Friday, November 21, 2008

What Types of Urban Development Pay? Part II

This is Part II of a breakdown on recent findings studying Downtown Roanoke, Virginia and the recommendations that resulted.

Last time, we found that surface parking was a good money maker for urban land owners, while development didn't make sense without a government subsidy. Now let's look at how these development choices add up for local government. We compared annual property tax revenues with city spending per acre to find the public return on investment.

1. Surface Parking. This popular downtown land use puts local government in the red, effectively moving money from other uses to land owners, though not as much as other options.

2. Historic Rehabilitation. In urban areas, state and federal income tax credits are not enough for developers to invest. Local tax breaks make the difference, and caused a (re)building boom in the study area. The costs are steep though, with the city's return on investment at -50%, moving tax money to support preservation. 
3. Subsidized Development. When local government holds the entire bag for subsidizing development enough to see results, the costs are staggering. In the case study, land was given for free to a developer. The public return on investment was around -3000%. These projects are few and far between, because they can bankrupt local government.

4. For Profit Development. Of all of the examples identified in this section of the study, this was the only one that produced a favorable rate of return for the city, a handsome 1,240%. No example could be found during the twenty year study period.

Note: These numbers assume an identical development with the same land area (except the surface parking, which lacks a building) and the same 20 year financing.

Next time we'll compare the public and private returns on investment and see if their relationships square with the findings of the study.

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