Upzoning and Value Capture How U.S. Local Governments Use Land

Land Use Policy 95 (2020) 104624 Contents lists available at ScienceDirect Land Use Policy journal homepage: www.elsevier.com/locate/landusepol Upzoning and value capture: How U.S. local governments use land use T regulation power to create and capture value from real estate developments Minjee Kim Land Use Planning and Real Estate Development, Florida State University, 336 Bellamy Building, 113 Collegiate Loop, P.O. Box 3062280, Tallahassee, FL, 32306, United States ARTICLE INFO ABSTRACT Keywords: The public sector can harness its authority to control land uses to secure valuable public benefits from real Value capture estate developments. This paper investigates how five major U.S. cities—Boston, Chicago, New York, San Upzoning Francisco, and Seattle—are using their land use regulation powers to create and capture value for the public Zoning negotiations benefit. An analysis of the zoning and entitlement processes of the 20 largest real estate development projects Land use exactions in each city reveals that value has been captured from all 100 projects. Furthermore, these cities implicitly Real estate development differentiated value capture into two distinct components: value creation and value capture. Among the100 projects, cities created value for 90 projects by allowing greater density and height—a practice often referred to as “upzoning.” Distinguishing such upzoning incidences from traditional land use exaction tools is important because the added value gives local governments greater legitimacy in asking for public benefits. The experience of the five cities further revealed that value capture strategies can be customized to adapt tounique regulatory, political, and cultural contexts. Lastly, despite the fact that the majority of the upzoned projects increased density and height through project-specific negotiations, none of the cities had clear standards or evaluation frameworks for determining: how much value was created, what can be asked for in return, and who should benefit from the value captured. Cross-national scholarship on value capture can be leveragedto address these important questions. 1. Introduction taxation, land use exactions, zoning bonuses, public-private developments, and leasing of publicly owned land. Scholars of planning prac- The concept of “value capture” is regaining popularity in planning tice, real estate, and urban economics have extensively investigated the practice both in the U.S. and internationally (Alterman, 2011; Biggar, efficiencies, impacts, and externalities of these techniques; but, such 2017; Calavita, 2015; Ingram and Hong, 2012; Levinson and Istrate, studies have largely been conducted in silos and have rarely been 2011; McAllister, 2017; Muñoz-Gielen, 2014; Rebelo, 2017; Salon et al., brought together and systematically analyzed under the overarching 2019; Smolka and Amborski, 2000; Smolka, 2013; Walters, 2013; Wolf- concept of value capture. Powers, 2019). Value capture refers to the idea that certain activities of Moreover, despite the fact that American zoning has been ac- governmental entities create benefits for existing and future property knowledged as one of the richest breeding grounds for developing value owners, and, as such, some of the increment in property values should capture tools (Alterman, 2011; Hagman and Misczynski, 1978), specific be recouped for the public benefit. This is not a new concept; however, zoning and land use control techniques, such as: incentive zoning, ne- it has recently reemerged as an important, but underutilized, plan im- gotiated zoning, and linkages, have rarely been framed and analyzed as plementation tool as local governments are increasingly faced with value capture tools in the U.S. Thus, we know little about how these dwindling subsidies from higher levels of government and local oppo- zoning techniques impact existing and future property values and, sition towards additional taxation (Altshuler and Luberoff, 2003; subsequently, what value can be recaptured for public purpose. This Amborski, 2016; Frug and Barron, 2008; Ingram and Hong, 2010; paper aims to fill this gap by investigating how certain U.S. local gov- Sagalyn, 1990). ernments are using land use regulation power to create and capture Value capture, in fact, underpins many existing public financing and value for the public benefit. regulatory techniques. Some of the most well-known techniques in- This paper empirically investigates how major U.S. cities are em- clude: tax increment financing (TIF), special assessments, land value ploying various zoning techniques for value capture. To do so, I analyze E-mail address: [email protected]. https://doi.org/10.1016/j.landusepol.2020.104624 Received 5 June 2019; Received in revised form 11 February 2020; Accepted 23 March 2020 0264-8377/ © 2020 Elsevier Ltd. All rights reserved. M. Kim Land Use Policy 95 (2020) 104624 the zoning and entitlement processes of 100 largest ground-up devel- that is imposed on the future beneficiaries of an infrastructure im- opments that were underway in 20171 in five major U.S. cities: Boston, provement project to fund for that same improvement. Land value Chicago, New York City, San Francisco, and Seattle. I focus on large- taxation is another tool, albeit less employed in the U.S. Land value scale developments because they present unique opportunities for local taxation schemes essentially separate out taxes on land from any im- governments to engage in project-specific zoning negotiations, which is provements made on the land and impose differential tax mileages a particularly under-documented and under-investigated area within (Foldvary and Minola, 2017; Muñoz-Gielen, 2014). Public land leasing American zoning practice. can also become a form of value capture if the public sector adjusts the rents based on the increases in land value (Anderson, 2012). Another 2. Conceptual framework common tool is TIF, which essentially uses the anticipated future increment in property taxes to finance for public infrastructure projects 2.1. Origins and definitions of value capture (Wolf-Powers, 2019). A myriad of land use regulations, on the other hand, also embody Value capture is the idea that activities of governmental entities the value capture concept, both explicitly and implicitly. For example, may increase property values and as such, the value increment should the public sector’s decision to increase the allowable density and height be recaptured for public purpose. Hagman and Misczynski’s (1978) of a future development in exchange for developer concessions is a pioneering report, Windfalls for Wipeouts, which was funded by the U.S. popular value capture instrument practiced in countries worldwide Department of Housing and Development and published by the Amer- (Biggar, 2017; Calavita, 2015; Muñoz-Gielen and Tasan-Kok, 2010; ican Society of Planning Officials (later merged with American Institute Moore, 2013; Muñoz-Gielen, 2014; Rebelo, 2017; Smolka, 2013). of Planners to become American Planning Association), was the first American land use exactions, such as: impact fees, linkages, and con- scholarly work in the U.S. to crystallize the concept of value capture, ditions attached to development permits, have also been included explore its legitimacy, and synthesize existing value capture practices. within the value capture toolkit (Alterman, 2011; Hagman and The idea, however, can be traced back to Henry George’s Progress and Misczynski, 1978). Others have also framed inclusionary zoning as one Poverty (published in 1879), in which he proposed taxing away the variant of value capture (Calavita and Mallach, 2019). value of land that is produced by anything other than private efforts for Finally, public/private joint development has been recognized as a the benefit of the public (Brown, 1997). distinct form of value capture that often employs a mixture of public In contrast to the U.S., Britain has a much longer history of ex- financing and land use tools enumerated (Amborski, 2019; Valtonen ploring and experimenting with various forms value capture strategies et al., 2018). The following table classifies existing menu of value beginning in the early 20th century. As analyzed by Booth (2012) and capture mechanisms into three broad categories: tools that are based on Crook (2016a), earlier British attempts were focused on establishing the government’s authority to raise taxes and revenues; tools that are nationally imposed taxes and nationally designed land banking based on land use regulatory authority; and finally, public/private joint schemes. However, these early attempts were short-lived. Local plan- developments. This paper primarily focuses on the set of tools that falls ning agencies rather started to capture value increment through nego- within the land use regulation category (Table 1). tiated, contractual agreements with the developers, referred to as “planning obligations” (Booth, 2012). A myriad of developer con- 2.3. The use of land use regulations for value capture in America tributions, such as community facilities, infrastructure, and affordable housing, have been extracted through planning obligations (Crook, Scholars have long recognized American zoning as one of the richest 2016b). breeding grounds for developing value capture tools and have included Despite its long history, value capture has been an elusive term. This popular zoning techniques such as incentive zoning and impact fees as largely stems from the fact that the concept has been applied in ex- such (Alterman,

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