David Toyer, owner of Toyer Strategic, recently appeared in two videos that support a fix to the Trestle. The first video “Living with the Trestle” highlights the challenges and safety concerns faced by the residents and businesses of Lake Stevens who rely on the east-west U.S. 2 Trestle as the area’s main transportation corridor. The second video features an extended interview with Toyer on the Trestle’s impact to Lake Stevens’ economic development.
Availability, affordability, attainability . . . have a few things in common. First, they can be used to describe various elements of a supply demand model (e.g. if it is rarely available, it is rare it’s affordable). Second, they are key discussion points in housing debates that are growing in importance nationwide. Why?
Fast growing urban markets don’t have enough supply to keep prices under control. Hence why Seattle is the fastest growing metro (over the last two years) and the metro with the largest increase in home value during said same period. In a different, but similar situation are the rural markets where the few that are built face higher construction costs and are thus generally limited to the high end of the housing market. Another supply side problem. In both cases regulations have an impact on the supply and thus the affordability. This article by Dan Bertolet for the Sightline Institute does a fabulous job of explaining how regulations are further driving up housing costs in fast growing urban markets.
But what about the regulations and supply side issues in rural markets?
In many rural areas a regulation induced supply-demand disconnect is occurring because of high construction costs (not land prices), requirements for the same type of urban infrastructure as in a large metro, lower densities, and an inability to reduce other costs of developing housing. This creates huge gaps in the type and price of housing available.
As a result, developers/builders often seek incentives like moderately higher density, tax abatement and municipal extension of some utilities – requests that are scoffed at by communities as benefiting the pockets of the developer/builder and not the end user. This is a false assumption. When fewer homes are built and those new homes come to the market almost exclusively at the top end of the market, this impacts first-time and new-to-market home buyers who become limited to buying homes only when existing owners move up. This lack of variety in the housing stock and inability for first-time, move-up, move-down and new-to-market buyers to find affordable options in turn stifles rural population growth.
Why is this so important in rural areas? Workforce. The competition for workforce is fierce. Traditionally, your competitive advantage as a rural (non-metro) area has been based on your quality and cost of living (generally). If housing becomes a challenge for you, then you lose a big part of your competitive advantage. That is to say if your area has a similar job, an overall lower cost of living and some amenities, but it lacks housing, you will lose out because you don’t have what they want at a price they can afford. Your community becomes a market for the buyer that makes them feel like their trying to shop at Tiffany’s with a minimum wage job or searching a hardware store for bread, cereal and milk. In both examples there is a disconnect between buyer and product.
The lack of competition from new housing has even bigger impacts as existing homeowners and landlords seek out and get higher prices and higher rents while investing less in property care and quality. The lack of housing becomes a disincentive to investing in the existing housing stock. This is one cause for declining neighborhoods, higher crime (reference the “broken windows theory”) and greater burdens on municipal services that must enforce nuisance codes, inspect rentals and manage buy-out/tear down programs.
As the problem grows, it gets worse. Rural communities start to see a decline in some property values eroding any gains to their overall tax base. And employers start to complain they can’t attract workers because the prospective workers can’t find a place to live. Alas, at a certain threshold your community becomes incapable of attracting the new workers necessary (let alone retaining what you have) to support anything more than ‘replacement’ economic development.
If your rural community wants to grow its tax and jobs base, then you absolutely must address the housing. While it’s not the silver bullet to future success, it’s a key ingredient.
So what can be done to encourage new housing and new housing investment?
- Allow moderate increases in density. Many rural communities have ore-1980s small homes on small lots. There were reasons for that type of development: affordability, efficiency and ‘community.’ I often hear elected officials and citizens will say they want to preserve the character of their communities, but they’ve adopted codes and policies that seek big (1/4 to 1/2 acre) lots. Allowing more density spreads the cost of infrastructure, reduces the cost to develop and creates efficiency for future community services. It also encourages more affordable housing options.
- Waive water and sewer hookup fees. The theory is that you need to make the new home pay for the system improvements built years ago to accommodate them. However, in many cases rural utilities have had this available capacity going on a decade or more and at the same time they need more ratepayers to fund current facility maintenance and ever changing environmental regulations that require frequent upgrades. In the grand scheme of things, having more ratepayers is a better deal for these utilities, allowing them to fund day-to-day operations better, as well as bond for the bigger upgrades and improvements.
- Tax abatement (Version 1). Forgo the first 5-7 years of property taxes on new housing and see what happens. A buyer that barely qualifies to buy a house (and pay the mortgage, insurance and annual property taxes) will be more encouraged to purchase new housing if they know they have five years tax free to grow their earnings. This also ensures that these new home buyers are more likely to have the resources in the early years to habitually care for their homes and still participate in retail spending in the local marketplace. Note that the key word here is forgo, as a community is not losing anything they currently collect, but deciding for the greater good to wait a few years before they get the benefit of something new. It should be viewed as an investment by the community and not an incentive for the builder.
- Tax abatement (Version 2). Forgo property taxes on the value of any new improvements made to an existing home for 5-10 years. This encourages the existing homeowner to not only take care of their residence, but to add that additional room, deck, etc. While the city won’t collect the revenue for a few years, the result is higher collections when it does kick in.
- Tax increment financing (TIF). Infrastructure is the biggest cost burden on new housing in rural areas. Communities can use future property tax revenues over a period of time to reimburse the developer for a portion of the cost to build the ‘urban’ level of infrastructure that they’ve required.
- Municipal improvements. In some rare and more extreme cases we’ve seen communities acquire land and install improvements to the level of a finished plat in order to entice new home building. It sometimes can work, but it’s more risky and doesn’t yield home-building overnight.