The value of land, in most cases, has little to do with the intrinsic value of the soil. Land in Newton is more valuable than land in Wakefield because land in Newton is closer to Boston and living on land in Newton entitles one to send their children to Newton schools. A lot on Needham St. is more valuable than a lot in Oak Hill because Newton zoning regulations allow commercial development on Needham St. The site of the Chestnut Hill Square development was worth much less than before the zoning was changed to allow the more intensive uses that were eventually built.
The latter two truths are highly relevant as we engage in both large-scale developments — Washington Place and Northland — and zoning reform. When property is rezoned, wealth is created or destroyed.
Upzone a property and you create wealth for the property owner. Virtually out of thin air. I own a property that allows for a three-story commercial building on Friday. If the City Council rezones my property, through whatever mechanism, to allow a five-story commercial building, the value of my property increases. The right to build a larger building increases the asking price for the lot, without my doing anything.
On the flip side, if I own a residential property on which I can build a 3,500 sq. ft. home and zoning changes limit me to a 2,500 sq. ft. home, the value of my property is diminished, through no fault of my own. (Yes, there are circumstances, like an existing 3,500 sq. ft. home on the lot, that might minimize the loss, but let’s deal with the general case.)
Opponents of upzoning to enable projects like Northland or additional development along Washington St. object to the city making developers rich. And, they have a point. At the moment the Council approves additional development, they have increased the wealth of the property owners. Those among us who favor development on social justice and environmental grounds (raises hand) need to wrestle with the fact of the city granting such a windfall. (Depending on how rights to land are accumulated, current property owners may share in the windfall.)
I think the answer is to aggressively recapture much, but not all, of the newly created wealth.I say not all, because we need developers to develop. There needs to be an incentive to build the housing we need to satisfy social justice and environmental needs. But, even the most ardent development advocates need to understand that the wealth creation is the basis for city demands of a developer. And, the demands should be commensurate with the size of the wealth creation. The Council should negotiate aggressively.
It’s not just large-scale developments that generate wealth. The heart of the proposed zoning reform is neighborhood consistency. (See my long, attention-challenging post on zoning reform.) Under the draft zoning ordinance, some folks with existing, non-conforming lots will be able to expand or rebuild bigger where they couldn’t under the current zoning. That’s wealth creation. Some folks with large lots in a zoning district will find that the can’t build as big as under the current rules. That’s wealth destruction. (Look forward to a spate of building permit applications after the proposed zoning rules are enacted but before they become effective.)
Lot-by-lot wealth recapture or compensation seems both logistically impossible and ill-advised. But, there is an alternative solution: upzone everywhere. The right to build a multi-family building makes land more valuable than the restriction that allows only single-family housing. Upzoning single-family to multi-family is fair to everyone.