current practice.

Bus, cars and cyclist sharing a street

Here's one specific idea: In many (but not all) cases, the development of new transit stations or lines leads to higher housing prices as developers bid up the price of land around planned stations and develop higher-priced housing. (See, for example, this recent report from the Dukakis Center for Urban and Regional Policy at Northeastern.) There are undeniably some environmental and economic benefits to this form of reinvestment. But in my view we can do better. Much better.

Imagine if before construction began on the transit line, a proactive housing strategy were developed to ensure that families of all incomes could afford to live within walking distance of the stations expected to experience residential development. The strategy might focus on some or all of the following elements:
Such an approach would have many benefits—reducing displacement of existing residents, maximizing ridership for the transit line, ensuring that families of all incomes have equitable access to the new transit service, and reducing energy use and greenhouse gas emissions by increasing the number of residents that live within walking distance of the transit stations. Moreover, if adopted early enough in the process, much of the costs of the strategy could be paid for through "value capture." For example, a community might offer a 30% increase in residential density in exchange for a commitment by owners to ensure that 15% of the units are affordable over the long term to moderate-income households. Or a community might dedicate 20% of the revenue from a planned tax increment district to fund affordable housing. Remaining costs could be met by prioritizing these locations for a portion of existing housing resources.

Such a strategy is much more cost-effective if put in place early, before land prices rise. More often than not, however, the political will to adopt a comprehensive housing strategy does not materialize until after the station has been built and housing prices have risen dramatically.

Fortunately, there's a relatively straightforward fix to this timing problem that would carry little or no cost to the federal government and may well save local communities money over the long run. Through the New Starts program, the Federal Transit Administration (FTA) awards funds to state, regional and local agencies to cover a portion of the costs of major public transit investments. By modifying the New Starts competition to reward applicants that commit to developing and implementing an effective housing strategy to ensure that families of all incomes can afford to live near planned stations over the long term, the FTA could create a strong incentive for communities to create effective housing plans early in the process, when low-cost solutions are still feasible.

Changing the New Starts award criteria would carry no out-of-pocket costs for the federal government. It would be desirable, however, to make a small amount of funding available to New Starts applicants to help them coordinate the development of an effective housing strategy as housing is unlikely to be their forte and they will need to work with many different local agencies to pull together an effective strategy. Among other approaches, this could be accomplished by prioritizing New Starts applicants for HUD's Sustainable Communities planning grants or other existing resources.

So that's one idea for how to do more with available funding. In this case, it turns out that a modest change in transportation policy would have major benefits for affordable housing. But it's a win-win for all, advancing transportation and environmental goals as well.

I plan to share other ideas for 'doing more with available funding' in my next few columns and then broaden the focus in future columns to consider different ways to think about the federal role in housing (in contrast to the roles of states and localities) and long-term market and demographic trends worth keeping an eye on.

In the meantime, please join the conversation by commenting on this post!

Moving Forward is a new monthly column about ideas for the future of U.S. housing policy by Jeffrey Lubell, Executive Director of the Center for Housing Policy. The column offers perspectives on the government role in housing and on broader housing market trends likely to shape future housing policy.


Tony Pickett said...

Atlanta is now using a strategic affordable housing and transit investment linkage to avoid gentrification and provide long term affordable housing. We use TIF funds for affordable housing development along the Atlanta Beltline redevelopment corridor which includes new transit, parks and multi-use trails in a 22-mile loop around downtown Atlanta. Approximately $240 million of Atlanta Beltline TIF funding will be set aside into an affordable housing trust fund for the purpose of building workforce housing units. This commitment is estimated to create as many as 5,600 new affordable workforce housing units inside the Atlanta BeltLine area. The new Atlanta Land Trust Collaborative is now implementing Community Land Trust organizations in BeltLine neighborhoods to achieve financially sustainable, high quality, permanently affordable housing.

Patti said...

I agreed with your idea to look for comprehensive solutions. In particular, your idea to include a housing strategy requirement in New Starts is an excellent beginning. How that would be accomplished to benefit both urban and suburban, and even rural communities, would have to be worked out. There would have to be a commitment on the local level to actually carry out a housing strategy and some kind of documentation on the capacity to do so. Would extra credit be given for areas that have a greater need for affordable housing?

Having recently worked in transportation, and now in affordable housing, I really like the concept, but know there are a lot of details to be worked out to make it feasible. Transportaion planning has connected to land use issues in the recent decades, so it doesn't seem impossible to coordinate with housing as well.

Barbara Samuels said...

Jeff's idea is brilliant for those cities and regions that see development pressures, gentrification, and loss of affordable housing result from new transit lines. But as Jeff notes, transit simply hasn't had that result in all cities and regions, and in many places subsidized housing is already concentrated in distressed areas with transit but little economic activity. Even in the best case for TOD, the number of affordable units generated by a TOD project is remarkably small (usually just 10% of units) with the number reserved for very low income households even fewer.

So we need to think beyond the TOD box and fixed rail when thinking about linking housing and transportation policy as a means to expand affordable housing opportunities. We need to also think about cost-effective ways to bring bus lines to residential and economic activity centers, many in the suburbs, that are now unserved or underserved by transit, and connect them to each other and to fixed rail. In other words "development oriented transit" or "DOT."

In every region, there are residential areas with sufficient density to support bus transit, strong schools and rental housing priced within the reach of HUD Fair Market Rents and hence families with housing vouchers. By all sound principles of transportation planning these areas should be served by buses but are bypassed, sometimes due to NIMBY opposition to transit in the suburbs, if not outright exclusionary motivations. Sometimes its just due to the fact that bus lines have remained static for decades, funneling commuters downtown rather than connecting decentralized job and housing activity centers.

In a tight budget climate, we can no longer afford to underutilize existing transit resources. We need to start by tweaking existing bus lines to serve nearby but currently unserved residential developments and employment sites.

So while we are advocating for TOD, let's not forget the parts of the country that don't face transit-related gentrification, or the low-income families that won't be served by the small percentage of units in TOD projects. Let's put at least as much emphasis on using the flexible and relatively cost-effectiveness of existing bus lines to improve connectivity and to open up access to relatively affordable housing that already exists in high opportunity, high growth activity centers.

Scott Davis said...

This artical was exciting to me because I've been hearing the same thing in my Graduate studies. I totally agree with affordable housing being in TODs, and I would like to see 1 affordable unit to every ten market rate units or better. It would be good to have as many cooridoors for natural habitats as possible.

Sarah said...

Jeff, Thank you for sharing your ideas in a thought-provoking way. We look forward to future articles.

Jeffrey Lubell said...

Thanks, Tony, Patti, and Barbara for your comments on my post. Some quick feedback:

Tony -- I've been very impressed with Atlanta's efforts to plan for affordable housing to be integrated into development around the Beltline. I am looking forward to your implementation of the community land trust model as I believe that long-term affordability is essential to efforts to ensure that low- and moderate-income families have continued access to desirable neighborhoods near transit and job centers as property values rise over time.

Links to info on Atlanta's model may be found here.

Patti -- I agree that the implementation of this idea will take some work, particularly to adapt it to different types of housing markets. One specific idea for implementing this suggestion was proposed in comments submitted to FTA by Enterprise Community Partners, Habitat for Humanity Int'l, and the National Housing Conference. An overview is here. More detail may be found in Appendix B here.

Barbara -- You're absolutely right that ensuring affordability is built into gentrifying neighborhoods near transit is only part of the solution. I'll look forward to discussing further your ideas for bringing better transit service to areas with existing affordable housing.

Back to TOD, though, I would urge us to think expansively. We shouldn't be thinking only about individual developments located near transit but about the entire range of development taking place within a one-half mile radius. This will require public policy solutions, in addition to talented practitioners capable of pulling deals together.

Keep the comments coming! JL

Nico Calavita said...

Jeffrey, thank you for a comprehensive and logical proposal that responds to the increasing constraints facing the production of affordable housing. I would like to stress that element of your proposal that addresses the need, in a time of growing budgetary limits, to “recapture” land values that increase from governmental action, either through infrastructure expenditures, as in the case of transit stations construction, or through upzonings or in general the granting of general plan changes or permits that enhance land values.

As you know we don’t have a tradition of land value recapture in this country, as opposed to many European or Latin American countries, so we need first to educate the public and second to develop implementation approaches that can work under various circumstances.

A comment about TIFs. Yes, they have been a great source of funds for affordable housing, especially in California, but we should remember that they are property taxes, and when budget priorities collide in a context of huge, structural deficits, redevelopment might lose to schools, as in California. Herein lies the beauty of land value recapture. What is recaptured is value generated by governmental action, and not by landowners, value increases that until now have generate windfalls for landowners. Another expression that describes this value is “unearned increments.” In England is “planning gain.” Perhaps the time has arrived to create a US response to this problem. Thanks.

Rick Rybeck said...

Jeff’s article and the subsequent responses are excellent. For several generations, most economists have ignored “land economics,” mistakenly believing that this topic is only important for agrarian societies. This oversight has hidden from view a source of publicly-created resources that can make transit and other infrastructure self-financing while also providing funds for affordable housing solutions.

While our Constitution prevents government “takings” without just compensation (as it should), it totally ignores “givings” which create huge windfalls for a few landowners at public expense. This system of “givings” encourages real estate speculation which creates real estate booms and busts. Typical families and businesses do poorly during both phases of this economic roller-coaster. During the “boom” period, families and businesses trying to obtain space are outbid by speculators. During the “bust” period, families and businesses trying to obtain space find that speculators who bought during the “boom” are not willing to sell at a loss.

Value capture techniques, if properly designed and executed, can take the profit out of real estate speculation. This will not end economic cycles, but should significantly dampen the highs and lows. Most importantly, reducing speculative real estate activity would make property more affordable for “users” rather than for “hoarders,” whose speculative activities add nothing of value.

In addition to the importance of increasing value capture, we must reduce the penalties that we now impose on property construction, improvement and maintenance. In spite of state and local fiscal distress, I would be shouted down if I proposed a 10% to 20% sales tax on construction labor and materials. “Homes and businesses are already too expensive,” some would say. Others would note that weatherization is important for both the environment and the economy, and such a sales tax would discourage it (or make it viable only for the wealthy). Yet, without realizing it, our current property tax imposes such a penalty. The typical property tax is only 1% or 2% of value, but unlike a one-time sales tax, it is paid each and every year that an improvement adds value to a property. Using a net-present-value calculation, the property tax on buildings has the economic impact of a 10% to 20% sales tax.

Some jurisdictions in Pennsylvania have modernized their property taxes, transforming them into value capture user fees. This is accomplished by reducing the tax rate applied to building values and compensating for this by increasing the tax rate applied to land values. Jurisdictions collect the revenue they need, but economic incentives now favor property improvement and maintenance over speculation. The lower tax on buildings make buildings cheaper and the higher tax on land actually keeps land prices low.

Many of you are already aware that the home mortgage interest deduction, often called the “Middle-Class Tax Break,” is nothing of the sort. It drives up home prices for everyone while primarily subsidizing the most affluent. In addition to reforming this aspect of the tax code, performance-based parking pricing and congestion pricing for roads can help provide better balance between the automobile and transit.

With some creativity and careful planning, we can support more affordable housing, create jobs, and fight sprawl without making new claims on government budgets that are already stretched thin. We can achieve these results simply by correcting misaligned incentives embedded in existing taxes and fees.

For more information about value capture, see

For information about reforms to a broader array of taxes and fees, see

Wayne Senville said...

Jeff (and others):

Appreciated your posting, especially as our next issue will be focusing on affordable housing. I'd be interested in your take on the policies Fairfax County, Virginia, adopted for future housing development at Tysons:

Also, any examples you can point to of successful TOD/affordable housing policies besides the Atlanta beltline corridor mentioned by Tony Pickett?


Wayne Senville
Editor, Planning Comm'rs Journal

tampa foreclosure attorney said...

Indeed, housing plans seem to get a lot pricey than ever. How could this help end homeless issues? This is such a slap for the government to deal with.

JL Weybridge, VT said...

Wayne -- I am extremely impressed with what Fairfax County is planning to do in Tyson's Corner and consider it one of the leading examples of how to build affordability into new development around transit. They have substantially increased density, require about 20 percent of the units to be affordable to moderate-income (and some low-income) families, and have a linkage fee for retail/commercial space that goes for affordable housing. I also understand that the housing authority may purchase some of the IZ units to layer deeper subsidies to reach very low-income families. And they provide for long-term affordability of affordable units.

Bravo, Fairfax County!

What is a Load Board said...

Excessive car ownership is estimated to reduce home ownership by between 5 percent and 10 percent of what it would be if low income households could reduce transportation to average levels and invest the costs thus saved on transportation in home ownership. Does this mean increasing number of middle-to-low income households, transportation costs are destroying the American dream of home ownership?