Land Value Trigger

The Land Value Trigger attempts to take the good attributes of using land value ratios and add in mechanisms that account for the political difficulties in enacting land value ratios via the normal planning process. Here’s the basic procedure:

  • It would be implemented as state (or province or federal) law, instead of local ordinance.
  • It would creates a procedure for cutting cities into districts.
  • It would regularly measure the land value ratio of the residential land in those districts.
  • When the land value ratio gets too high, it triggers an upzone.

Implemented as State Law

If cities were good at regulating zoning, we wouldn’t need to be creating long blogs dedicated to fixing it. But they aren’t, so we are. That leads us to believe that we may need solutions that are implemented at levels higher than cities. This has been a growing theme of late in places like California and Oregon.

At any time, of course, cities can fix their own zoning so that states don’t have to. But across many states and countries, the politics of cities are proving that the problems aren’t unique to any one city. Additionally, there are good philosophical reasons to believe that higher levels of government should regulate local government’s use of land use rules:

  • Land use rules affect more than just the residents of a city; they largely function to exclude other residents of the state from a particular place.
  • Local land use regulations have effects on the economy and environment of a state that go far beyond the municipality that enacts them.

Identifying districts

When we put together procedures for splitting a city into districts, we have a few criteria:

  • Districts should be immune to gerrymandering. Cities should never be in control of setting their borders and as much as possible, neither the state: natural borders are better than those shaped by a commission.
  • Districts should be small and regular enough to have mostly similar amenities and land values. If a district included a vast geographical area with some desirable places to live and some less desirable places, the averages could hide the places where changes could be beneficial.

Two types of districts that might work are: census districts or block-faces (i.e. the properties on both sides of a given street between two intersections). Neither of these are very vulnerable to gerrymandering, as blocks are set on the ground and the federal census bureau is unlikely to be swayed by a local district’s lobbying for a gerrymandered district.

Alternatively, one could forego districts altogether and simply use individual parcels as the unit of analysis.

Measuring Land Value Ratio

To measure the land value ratio of a district, we would simply total the land values and divide them through by the number of units on the ground (plus, perhaps, units that have already been permitted).

Land values, of course, can’t be measured directly. Nevertheless, taxing authorities across the country regularly assess land values for the purposes of taxation. Sometimes, tax authorities don’t do a particular good job of this; I’ve noticed, for example, that the Travis Central Appraisal District where I live in Austin, TX, pays much more attention to the total cost of property than apportioning it between the cost of land and the cost of structure. Nevertheless, the values they come up with are good enough to use in taxation and definitely good enough to use in this solutions.

As for counting units, we think it’s more important to count the number of units on the ground (or permitted units far enough along to be very likely to actually get built), rather than use a more hypothetical “total zoned capacity” metric. Identifying the actual “zoned capacity” of even a single individual parcel can sometimes take months and tens of thousands of dollars due to the complexity of regulations. For example, a particular plot may allow up to three units, but only if they’re structured as a duplex and an accessory dwelling unit, none of the structures are within 10′ of the side of the parcel, 15′ of the front, or 25′ of the back, none interfere with the critical root zone of a heritage tree on the parcel, etc. In practice, this set of rules may actually only allow one or two units to be built. Measuring the actual number of units on the ground helps us cut through this complicated morass and let the city identify which of their zoning rules will actually allow more units.

The Trigger

The statute would establish tiers of minimum residential densities. For example, we might identify four residential zoning districts: a base zoning district, with no minimum permitted residential density; a “duplex” district with a minimum permitted density of 12 du/acre; a “four-plex” district with a minimum permitted density of 24 du/acre; and, finally, an “apartment” district with a minimum permitted density of 48 du/acre. These would be permissive minimum densities rather than mandatory minimum densities. That is, property owners within these district would be permitted but not required to construct development at the minimum densities provided by statute. The district’s zoning classification would be determined by the parcel within it with the least dense zoning. So if half of the district is zoned for single-family housing and half for duplexes, the district as a whole would be classified as a “single-family district.”

Additionally, the statute would define a trigger: for example, $150,000 per unit, well beyond the level we would expect to see in an area without zoning constraints.

If the LVR of the district as a whole exceeds the trigger, the statute would mandate that the district be moved to the next highest district. That would give the city one year to rezone any property within the district to allow for the specified level of density. If the city fails to do so, then you would go to enforcement. After the upzoning, the city would be given a grace period of, say, 5 years to permit new structures before the LVR would begun to be measured again.

Expected Effects

Except for if the “district” size was an individual parcel, we don’t expect the land value to actually be triggered very often. Instead, it would serve as a wake-up call to city governments, and zoning bodies that, should they fail to address the growing problems with affordability in that particular area, the state is going to step in and force them to do something about the problem.

So, for example, if the district was the size of a census district, the city may choose to identify particular streets for additional density, in order to boost the total number of units denominator and prevent the trigger from being fired. The city would have to actually choose streets where real units will be placed; merely adding zoned capacity in places unlikely to be built would be inadequate.

Enforcement

The land value trigger wouldn’t preempt all city zoning regulations. Cities would retain the freedom to adopt zoning regulations generally, but would be forbidden to adopt regulations that have the practical effect of preventing minimum densities in high-demand locations. Disputes over whether a particular regulation is an act of interference could be entrusted to the courts. Alternatively, we could create a statewide zoning appeals board.

There are a couple of alternatives for enforcing the land value trigger. In the case that the city fails to zone to the dwelling units / acre minimum, the law might permit developers to build to the default residential densities defined by the state without further interference or required permit from the city. Under this approach, a developer would have standing to “enforce” the required minimum. But this approach also shifts the perhaps substantial cost of litigation to individual developers and leaves the possibility that a determination with respect to one project will have limited precedential value for other projects.

A second alternative is to empower any property owner within a district to ask the court or administrative tribunal to impose the required minimum residential by decree should the city fail to timely do so. The court or tribunal would assess and reject city zoning regulations that functionally impose density restrictions in conflict with state law. The latter approach has the advantage of allowing the litigation burden to be spread among a coalition of property owners and developers. Further, the court’s determination would as as a legal matter be preclusive, forestalling the need for future litigation with respect to a particular district.

The statute could recognize other special, narrow exemptions to the land value trigger. For example, particularly environmentally sensitive areas could be exempted. But in this case, it is important that the exemptions be limited. Perhaps a city could only designate a certain percentage of areas as sensitive. Or else, cities could be required to petition a state tribunal for recognition of the sensitive area. The state tribunal would evaluate the petition using a set of objective criteria.

Legal justifications

The tradeoff between allowing home-rule cities wide latitude to define their own laws and safeguards to prevent them from using those laws to reduce their residents’ property (and other) rights is a well-established one. This approach leans toward individual property rights, but very lightly. Cities may have rational bases for segregating use types (e.g. residential and industrial); the trigger doesn’t impinge on that right. Zoning can serve a “good housekeeping” function by restraining property owners with highly idiosyncratic tastes. Whether such conformity is virtue or vice, the trigger is not designed to interfere with a city’s ’s regulation of it — except, of course, when the conformity is a mandated single-family construction in areas with very high land values. Indeed, by limiting its action to high-value areas where higher-density structures are the only viable path to lower land costs, the trigger respects the right of the ordinary suburb to freely regulate housing to its residents’ desires. Instead, the property rights it adds are narrowly tailored to precisely those areas where their curtailment is most damaging: areas where there is demonstrable market demand for greater residential development and thus the loss-of-value is greatest.