The world of economic development has been turned on its head. Tried and true strategies to retain and attract job creation and economic growth are being tested as Americans change how – and where – they wish to work.
For decades, economic development was focused on providing incentives while appealing to the c-suite (nice houses, good schools). Infrastructure was important, but was focused almost exclusively on the suburban model – isolated campuses where the car was king. Yes, the workforce played a role, but more often than not the bulk of a company’s employee base was measured in bodies rather than through the lens of highly sought after talent.
Today, talent is king. The ability to retain, cultivate and attract the in-demand knowledge worker has become a key component – and in some cases, the most important aspect – of corporate real estate decisions. We have evolved past focusing primarily on tax breaks and the c-suite to a bottom line approach that measures value not just in terms of cost of doing business, but the economic benefits of place. This includes the tremendous benefits of hiring the best of the best, reduced costs of increased training and the fact that workers in walkable, mixed-use environments are nearly 50% more productive, per capita, than their counterparts in auto-oriented suburbia.
Quality of life has always been a focus of economic development. Today, that has evolved to an emphasis on quality of place. Simply put, those highly sought after young professionals demand a lifestyle unlike predecessor generations. Urban living. Walkability. Mobility. An array of cultural and entertainment offerings. A range of housing options - including rentals, condos, townhomes and single family homes within more compact neighborhoods that provide proximity to a vibrant, downtown-like environment. Mind you, urban does not necessitate “big” – yes, urban can represent the major urban cores such as Manhattan, Boston or San Francisco; but it is also found in suburban mixed-use environments, historic downtowns and smaller cities across the nation.
Yes, real estate is more expensive in these environments, but those additional costs are offset many times over, providing clear economic rationale for companies to move downtown. And let’s not be foolish, as there is still a need for incentives and catering to the executives and decision makers, however the role of HR has become a paramount component of any successful economic development strategy. In addition, by investing in place, rather than giving away the store, inherent value is created for a community that lessens the need for greater incentives over time, as the value of place becomes more central to economic development strategies.
During the current real estate cycle, the numbers are staggering: significant price premiums for walkable urban neighborhoods as compared to those that rely solely on the automobile and suburban sprawl. Those price premiums – which can rise well above 2x cost for walkable urban product as compared to driveable suburban - demonstrate pent up demand for living and working within mixed-use, pedestrian friendly and mobility rich environments. Even more staggering is the shift in market share, where a recent study conducted by Smart Growth America and George Washington University demonstrated that 28 of the nation’s 30 largest markets have seen significant shifts in consumer preference as drive-only locations are flat out losing market share as to more diverse built environments that provide the lifestyle today’s worker demands. In a world of poaching, cities large and small are the benefactors of the flight from auto-oriented suburban locales.
Even as of a few years back, there could be legitimate debate as to “whether or not” a region should examine its built environment to determine whether adjustments must be made. After all, there is – and likely always will be – considerable desire for more traditional suburban locales. However, the evidence has made it clear that for a community or region to be competitive, they must consider the value and quality of place, with a focus on providing walkable, mixed-use and mobility rich environments. In the end, it’s about balance and a full range of offerings. Protect and enhance the bedroom communities that so many love. But complement them with compact, vibrant downtowns and urban neighborhoods.
Economic developers must become placemakers, just as urban planners must recognize that they, too, are in the field of economic development. More to the point, we must integrate these disciplines to work hand in hand to foster downtown revitalization, catalytic mixed-use development, suburban retrofits and corridor reinvention. Furthermore, public works and engineering must be at the table, so short and long term infrastructure policy can be contemplated in a manner that fosters the creation of these new, walkable locales. We must align infrastructure strategy and investment with land use, each leveraging the other to provide the greatest return on investment.
The question then becomes, is YOUR community properly positioned to leverage the evolution from past strategies to those that take a Place-Based Economic Development approach? What are the short term, low cost and easily implementable opportunities to better meet the needs of this new market? What mid and long term placemaking, land use and infrastructure strategies must you take to drive responsible economic growth?
Finally, how can cities and regions that are currently stuck in place begin to evolve to drive economic development by investing in place? It’s all about integration and Place-Based Economic Development.
If you want to learn how to position your community to better attract and retain talent – and the companies that employ them? Do you need assistance convincing key decisions makers to take a more place-based approach to economic development? Whether you are just beginning the journey or are ready for a fully integrated process that aligns urban design, land use, infrastructure and public policy, The Downtown Collaborative & 3BL Strategies are here to serve your needs. Reach me at brandon@3BLstrategies.com.
Not long ago, a group of developers, planners and housing advocates huddled around a table, joined by municipal representatives in a region that is grappling with how to effectively deal with their growing affordability issues.
The good news is that their region holds the potential for significant, focused growth along a new transit corridor. This could open up new revenue streams to be directed toward affordable housing. The reality, however, is no one source of revenue is sufficient to overcome what has become a national affordability crisis with historical roots. To further complicate matters, affordable housing is one of many issues that the community wishes to address, each of which demands funding and resources. To paraphrase the sentiment of one of the local officials: “Please don’t spend my ‘new revenues’ seven times before we even receive them – I’m already committed to spending them three times over as it stands today!”
That last point is illuminating, as it demonstrates the competition for every slice of potential new revenue. As folks around the table discussed the need to fight for their slice of the pie, we realized that there simply would not be enough to go around. Which brings us to a kitchen analogy for how to better orchestrate a housing affordability strategy:
From those discussions, a few overarching themes came to be.
1. Expand the pie and bring a bigger fork: Be intentional about new funding to address affordability.
As folks around the table were throwing out potential hurdles and competing needs for the funding that would become available through new development efforts, it became apparent that just divvying up the pie was not going to suffice – not enough revenues could be created by the new development to address affordability and the many other competing needs of the community. We had to expand the pie, and we needed to bring a bigger fork.
Resources, including financial, are necessary to meaningfully impact the affordability crisis. A concerted effort must be undertaken to redirect existing funding in a more efficient and outcome oriented manner while new sources of funding are identified moving forward. These new sources can lean strongly on the private sector development community (inclusionary zoning, fees-in-lieu of, density bonuses), but exactions alone, placed on the back of the most costly to build, new development, are simply not sufficient. Public AND private sector investment is necessary.
Local revolving funds for small or midscale investment. Partnerships with banks and local financial institutions. Value capture, TIFs and other revenues that can be created through new development. More efficient use of existing revenues to produce greater outcomes. All of these may be necessary to actuate a meaningful affordability strategy. The reality is without funding, you can’t do much. However, getting that funding is only the first step.
2. Make something fresh – and make good use of those leftovers! A community must take a hard look at reimagining its existing stock while fostering new development.
One of the most important strategies to ensure the provision of affordable housing into the future is to provide programs that ensure existing affordable stock survives, while promoting new development to increase supply and provide additional revenue streams that may be tapped.
For example, a municipality may wish to purchase naturally occurring, non-subsidized product that exists today, and convert it into protected and affordable units into the future. If not done intentionally, such stock would eventually reach the end of its economic life, and be redeveloped – usually with significantly higher price points. This could be conducted through any number of channels, including public-private partnerships with not-for-profits and/or private sector apartment owners and management companies.
When it comes to new construction, focus efforts where maximum benefits will result. Does the opportunity exist to increase activity and density in or around a downtown, mixed-use environment, or to promote the creation of one? Leverage the market for walkable urbanism to build vibrant hubs of commerce and culture that provide far greater economic returns than lower density sprawl. A mixed-use, downtown oriented focus will increase housing supply (affordable and higher end alike), provide new revenue streams to tap into, and reduce the growing pressure for larger scale development within established bedroom communities.
Finally, don’t expect exactions on new development to be the only, or even the primary, means to support affordable housing. While policies such as Inclusionary Zoning or Density Bonuses work in some cases, they must be properly calibrated according to the local market and built environment. If you expect to place the full burden on creating affordable housing on the back of the most costly product, and new construction, the result may be further constriction of the market and an exacerbation of the affordability issue rather than a solution
3. Don’t just focus on the main course. We need small plates, too. – Encourage development at all scales, from incremental through institutional.
Most new affordable housing that is created falls into the “large scale” or “institutional level” of development. Between the high cost for entitlements (which can be exorbitant in anti-growth environments that fear the very range of housing types necessary to promote an economically healthy and socially vibrant community) and the manner in which federal subsidies are created, it is becoming ever more rare to see small and mid-scale construction of new affordable product.
As such, tools on a local level must be provided to encourage neighborhood oriented development (think accessory dwelling units, or fourplexes) and “missing middle” product that could also include projects of a few dozen residential units. To start, ensure local zoning codes do not prohibit the very types of development that promote a community’s stated desires, including social equity and housing needs. Make small scale multifamily, granny flats, and other typologies legal by right within a full range of neighborhoods. Where appropriate, zone to allow and even encourage (perhaps coupled with local financing assistance or loan backstops for local developers) buildings that could house 6-30 units, or even 30-60 units in transition areas that abut a more walkable, dense and often mixed-use framework.
By legalizing the very types of housing that are best suited to be more attainably priced, affordability can be addressed throughout different neighborhoods without sole reliance on large scale, subsidized product
4. Everyone loves a layer cake! Work to address the shortcomings in the capital stake by aligning local, state, and federal programs in addition to tools and incentives for smaller scale developers
In addition to the need for financial resources, it is essential to maximize the impact of those available dollars, once procured. Think of the funding gaps that are traditionally faced by developers of affordable product (the specifics of which will shift from state to state, region to region) and work to overcome those hurdles through strategies such as a local revolving fund, creation of funding and financing programs with local banks to support local investment and construction, or to provide backing for loans that would be made to local developers who might not otherwise be able to move forward with small and mid-scale projects.
Finally, ensure that local zoning and land use ordinances and other regulations do not conflict with, nor discourage the use of federal programs such as the New Market Tax Credit program, Low Income Tax Credit Deals, Historical Rehab credits, the new Opportunity Zone policies or HUD financing guidelines. Do the same on a state level, in a manner that addresses the expected gaps in a developers pro forma, creating a layer cake of federal, state and local programs/policies that work in harmony with one another to enable financing and construction of attainably priced housing at different scales.
Finally, look to create and leverage innovative partnerships that may include public and private sector participants, local financial institutions or local large scale institutions such as health care systems and institutions of higher learning. A large employer might be able to provide some amount of assistance for a program that in turn helps build workforce housing, again further leveraged by the additional policies and programs discussed throughout this article.
5. Get to work! Start prepping your meal and then keep on cooking. Find a way to build more housing, at all scales, across all incomes level. And do it NOW!
This reminds me of an ancient Chinese proverb. The best time to plant a tree is 20 years ago. The second best time is today.
While land is more expensive than it’s ever been, it will also likely never be cheaper than it is today. Couple that with Economics 101 (supply vs. demand), and the two most important factors to overcoming a growing affordability crisis become clear. Not taking immediate action on the affordability issue will only make the crisis worsen. Second, the most successful long term strategy to address housing affordability is to ensure that supply keeps up with demand.
It is essential that affordable housing policy be at the forefront of community and municipal initiatives. Whether a community is to undertake an economic development strategy, a comprehensive visioning or a future land use plan, it is essential to consider the issue of affordability, throughout. Strategies must be created today that align with other polices as described above, but also ensure that any further growth is done in a manner that best promotes the desired outcomes of more affordability and equitable neighborhood growth. There must be an intentional strategy to incorporate a range of solutions, as described above. And there is no time like the present to do so.
The underlying reason for this, in addition to the realities of land prices escalating, is the fundamental reality that those regions which have best tended to the issues of affordability are those that have created policies designed to promote more construction of housing across the board – subsidized and naturally occurring, local investment and institutional finance, incremental development and catalytic development. The immutable laws of econ 101 are at work: additional supply reduces cost pressures; constrained supply - be it through zoning that makes it illegal to develop in the first place, or financial structures that don’t support the market’s ability to build new or enhance existing product – increases cost.
Final takeaway: Try things out, experiment with new policies and approach – then try again
There is no silver bullet to the growing affordability crisis. Each community has a specific set of needs, its own opportunities and unique constraints. The market may support one set of strategies in some locations, and an entirely different approach in others. Finally, it will take the utilization of a full list of ingredients to concoct a recipe – or better yet, a series of recipes – that can ultimately make a dent in providing more housing product across income levels and development types, while ensuring a greater stock of affordably priced homes. In addition, housing cost is only half of the affordability equation. Access to transportation and an array of mobility solutions, coupled with proximity between where one works and lives are essential components of the equation. But that's for another article and another day.
Don’t be afraid to fail, because in the long run, trying, failing, and adjusting, are the only ways to succeed. Embrace your role in a national effort to find new solutions as we individually and collectively work toward inventing strategies that can improve the quality of life in communities throughout the country.
Want to learn more about Triple Bottom Line strategies to address issues such as affordability? Email email@example.com.