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helsinki
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Financing Infill Development

Postby helsinki » November 23rd, 2012, 4:09 am

There was an amazing article on Atlantic Cities a few days ago that anyone interested in urban development should read. It's here:

http://www.theatlanticcities.com/neighb ... hing/3897/

It highlights a problem that doesn't produce an easy answer: if money for development doesn't come from the government or from Wall Street (ie the financial "industry", not literally banks in lower Manhattan), where does it come from? The answer seems to be: It doesn't!

There are so many good urban development ideas that fail to materialize because they can't get financing. People complain on this site all the time about how annoying it is that good projects can't get financing. The developer can't convince the money manager types that "the numbers" work. The article does a decent job (although I think it's an idea that should be explored more thoroughly) of explaining how this is a major market failure: financiers are often very far away (both mentally/culturally, but also just geographically) from small scale infill development. They can't see it, they don't understand it, and they wouldn't patronize such establishments even if they got off the ground. Hence, we get a lot of huge block-sized developments on virgin parking-land (like Nic on Fifth - still a super cool project), but treasured old 19th century buildings sit empty and decaying just a few blocks away (for instance, there is a beautiful old building on the North corner of Washington and 2nd avenue wasting away while new construction pops up all around).

Most depressingly, of course, financiers "get" suburban development - subdivided farmland with identically beige, cheaply constructed single family homes, a local strip mall, and Olive Garden. It's easier - you can look at data, models, spin a bunch of management-consultant-BCG/McKinsey-speak nonsense and rest assured that, in balance, you'll likely see a return on investment (which isn't untrue, it just produces terrible, truly terrible, development. And failure a few years later; check out deadmalls.com). Compounding the problem are a thicket of government regulations that actively inhibit small scale financing (ostensibly to protect naive small scale investors from scams - a dubious claim; in the age of 401k's, when our leaders claim that average folk are savvy investors who should invest in the market for their retirement - choice, you see, is always better; who needs a pension - isn't it hypocritical to then contend that average folk are too stupid not to be fooled by local con artists?).

Anyway, the financing model described in this article would probably work best in proper neighborhoods (which we have tons of in Minneapolis). It would probably also ease the tension that often exists between developers and residents. Hopefully somebody tries it here.

mattaudio
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Re: Financing Infill Development

Postby mattaudio » December 17th, 2012, 11:27 am

Sort of related to a development fund, a co-op...
http://www.startribune.com/local/blogs/183543861.html

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Re: Financing Infill Development

Postby twincitizen » December 17th, 2012, 11:52 am

Well I can think of one pot of money that the city should theoretically have access to, we just bungled it pretty badly.

A huge mistake in the stadium bill was not allowing the city to capture the additional/unexpected growth (above the projected 2% annual) of the sales taxes.
http://journalmpls.wordpress.com/2012/1 ... s-stadium/

Through September, sales tax revenue was up 4.5 percent over the same period in 2011. The number crunchers who drafted the Vikings stadium bill had estimated for annual growth of 2 percent. Those tax revenues — a citywide half-cent sales tax, a 3 percent downtown food and liquor tax and a 2.6 percent lodging tax — generated $40.62 million through September, up $1.75 million from last year.

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Re: Financing Infill Development

Postby MNdible » December 17th, 2012, 12:40 pm

From the referenced Strib article:

If those tax revenues increase faster, the city's contribution to stadium operations and capital reserves would rise at the same pace -- but no more than 5 percent per year. Under a separate section of the bill, growth in the taxes beyond 2 percent would also give the city extra money for economic development and send a smaller pot of funds to the state.

And...

"If the city taxes come in over 2 percent, and I think they're at 6 percent growth this year, the first million goes back to the city," he said. "But the next 2 million above that ... we get half of the next 2 million. And it's split going forward."

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Housing Market/Economics - General Topics

Postby mister.shoes » June 5th, 2015, 7:27 am

This article came across my Twitter feed yesterday, despite being over a year old.
http://www.forbes.com/sites/eamonnfingl ... sed-to-do/

I found it very interesting, especially because it really shows that the American dogma around housing prices isn't such a universal truth after all.
The problem with being an introvert online is that no one knows you're just hanging out and listening.

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Re: The economics of housing

Postby MNdible » June 5th, 2015, 8:51 am

It's worth noting here that German population growth has been less than US population growth every single year (both as a percentage and in actual numbers) since at least 1960. In several of those years, Germany has actually had negative population growth.

Anecdotally, I've been to Goerlitz, and while it has a lovely town center, it is not what one would think of as a thriving metropolis. It's also got some massive blocks of former East German housing to provide plenty of supply.

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Re: The economics of housing

Postby seanrichardryan » June 13th, 2015, 9:28 pm

Q. What, what? A. In da butt.

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Re: The economics of housing

Postby David Greene » June 14th, 2015, 11:05 pm

Lots of interesting comments on this one.

I am reminded of this long-rendered piece of advice: "Losers measure themselves against others; winners measure themselves against their goals." Minneapolis and St. Paul, keep moving toward what you are: properous cities with amazing amenities. While sprawl hurts the urban areas, as long as our cities and urban suburbs keep improving, we're accomplising our goals.

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Re: The economics of housing

Postby xandrex » June 15th, 2015, 10:09 am

I'm pretty concerned about the featured couple who say they couldn't get a house that big without interest rates where they are. That tells me they're awfully close to their upper limit.

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Re: The economics of housing

Postby EOst » June 15th, 2015, 10:35 am

I'm pretty concerned about the featured couple who say they couldn't get a house that big without interest rates where they are. That tells me they're awfully close to their upper limit.
Not really surprising. As the housing crisis demonstrated, people are really terrible at planning against unexpected changes in circumstances. That said, they also look young enough that their earnings probably have significant room to increase... but then, why are they going for a house that big at their age, with no kids in the picture?

We don't have kids, and I'd probably have a different perspective if we did, but I honestly can't imagine what we would do with 4500 square feet of house. That's six times the size of our apartment! Hell, it's four times the size of the house I grew up in. How do you get big enough furniture to fill it?

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Re: The economics of housing

Postby David Greene » June 15th, 2015, 10:56 am

The Bell museum had a really good program about housing a few years ago. The display showing the growth in house size over 150 years was astounding.

Back in the day, the owner of a 4,500 sq. ft. house would have employed several people to maintain it.

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Re: The economics of housing

Postby David Greene » June 15th, 2015, 10:57 am

I mean, we've got a relatively small house in the Wedge and even with a kid it feels big to me. I can see how with three or four kids it would be cramped, but then again the attic and basement aren't finished yet.

It's pretty easy to fit a family of six in one of those old houses. Or at least it should be.

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Re: The economics of housing

Postby FISHMANPET » June 15th, 2015, 11:00 am

I think if you're designing your own house it can get pretty easy. Oh yeah we'll want a master suite for us, with a sitting area and his & hers (well, looks like his & his here) vanity, and we plan on 3 kids so 3 more bedrooms, and they'll need a playroom, and a guest bedroom, and oh you've always wanted a craft room, and we should put a family room downstairs, and sharing bathrooms is a hassle let's give every bedroom their own bathroom.

My mom built her own house and she managed to keep it pretty tame, but it's pretty easy to do "just a little bit more" when budget isn't a constraint (it wasn't for her). We may look at that 4500 sq ft house and say budget is a constraint, but they didn't, or at least decided to grow right up until it was a constraint. Who knows what they would have done if interest rates were 3%?

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Re: The economics of housing

Postby Anondson » June 15th, 2015, 11:26 am

One child per room is a modern thing. Making the "need" for more sq. feet a modern choice. Kids can sleep more than one per room fine.

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Re: The economics of housing

Postby FISHMANPET » June 15th, 2015, 11:51 am

On one hand people got by with more than one kid per room in the old days, but people used to get by without indoor plumbing or electricity and I feel like you could just make the same argument for not needing those as you could for not needing extra rooms.

We're a much wealthier society than we were 50 or 100 years ago, and one of the ways that's expressed is in more square foot per person. Nobody's holding a gun to these people's head, they're making the choice to build a 4000 sq ft house on their own. And in a vacuum, who are we to tell them they shouldn't? I mean, they can afford it (at least as much as anyone can afford a house, their income is probably going to go up over the next 30 years, and even if they couldn't survive extended unemployment of one or both of them, that's not exactly unique).

Now to affordability, we're (society) already subsidizing this with low gas prices, the mortgage interest tax deduction, and even imputed rent. So if we think this outcome is "bad" then maybe those are better targets for change. Rather than telling people "the hive mind has decided you've made a bad choice and are therefore a bad person" it's much easier to just say "the full cost of your choice to society is being presented to you, you are free to do what you'd like."

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Re: The economics of housing

Postby David Greene » June 15th, 2015, 12:11 pm

^^^ This is exactly how I look at it too. The problem comes in when I try to translate this into ordinary conversation. So I'm looking for help. How do you all talk to the average layperson about sprawl, sustainability and the choices people make? How do we spread the message that it is public policy driving all of this?

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Re: The economics of housing

Postby xandrex » June 15th, 2015, 12:48 pm

One child per room is a modern thing. Making the "need" for more sq. feet a modern choice. Kids can sleep more than one per room fine.
Having more than one bedroom can certainly make things larger, but I grew up in a family of six (plus many dogs) where each kid had their own room in a house that my parents had custom built. Our house was two floors (main floor and a finished walk-out basement) totaling maybe 2,400 square feet. The idea of nearly doubling that space would be ridiculous. We had more than enough space. But we skipped out on things like formal living and dining rooms, only one small office, etc. Could have used another bathroom. That's about it.
Now to affordability, we're (society) already subsidizing this with low gas prices, the mortgage interest tax deduction, and even imputed rent. So if we think this outcome is "bad" then maybe those are better targets for change. Rather than telling people "the hive mind has decided you've made a bad choice and are therefore a bad person" it's much easier to just say "the full cost of your choice to society is being presented to you, you are free to do what you'd like."
I agree here. The big thing is finding out how to make these changes without instantly wiping out property values or forcing people out of their homes due to cost. A family can't pack up their exurban home and move quickly, nor buy more fuel-efficient cars right away most of the time. We created this mess over 60 years. It'll probably take twice as long to correct that mistake (and by then, we'll be on to another decades-long mistake).

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Re: The economics of housing

Postby David Greene » June 15th, 2015, 12:57 pm

I agree here. The big thing is finding out how to make these changes without instantly wiping out property values or forcing people out of their homes due to cost. A family can't pack up their exurban home and move quickly, nor buy more fuel-efficient cars right away most of the time. We created this mess over 60 years. It'll probably take twice as long to correct that mistake (and by then, we'll be on to another decades-long mistake).
If there's one thing I agree with Strong Towns on, it's that the crash is coming whether or not people want to admit it. The recent financial meltdown was but a foreshock.

People have to start making these changes now if they want to avoid being caught in a very bad place later. The first thing to do is to stop encouraging more exurban building on large lots. Halt freeway expansion. People moved to their homes given the existing transportation conditions, so why should we expand capacity which is only going to encourage further wasteful land use?

This is also why, unlike Strong Towns, I support targeted transit investment in the suburbs. If we densify the suburbs around transit it will be a much better situation than we have now and it'll be incremental change. Getting suburban families used to riding the bus and rail will make it easier to make further transitions in the future.

I'm am all in favor of eliminating the home mortgage interest deduction and the state homestead deduction. If that forces people out of their homes, they had no business being there in the first place.

The sad truth is that we have to inflict some pain on some people now and over the decades to come to avoid excruciating pain for everyone later on.

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Re: The economics of housing

Postby xandrex » June 15th, 2015, 1:32 pm

David, surely you can't be so cold about people losing their homes. No, I don't think anybody should be commuting 20+ miles into work, but it's not those people that will lose their homes. The gated communities and wealthy suburbanites will take a dent, but be just fine. It's the growing pockets of poverty and working-class families that live a couple miles from work but still drive that will get shafted.

If the Titanic is headed for the iceberg and we know it, shouldn't we find the safest, calmest way to nudge people out and then try to keep the worst of the worst from happening for the stragglers? Or should we just hop off the ship ourselves, let the ship hit and sink, and then pat ourselves on the back. "Well, they had no business being out in the exurbs anyway."

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Re: The economics of housing

Postby David Greene » June 15th, 2015, 1:35 pm

I don't think I'm being cold. If someone is really going to lose their house due to the loss of a tax break, then it's more than likely they are going to lose their house for some other reason. The tax breaks for SFHs are super-regressive.

I'd be in favor of phasing in elimination of the tax breaks. Immediately eliminate the break for people making $80k+ and then gradually move down from there. Give people time to plan, sure. But we have to get off this gravy train.


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