Another Example of How We Add Value to Projects

Whether you are a community, economic development organization, real estate developer or expanding business, our land use and economic development expertise can add significant value to your projects.  Here’s an example of value we’re adding to a project by changing the land use and zoning.

On a 6-1 vote Wednesday night, the Auburn Planning Commission recommended the City Council approve a comprehensive plan map amendment and rezone for 1.89 acres that our firm has been pushing through the City’s annual docket cycle on behalf of a client.  If approved by the City Council, the resulting zoning would increase the density of the site by as many as 29 additional housing units.

This project is a perfect example of how our company can help land owners and developers add value to their properties and projects,” said David Toyer, founder of Toyer Strategic Consulting.  “With land supply inside urban growth areas becoming more constrained, our experience changing zoning and permitted uses can add significant benefits clients looking to achieve a higher and better use.”

In another example earlier this year Toyer Strategic successfully amended the matrix of permitted uses in the City of Pacific, Washington to allow a client to move forward an industrial warehousing in an office park zone – a obvious win for the project developer, but also a key win for a city which hadn’t seen much new development in that zone.

What Economic Developers Should Learn from Seattle’s Head Tax

It’s been a little over a week since the City of Seattle voted unanimously to enact a $275 per employee tax on it’s for profit businesses grossing more than $20 million per year in the City – expected to raise around $48 million in new tax revenue that the City indicates it will spend on homelessness.

Leading up to the decision, the business community tried to send Seattle a message. Amazon, who many other communities around the country are pursuing with vigor, paused construction and discussed not creating up to 8,000 additional jobs. In the days since, Pierce County (neighbor to the south) and its cities have since announced a $275 per employee incentive per year for five years in addition to up to $1,500 per year in incentives that businesses creating at least 5 jobs can already claim.

The decision in Seattle has been made subject to the success of any referendum to repeal it. However, are there lessons from Seattle that businesses, economic developers and even cities can glean from this? Yes. Here are my top five.

  1. Be prepared to defend economic development decisions. Collectively, we want jobs. . . better jobs. . . jobs for our kids. . . etc. And elected officials know that and usually campaign on things like low unemployment and higher wages. Despite the fact that creating jobs is still the political will in most communities, those winds can swiftly change. Typically, this happens when an incentive package is viewed as being too rich or the intensity of growth in a specific location enlists a greater negative public response than the positive attitude associated with jobs. Every economic development project should prepare and have ready an economic impact analysis and/or a return on investment statement that show how that activity benefits a community. More and more this is becoming critical to not only sell elected officials on the benefit of economic development, but to give the public confidence it is in their best interest as well.
  2. Include political due diligence in any site location decision. Businesses base site location decisions on a combination of factors including site development costs, logistics, operational cost factors, tax liabilities and a judgement as to whether the incentives offered can be delivered as promised. Additionally, they will look at the current political situation, but they often stop short of fully assessing the local political history of the community or evaluating future political risks. These risks come from natural cycles at the local level which are tied into the leadership of the community, the health of the community and the amount of growth it may have already embraced. I’ve written a previous blog about this topic which goes into more detail here.
  3. Know the facts and be honest about them. It appears from some reporting that misinformation about the cost of homelessness in Seattle may have been circulated and used a justification for the adoption of the head tax. Unfortunately, misinformation spreads immeasurably fast these, which justifies the attention to detail that economic developers need when it comes to attracting new economic development projects and putting the deal together. Often, I’ve seen how easy it is for a city to say, “Yes, we can do that” only to realize they can’t. I’ve also seen examples like that of a community that touted its available water capacity as the basis for attracting an economic development project. But after some digging into the details, the capacity was only ‘on-paper’ – the water could be produced but couldn’t be distributed. One solution to ensure accuracy for all is the use of third party site certification. However, even site certification has its challenges, which I discuss here.
  4. It’s not good business ‘poaching’ businesses from your neighbors. There is a difference between a business deciding it is in their advantage (lower rents, closer to customers, etc.) to relocate from one community to an adjacent community and the instance where a neighboring community acts to lure businesses. The latter creates negative competition and distrust locally. Moreover, when the gloves come off and incentives are involved it can often raise to the level of being addressed by a state legislature, which often results in further restrictions on the right kinds of economic development activities.
  5. Be aware that policies like “Growth Management” lead to future political, social and economic challenges that place business and economic development in the center of debate. One of greatest challenges in the greater Seattle area is its complex state growth management laws restrict nearly all development to within defined urban growth boundaries that have not had any significant revisions since established in the early ‘90s. Well intended in vision, this governing regulatory approach has some critical flaws in implementation. For example, the “density” first approach to accommodating future population and job growth in the Puget Sound region has driven up the costs of housing, construction and infrastructure because vacant land supply is critically low, and redevelopment built-out areas to higher intensity uses adds expense. Unfortunately, expanded growth boundaries aren’t expected soon. Second, the reality is that investments in infrastructure to support growth have very rarely been made prior to and in full knowledge of the growth occurring, relying on a “growth should pay for itself” philosophy that clashes with legal requirements that a development only pay its fair share. Even mitigation collected from development has six years to be spent. It’s no wonder there is public outcry. This disconnect has left cities in the position of always playing catch up on infrastructure, services and capacity

It will be awhile before we know the true impact of Seattle’s head tax. But what is clear is that it has broad implications on economic development – implications that may not be the solutions advertised.

About the Author
David Toyer is the founder of Toyer Strategic Consulting – a firm that advises businesses and communities on economic development and land use. David has nearly two decades of experience and has worked on projects throughout the country. For more information about David Toyer or Toyer Strategic Consulting, visit www.toyerstrategic.com.

Pacific Considers Changes

A package of code amendments in the City of Pacific, WA has completed the State Environmental Policy Act (SEPA) notification period and provided no SEPA appeals are filed by January 19, 2018, the amendments will head to the City’s Planning Commission on January 23rd.

Toyer Strategic Consulting is helping to move forward a package of code amendments in the City of Pacific, Washington.  The proposed amendments, targeting changes to the City’s Office Park and Industrial zoning districts, aim to attract new industrial development opportunities.  In summary, the proposed amendments include changes that:

  • Allow additional uses in the Office Park zoning district
  • Permit additional building height in the Office Park zoning district commensurate with additional building setbacks
  • Modify the size of parking stalls and adjust off-street parking requirements.

In addition to these amendments developed by Toyer Strategic, the City has added amendments that address parking lot landscaping and business signage.

Prior to submitting proposed code amendments, Toyer Strategic worked with industrial developers, architects, engineers and city staff to identify areas of the code where changes would encourage future development opportunities.  Additionally, Toyer Strategic researched and evaluated similar code requirements in 19 other communities with like zoning districts and/or populations.

Additional Factors in Project Feasibility

Companies, especially those in real estate development, have developed comprehensive due diligence/feasibility processes to determine if a project is a go or no-go.

But even the best due diligence/feasibility processes we’ve seen lack an understanding of the ‘political’ elements impacting a project, which often results in one of two scenarios:

1. The company passes on a project in response to a perceived regulatory roadblock, which if investigated further might be easily navigated, or

2. The company proceeds with a project only to run into an ‘unexpected’ political change that threatens the entitlements they seek (e.g. moratoriums, more stringent regulations, emergency ordinances, etc.).

We’ve got solutions and here’s how we help:

  • Political & Regulatory Risk Assessments – We specialize in understanding local and state regulatory systems and we excel at researching local regulatory trends, past project results, changing political winds (example: is the no-growth neighborhood group running candidates to flip the local council/board?).  We can help your company assess the political and regulatory risks prior to your investment.
  • Reverse Engineering of Regulatory Roadblocks – Have you ever passed on a project because you ran into a single regulatory limitation that didn’t fit the project (e.g. allowed % of lot coverage was too low for your home designs)? We help companies assess regulatory roadblocks and design strategies that can change the red flag your seeing into a green light.
  • Maximizing the Project’s Value – What if you could get a little more density?  Shorten your approval by a few weeks?  Or reduce some of your project’s conditions?  We can help with that.  We understand the politics of negotiation, as well as the opportunities to speed up local regulatory processes, and we can assist you in maximizing your next project’s value.
  • Proactive Project Mine-Clearing – Developing relationships, seeking code interpretations, securing code amendments – are all efforts we can manage on your behalf prior to your next project moving forward.
  • Community Outreach – There’s nothing worse than thinking everything is going great only to go to hearing and have dozens of neighbors show up in opposition.  We are experienced at communicating with neighborhoods and adjacent landowners, and we can help your company manage long-term project risk by utilizing the opportunity to address concerns early in the process.

Want to learn more about how we can help your projects?  Contact us.

The National Housing Problem

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?

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.