Monday, October 31, 2011

New NLIHC housing briefs highlighting housing issues

by Sarah Jawaid, National Housing Conference 

The National Low Income Housing Coalition launched its Housing Spotlight briefs last week. These research publications will highlight issues facing the housing industry, such as “the shortage of affordable and available units faced by low income households, characteristics of the nation’s subsidized housing stock, and more.” The October 2011 issue, first in the series, utilizes 2010 American Community Survey (ACS) data to delve deeper into how renters fare in the housing market. It highlights that renters are facing decreasing incomes relative to increasing rents. Foreclosures and uncertainty about the housing market have pushed more households into rental, creating pressure on a rental stock that cannot expand quickly.

Further resources on this topic: The Center for Housing Policy’s Housing Landscape 2011 and Paycheck to Paycheck and the Harvard Joint Center for Housing Studies’ Rental Market Stresses.

HOME program under attack again; hearing set for Wednesday

by Ethan Handelman, National Housing Conference

The HOME program is under attack again. On November 2 at 2 p.m., there will be a joint hearing by the Insurance, Housing and Community Opportunity Subcommittee and the Oversight and Investigations Subcommittee of House Financial Services. The title is “Fraud in the HOME Program.” We anticipate that the hearing will showcase attacks on the program, as the witness list includes Mr. Timothy Traux, described as having been “convicted of defrauding organizations that received funds from the Department of Housing and Urban Development’s HOME Investment Partnerships Program," and another unnamed witness with the same description. See the hearing listing for updated information on witnesses:

We in the housing community know that HOME is a key tool for creating affordable homes and stimulating local economic activity. It has created over 1 million affordable homes, assisted low-income renters, and enabled development and preservation of affordable rental properties. Congress needs to hear from us about all that HOME accomplishes.

NHC has stated our strong support of the HOME program to the Subcommittees in advance of the hearing. We urge you to reach out to any members with whom you have contact to express support for the HOME program and describe its impact on families, communities, and the local economies you work with. You can read our letter here: Watch NHC’s Open House Blog for updates on the hearing.

Thursday, October 27, 2011

Rep. Garrett introduces mortgage finance reform bill to encourage private investment in MBS

by Ethan Handelman, National Housing Conference

Today, Representative Scott Garrett, R-N.J., chair of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, introduced the Private Mortgage Market Investment Act, which aims to encourage private capital into the residential mortgage secondary market. Its stated goals (see summary) are laudable:
  • Standardization, both in the underwriting of mortgage loans and in the securitizations of those loans.
  • Certainty, around investor rights, servicer responsibilities, and the parameters for future mortgage modifications.
  • Transparency, particularly in disclosure of loan-level data, disseminating pricing information, and ensuring that investors have time to review securitizations in detail.
Rep. Garrett introduced the bill as a replacement for the presence of a government guarantee and reiterated ongoing criticism of Fannie Mae and Freddie Mac. Interestingly, many elements of the proposal are potentially constructive, regardless of whether there is a strong federal role in mortgage markets. One example is the steps to enable the To Be Announced (TBA) market, which is a key source of efficiency and liquidity for mortgages. More transparency and standardization there would benefit all participants, as well as the federal government as guarantor.

Many aspects of the bill deserve further attention. For instance, standardizing mortgages into risk-based classes may make risks clearer for investors, but we should not as a an unintended consequence drive capital disproportionately to the lowest risk loans, in effect skimming the cream of the mortgage market. Similarly, if we attempt to create certainty for investors and servicers, we must also provides effective means to protect borrowers, particularly with the example of the foreclosure crisis fresh in our minds. Examination of these and other issues raised by the bill will help move us closer to a mortgage finance system that provides safe, decent, and affordable housing options for all in America.

Where will your region’s workers live?

by Maya Brennan, Center for Housing Policy

Policies that consider workers’ needs, housing affordability, transportation, and economic development work in concert to create and sustain a vibrant community. Most governments dedicate resources to attracting and retaining businesses, yet they are less likely to focus on also attracting and preserving housing that will meet workers’ needs. A geographic mismatch between housing and jobs can hinder local economic vitality by causing traffic congestion, extreme commuting, diminished productivity, and reduced quality of life. Sustainable and equitable patterns of development can help to prevent these problems. Workforce housing efforts and employer-assisted housing programs are also part of the solution.

The right ways to meet the housing needs of local workers will be different depending on local conditions. How many new jobs are projected in your region? What will the jobs pay? Where will the jobs be located? What types of housing will the new workers want and be able to afford?

Thanks to a report released Tuesday by the Center for Regional Analysis at George Mason University, the Washington, D.C., region knows the answers to some of these questions and can take steps to align housing and jobs in the future. The D.C. region is projected to add 1 million new jobs between 2010 and 2030. This means that the D.C. area will need to add housing for as many as 730,000 new households. The alternative –adding less than 350,000 new residences and bringing the rest of the workers from outside of the metro area – would more than double the share of extreme commuters clogging D.C.’s roads and commuter rails. A horror story to rival any Halloween tale. And that doesn’t even consider the housing needs of workers filling another 1.8 million jobs that will turn over due to retirement and other factors.

Based on the specific jobs and household types expected, the report also tells us what types of housing will be needed and how much is needed in which counties. (See the tables and charts on page 6, 7, and 8.) The results would be a major shift from the area’s current development patterns. New workers in the area will need smaller homes, more affordable units, more multifamily buildings, and more rental opportunities.

Whether in the D.C. area or elsewhere, meeting workers’ needs means thinking strategically about ways to coordinate jobs, transportation, and housing so that workers can have the types of housing they need in locations that give them access to work without overburdening local transportation systems. Solutions might involve preserving existing affordable housing, creating incentives for needed development, increasing the use of employer-assisted housing, or reducing regulatory barriers to developing higher-density or affordable housing.

Regional forums like the Bring Workers Home series, hosted by the National Association of Realtors and National Housing Conference, are a great place to learn more about how to meet your workers’ housing needs. The next forum is on December 1 in Portland, Oregon, so get registered and mark your calendar. If you can’t make it to Portland in December, look to or the archives from prior forums for ideas that can help.

Wednesday, October 26, 2011

Live blogging the Bipartisan Policy Center Housing Commission Launch

by Rebecca Cohen, Center for Housing Policy

In the coming years, the U.S. will continue to recover from the current economic downturn and face “seismic” shifts in demographic makeup, wage structure and financial technologies. All of which, according to Former HUD Secretary Henry Cisneros, will shape the work of a new Housing Commission launched today by the Bipartisan Policy Center. The Commission is charged with producing policy recommendations to meet the nation’s housing needs, and working to see those recommendations through to implementation. Secretary Cisneros will serve as one of the four Co-Chairs, and is joined by Senator Kit Bond, Secretary Mel Martinez, and Senate Majority Leader George Mitchell.

During a panel discussion at today’s launch, the Co-Chairs promised to take a “deliberately bipartisan” and “practical” approach, and embrace a wide range of possible issue areas—from the role of the GSEs and the balance between renting and homeownership to the future of Section 8 and other HUD programs and options for creative solutions at the local and state levels. The Co-Chairs focused on the human dimensions of the housing crisis, and emphasized the importance of a forward-looking approach that has real prospects for implementation.

The 18 commissioners will be announced later this year, with a report expected in early 2013. More information is available on the Bipartisan Policy Center’s website, at

NYT Editorial calls for full funding of housing programs

by Ethan Handelman, National Housing Conference

The New York Times Editorial Board writes eloquently today of the need to fully fund housing programs, even as the Senate and House versions of the FY 2012 appropriations contemplate cuts. Among the programs they call out specifically:
  • Housing counseling. In the midst of an unprecedented foreclosure crisis, $88 million for housing counseling (zeroed out in FY 2011) is an obvious necessary investment
  • Public housing. Year after year of underfunding have put this housing stock “on the verge of collapse.” Significant federal support is needed, now.
  • Community Development Block Grants. CDBG is a key resource for cities and towns as well as a potent jobs generator.
  • Housing assistance for low-income families and individuals. Tenant-based vouchers and project-based contracts are the core of HUD’s mission.
The FY 2012 so-called minibus appropriations bill containing the THUD appropriations is expected to pass the Senate soon, setting up a conference between House and Senate to resolve differences.

Monday, October 24, 2011

HARP changes allow more underwater refis

by Sarah Jawaid, National Housing Conference

Today, the Federal Housing Finance Agency (regulator of Fannie Mae and Freddie Mac) announced changes to the Home Affordable Refinance Program (HARP) to reach more struggling homeowners with refinancings.  President Obama alluded to these changes in his jobs bill speech before a joint session of Congress last month-details were just announced this morning.

Changes for loans owned or guaranteed by Fannie Mae or Freddie Mac include eliminating the 125 percent LTV ceiling, reducing loan-level price adjustments, reducing fees overall and especially to encourage shorter-term loans. For more details, see FHFA's press release. Read more on the Washington Post article here.

Friday, October 21, 2011

The value of 30-year fixed-rate mortgages

by Clare Duncan, National Housing Conference

Yesterday, the Senate Banking Committee held a hearing on the continuation of the 30-year fixed-rate mortgage as part of their series of hearings on housing finance reform. Chairman Johnson (D-SD) started the hearing stating that he believed that the 30-year fixed-rate mortgage should continue to be widely available to qualified borrowers across the country, while not necessary being the only product available. Witnesses included Janis Bowdler, Senior Policy Analyst at the National Council of La Raza; Mr. John Fenton, President and CEO of the Affinity Federal Credit Union; Dr. Anthony Sanders, Professor of Finance at the George Mason School of Management; Dr. Paul Willen, Senior Economic and Policy Advisor of the Federal Reserve Bank of Boston and Dr. Susan Woodward, President of Sand Hill Econometrics.

Ms. Bowdler, Mr. Fenton and Dr. Woodward focused their testimony on the need and the benefits of the 30 year fixed rate mortgage, including the fact that these mortgages are easy to understand, predictable and affordable for consumers. They also argued for the need of government involvement in the secondary mortgage market, stating that the availability of the 30-year fixed-rate mortgage would cost more to consumers and would not be as widely available, particularly to low-and moderate income families.

However Dr. Sanders and Dr. Willen took a different stance. While they did not necessary argue against the availability of a 30-year fixed-rate mortgage, they questioned the prevalence of these mortgages in the market and their security for consumers. They argued that adjustable rate mortgages aren’t as risky and confusing to consumers as generally assumed or the fundamental reason for the housing crisis and therefore should not be excluded from the conversation.

I believe Mr. Fenton summed up the issue well: “You have to have a choice. There are members in every life segment and every lifestyle and so depending on where you are in those, there are options for you. Pre-payment may be one of them, adjusted rates may be one of them. We can’t just have one product …Risk should be spread balanced over all of the segments.”

The hearing webcast and testimony can be found on the Senate Banking Committee website.

Warning: This ZIP Code May Be Hazardous to Your Health

by Rebecca Cohen, Center for Housing Policy

Newly-released findings from the Moving to Opportunity demonstration program (MTO) continue to demonstrate the health benefits of enabling families to move from high-poverty neighborhoods to lower poverty areas. Reporting on outcomes for very-low-income women who received housing vouchers to move to low-poverty neighborhoods, researchers from the National Bureau of Economic Research found significant reductions in the prevalence of extreme obesity and diabetes compared with women who did not receive vouchers.

Specifically, women who received a voucher to move to a low-poverty neighborhood had extreme obesity rates that were a statistically significant 3.4 percentage points lower than women who did not receive a voucher. Similarly, women given the opportunity to move to a low-poverty neighborhood with a voucher had a diabetes prevalence rate that was 5.2 percentage points lower than women who did not receive a voucher. The research and results are described in detail in an article in the New England Journal of Medicine, and echo findings from a 2006 evaluation of the program that also found a statistically significant reduction in obesity among movers.

Started in 1994 with data collection through 2010, the voluntary Moving to Opportunity demonstration program was intended to examine the impacts of neighborhood conditions on families with children. Roughly 4,500 families living in public housing in Baltimore, Boston, Chicago, Los Angeles, and New York were chosen to participate. Randomly-assigned members of the experimental group received a voucher that could be used only in a low-poverty neighborhood; the Section 8 group received a voucher that could be used in any neighborhood, and the control group did not receive vouchers. A final report on the program is expected next month.

For more on the impacts of housing and neighborhood conditions on health, visit

Wednesday, October 19, 2011

Falling home prices perpetuate gloom amongst homeowners

by Sarah Jawaid and Blake Warenik, National Housing Conference

Today, the New York Times published an article about struggling homeowners who see no end to the economic crisis, largely due to falling home prices. While economists have said the downturn is due to dropping wages and lack of jobs, it seems the largest burden some families face, often underappreciated by economists, is equity lost on homes. “People don’t expect their home to regain value, and that’s really led to a change in consumer attitudes about the economy that we’ve just never seen before,” said Richard Curtin, a professor of economics at the University of Michigan who directs its Survey of Consumers.

While home prices may continue to fall, that doesn't mean that young adults in America are necessarily willing or able to take advantage of the housing market. The Center for Housing Policy's Jeff Lubell was interviewed in U.S. News and World Report in an article released today highlighting how the recession may have altered the meaning of the American dream for young people. Employment and income instability, the foreclosure crisis and other concerns have come to the forefront for young adults in deciding whether to buy a home or even have children.

Citing Freddie Mac data, the story said that in the last year homeownership rates have fallen by 4.4 percent (to 21.9 percent) for people under 25 and 7 percent (to 34.7 percent) for people 25 to 29 years old.

"I think if I were a youth in that age group, I'd be focused more on maintaining my ability to move and be mobile," Jeffrey Lubell said in the interview.

A neon plastic lapel pin of a house and other, better ideas

by Rebecca Cohen, Center for Housing Policy

In the opening plenary session at yesterday’s Rail~Volution conference, William Millar, outgoing president of the American Public Transportation Association (APTA), noted that in 2010, 73 percent of all state and local transit initiatives were successful at the ballot box. As described in an APTA press release, voters in 14 states said “yes” to 22 of 30 public transportation-related ballot initiatives, authorizing some $500 million in spending over 5 years even as the economy continued to struggle. The lesson that Millar drew from this success is that—despite calls by some at the national level to cut taxes and spending above all else—people will pay for good service.

How can the housing community learn from this success?
  • Provide a high-quality, well-managed product—A poorly-planned, unreliable transit system will suffer from low ridership and may ultimately be seen as a drain on public funds. When reliable service connects key destinations, however, transit will be seen as a valuable public asset. The same could be said for affordable housing which, when well-designed and managed, can actually help to boost surrounding property values.
  • Branding matters—One of the panelists in the opening plenary, which also included Department of Transportation Secretary Ray LaHood and Congressman Early Blumenauer, described the success of the Circulator system, which connects destinations around the Washington DC metro. The Circulator has been popular with tourists and locals who don’t ordinarily ride the bus, and much of its success has been attributed to marketing of the system as a fun, convenient alternative to the bus. Advocates and practitioners in the housing world have used a variety of terms—ranging from affordable to low-income to workforce—to describe the homes they provide. Many organizations have tried to take a fresh look at how our mixed-income and affordable developments are described in order to dispel dated notions perceptions of the “projects” and the people who live there. 
  • Adapt tools to prevailing conditions—In his remarks, Secretary LaHood spoke about the need to identify a stable, long-term funding source for public transit. He noted that an alternative funding source is critical because (among other reasons) as cars become more fuel-efficient, the gas tax will fail to deliver the revenue needed to adequately support transportation needs. Similarly, in the face of the economic downturn, housing practitioners are being confronted with the need to adapt traditional mechanisms for producing affordable homes. Density bonuses in return for affordable units will no longer entice developers who cannot sell homes in the first place; housing trust funds supported by deed transfer fees will dry up when housing markets slow down. A full range of tools exists to create and preserve affordability in slow markets, and it is time for these to be revisited in some communities.
Rep. Earl Blumenauer sporting
his iconic bike pin
The transportation firebrand Blumenauer, while elected as a member of the Democratic Party by Oregon’s 3rd district, calls himself “aggressively bike-partisan.” Bike paths, transit systems, and roads are not inherently Democratic or Republican, neither are well-structured mortgages, well-maintained affordable senior homes, or mixed-income, mixed-use transit-oriented developments. Attendees at Rail~Volution were encouraged to carry this message back to their representatives in Congress. Housing advocates can and should continue to do the same.

Monday, October 17, 2011

The Center's Jeff Lubell on debt and the American household

At a public release of the 10th Heartland Monitor Poll, Jeff Lubell of the Center for Housing Policy brought housing to the center of the debate on America’s public and private debt. The poll, tenth in a series sponsored by Allstate and the National Journal, highlighted Americans’ views on both their own household’s debt and the nation’s debt. As one of the panelists at the event, Jeff brought out key points, including:
  • We are ripe for a grand bargain that combines long-term debt reduction with short-term stimulus with particular attention to the needs of low- and moderate-income Americans  
  • Foreclosed homes may provide an opportunity to create affordable housing, but they cannot substitute for essential multifamily rental housing, which relies on reliable mortgage finance, the Low Income Housing Tax Credit, and other key financing sources
  • We should not require all home buyers to put 20% down, but instead require proven underwriting techniques and tested loan products, so that mortgage credit is available broadly and provide opportunities to build household wealth
  • Policy-making based on evidence should be an ongoing priority, and we should build in to admittedly constrained budgets small amounts for ongoing, rigorous evaluation of what works and what doesn’t.

Watch video of the event (Lubell's panel beings at 31:00 and lasts 75 minutes), see poll results and analysis and read a blog post by panel moderator Clive Crook at the Atlantic's website.

Friday, October 14, 2011

Credit facility GSE bill hearing highlights uniqueness of U.S. mortgage finance system

by Sarah Jawaid, National Housing Conference

On October 13, Congressman Gary Miller (R-CA) presented his and Carolyn McCarthy’s bill (D-NY), Secondary Market Facility for Residential Mortgages Act of 2011, in front of the subcommittee on International Monetary Policy and Trade. As chairman of this subcommittee, he set the stage by discussing how the bill outlines the future of GSEs, most notably, combining Fannie Mae and Freddie Mac into one credit facility in hopes of stabilizing the housing mortgage finance system and creating room for private capital investment. Witnesses testifying:
  • Michael A. J. Farrell, Chairman, CEO and President, Annaly Capital Management, Inc.
  • Mr. Richard Dorfman, Managing Director and Head of Securitization Group, Securities Industry and Financial Markets Association
  • Mr. Moe Veissi, 2011 President-Elect, National Association of Realtors
  • Dr. Susan M. Wachter, Richard B. Worley Professor of Financial Management, The Wharton School, University of Pennsylvania
The committee asked witnesses to share international examples of other developed countries’ mortgage systems that the U.S. could learn from as well as the future of global capital sources for funding. Farrell said the heightened interest in international comparisons comes from the “argument that other countries have similar homeownership rates and manageable mortgage costs.”
Witnesses agreed that the U.S. mortgage system differs from its peers because of its use of securitization as opposed to holding mortgages on the banks’ books. Fixed-rate mortgages require securitization to keep the market liquid and replace demand-deposit-based bank portfolios. Wachter said it is also hard to compare international mortgage markets in developed countries because each country has a differing set of rental options. In countries with fewer rental options, homeownership is higher.

Wachter went on to cite a study commissioned by the Mortgage Bankers Association and the Research Institute for Housing in America which looked at the mortgage markets of 12 different countries. The study found that countries “differ in terms of the market share of adjustable- versus fixed-rate mortgages, the use of pre-payment penalties, maximum term and the offering of features such as interest-only payments and assumability.” The chart below (taken from the study) shows how unusual the U.S. mortgage market is in comparison to other developed countries. If the U.S. mortgage market shifts away from not including “the homogeneity and liquidity made possible by government involvement” then it “will be smaller and more expensive, with potentially negative consequences for home prices and homeowner flexibility,” said Farrell. Dorfman shared similar sentiments by saying, “the global financial markets have been a critical component sustaining the financing of housing in America, and we must ensure this continues in the future.”

All the witnesses agreed with a point summarized by Rep. Garrett that a top priority should be rebuilding confidence in the U.S. mortgage system through transparency in the underwriting process, in the securitization process. Rep. Garrett also asked the panel if there should be fair-value accounting for GSEs which include clearly articulating debt and liabilities to attract private capital; all panelists agreed in the affirmative except for Wachter, who demurred for further study. Miller wrapped up the hearing with the central point: “this economy will not turn until we address the housing market.” Read NHC blog post on the Secondary Market Facility for Residential Mortgages Act of 2011 bill here.

Thursday, October 13, 2011

The Suburbs of the Future

by Keith Wardrip, Center for Housing Policy

In a recent New York Times blog, Allison Arieff suggests to her readers that it is time to rethink the status quo when it comes to home design and community development. She argues that the cookie-cutter, single-family home in the suburbs is not for everyone and that both the housing industry and policymakers should take advantage of the slowdown in construction to rethink the practices of the recent past.

Arieff is certainly correct that if there was ever a time to re-envision housing and community development, it’s now. Housing starts in 2010 numbered fewer than 600,000—roughly one-fourth of the level in 2005. While the earth-movers are idle, households and policymakers have time to catch their breath and challenge the notion that a single-family unit on a large lot is housing’s best incarnation.

Demographic trends suggest that the demand for large, single-family homes in auto-oriented communities should be on the decline. For decades, households have been getting smaller, and our population has been getting older. Combined with rising gas costs and concerns for the environment, these trends suggest that large homes in auto-dependent neighborhoods may not be the most practical option going forward. A university professor speaking at a recent research and practice forum hosted by HUD claimed that the United States already has enough detached single-family housing to satisfy demand for the next several decades, and that the real unmet demand was for attached or multifamily units in urban, transit-oriented environments.

Consumer preference may not be responding to these trends as expected, however. Survey data collected by the National Association of Realtors and reported by RCLCO show that only 19 percent of respondents want to live in a city, with the remainder split between suburbs and small town or rural areas. The most-preferred setting, appealing to 28 percent, is a suburban environment with a mix of uses, rather than one that is solely residential.

As society struggles with the tension between the type of housing that it wants and the type of housing that it – and the environment – appears to need, it must also come to grips with the type of housing it can afford. Regardless of the form and context of tomorrow’s communities, the majority of households today live in the suburbs. Will future generations want to live in the homes that we’ve already built? More importantly, will they be able to afford to?

Aron Chang wrote recently about ways that today’s suburbs can be transformed to accommodate higher densities, a mix of uses, and more affordable options. His ideas include zoning to allow for the construction of accessory dwelling units and the subdividing of single-family homes into smaller units for extended families, tenants, and even businesses.

These are but a few ideas that communities can use to retrofit their current housing stock to residents’ preferences if and when demand for the suburbs wanes. Will these strategies be effective? Are there others?

Thursday, October 6, 2011

Solutions for Sustainable Communities wrap-up

by Blake Warenik, National Housing Conference and Center for Housing Policy

Last week here in Washington, D.C., over 400 participants joined us for Solutions for Sustainable Communities: 2011 Learning Conference on State and Local Housing Policy and more than 75 stayed for our our Bring Workers Home workforce housing forums with the National Association of REALTORS®. Thanks to our participants and speakers for helping to make these events a huge success. Even if you weren't able to make it, we've got plenty of post-conference information on the way so you can catch up on the latest research and trends in building the sustainable communities of the future.

Check back at early next week to review all the conference resources, including presentations from many of the more than 140 speakers, handouts, video, blog articles, photos and more from the 40+ sessions offered. In the meantime, please see the text of HUD Secretary Donovan's rousing keynote speech and watch a video address from Transportation Secretary Ray LaHood from the conference's Opening Plenary. 

The Learning Conference also served as the venue where the Center for Housing Policy introduced its all-new Housing Research and Advisory Service (HRAS) to the housing community. HRAS is a new service intended to make it easier for practitioners and policymakers to get the information they need to develop effective solutions for the housing community.

The Center's Rebecca Cohen manages HRAS. "Solid research is one of the most important assets a housing practitioner can have on their side when facing a planning board or a local government," Cohen said. "But not every organization can afford to have a research department, or even a single researcher. We came up with HRAS as a way to give housers access to expert researchers without having to hire one."

Visit to explore how HRAS can help you achieve your housing goals.

Monday, October 3, 2011

Replacing expensive sprawl with affordable TOD

by Rick Rybeck, Just Economics, LLC

NHC invites guest blog posters to write on important housing topics.  The views expressed by guest posters do not necessarily reflect those of NHC or its members.

If smart growth is so smart, how come there’s so much dumb growth? Economic incentives for sprawl are partly to blame. If we understand some of these economic incentives for sprawl, the remedies become clear.

Today, infrastructure such as transit can be a double-edged sword. We create it to facilitate development. Yet, the resulting inflation in land prices near transit stations often drive development (particularly affordable development) to cheaper but more remote sites. We then extend the infrastructure to these remote sites only to have the process repeat. Thus infrastructure intended to facilitate development ends up chasing it away. We run after sprawl with more infrastructure, but never catch up. The process destroys both the countryside and urban budgets as cities end up with much more infrastructure per capita than they would need if development was more compact.

Part of the problem lies in the ability of private landowners to appropriate publicly-created land values. This is the fuel for real estate speculation. Utilizing value-capture techniques can recapture publicly-created land values and return them to the entities that created them (such as transit authorities). In this way, infrastructure can become financially self-sustaining.

Additionally, if properly designed and implemented, value capture can actually encourage the development of high-value land. High-value land, typically adjacent to urban infrastructure such as transit, is where we want development to occur. The more we can accommodate development at these high-value locations, the more compact development patterns will become. This will facilitate walking, cycling and transit while preserving rural areas for agriculture, conservation and recreation.

Some jurisdictions have accomplished this by transforming their traditional property tax into a value capture user fee. This is accomplished by reducing the property tax rate on building values while increasing the tax rate on land values. (Although the typical property tax is only 1% or 2%, it has the economic impact of a sales tax of between 10% and 20% on construction labor and materials.)

The lower tax rate on buildings makes it cheaper to construct, improve and maintain them, resulting in more affordable rents for both residents and businesses. The higher tax on land values reduces land speculation and actually helps keep land prices low. So this reform makes development more affordable, concentrates development near transit and other urban infrastructure. It also promotes jobs by making it more affordable to improve and maintain existing buildings.

Rick Rybeck, director of Just Economics, LLC, is an attorney with a master’s degree in real estate and urban development.  More information about this concept can be found at Rybeck spoke delivered a presentation on the topic of financing mixed-use development and place-making infrastructure at NHC and the Center's 2011 learning conference, Solutions for Sustainable Communities.