Tuesday, July 7, 2015

How Much is Upzoning Worth?

"Upzoning" -- changing zoning laws to allow taller buildings and greater population density -- creates a windfall gain for landowners in high-value areas when the regulatory barrier is removed, and cities can capture some of that (by selling development rights at or near market prices) to defray the costs of the transit infrastructure that makes the higher-density development feasible.
Source: U.S. News.
How much is upzoning worth? A lot. Different stories about different places reveal just how much. Some cities are quicker to recognize that value and take advantage of it for the benefit of the city as a whole, not just the owner of the property that's upzoned. Some cities are a little slower on the uptake. And then we get to Richardson.

One example cited in a U.S. News story (h/t S.P.) is from New York City: One Vanderbilt tower near Grand Central Station. "In exchange for greater permitted density, landowner SL Green is investing $220 million in improvements to Grand Central's subway and commuter rail station." That's proof that developers recognize the value in upzoning and are willing to pay cities to get it.

A second example is from closer to home, Dallas. According to Jim Schutze of the Dallas Observer, Dallas plan commissioner Paul Ridley "had been troubled for some time by a process at City Hall in which developers ask the Plan Commission to let them put up much bigger buildings than normally would be allowed by zoning on their land. The city often consents, doubling or tripling the profit on the land for the developer. In effect when the city gives permission for added density, it is gifting the developer with an extremely valuable commodity. So when it does that, why shouldn't the city seek some help with its own issues in return?" That's proof that Dallas is waking up to this giveaway and might start demanding something in return for it.

My last example is from Richardson. OK, it's not really an example like the others. It's more like a counter-example. Not only isn't Richardson asking anything in return for the windfall profits that result from upzoning, Richardson is actually paying developers to take the city's gift.

Richardson upzoned the property known as CityLine. Richardson upzoned the property known as Palisades. In both cases, the upzoning resulted in significantly increased density and, with that, increased value for the land itself. So, what was the city's ask of the property owner in return for this gift? Trick question. Not only weren't the property owners being asked to spend millions of dollars improving their surroundings in the city, the city is gifting them millions of dollars to build out their own development. CityLine's deal is worth $117 million. Palisades' is worth $47 million.

Maybe it's time for the folks at Richardson's City Hall to call time out and go check out New York City, Los Angeles, Tyson's Corner, Virginia, or just call Paul Ridley down the road in Dallas and find out how this game ought to be played. Because we're playing it backwards in Richardson.

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