Episode #107 Transcript | Listen on SoundCloud
Sarah Steimer 00:06
It’s hard to argue with a financial incentive, especially when it comes to major development. I’m Sarah Steimer and on a previous episode of Good, Thoughtful Hosts, we discussed how public perceptions shape urban sprawl. Today, we’re diving into the ways in which financial institutions and policies either incentivize or disincentivize building outward. We’ll discuss how single-family home types are more likely to be subsidized, how local policy sometimes favors the annexation of more land, and other ways we dangle the proverbial carrot in ways that favor urban sprawl. But it’s not all bad news, because we’re also going to get into which policies and plans can provide the financial incentives such as tax credits, or tax breaks and other tools that help to guide developers to consider things like infill, adaptive reuse, and other more environmentally friendly alternatives to building.
Today’s special guests.
Keith Walzak 01:20
Hi, I’m Keith Walzak, and I’m the Director of Planning and Landscape Architecture with Cushing Terrell, and I’m based out of our Denver office.
Sarah Steimer 01:29
Okay, so last time you and I spoke, we did focus on changing public perception as it relates to urban sprawl. Today, we’re going to talk about the financial angle. So as much as I think it would be nice to think that we could change behaviors just by sort of emphasizing the effects of climate change, people do often need a financial incentive to shift their behavior to shift their practices. So set us up a little bit, if you would, generally speaking, do you think that in at least in the United States, we are financially incentivizing or disincentivizing urban sprawl?
Keith Walzak 02:03
From my perspective, and I’m not the expert in all these areas, but from my perspective, having kind of been in the land use development and policy world for quite a number of years, it seems like we are building in, we have built in for many, many years, incentives to encourage sprawl development. And that’s everything from how projects are financed to the cost and delivery of infrastructure that supports new development, whether that’s infill development in a city, or external to the city, you know, how school districts are funded, how roads are built. So I think, cumulatively, all these things combined, and they’re really creating a strong incentive to to build outward rather than inward. There are a lot of developers who have changed over the course of the last few decades, a couple decades, who are really realizing the impacts of what we’re doing in our communities. And they’ve changed their way and they’ve re-focused on adaptive reuse, infill development. But it is a higher risk proposition to do that. There’s a lot of issues: everything from policy, local policy at the city level, to NIMBYism, you know, neighborhood concerns, things like that. So I think there’s a lot — it’s a very complicated answer. But there’s a lot more leaning toward, I’d rather build outward than inward because it’s just, we’re set up that way if I’m a developer.
Sarah Steimer 03:27
So when you say that we’re set up that way, and we’re talking about maybe let’s start with a local government policy, so how are we set up that it maybe incentivizes people, developers to build outward instead of like you’re saying infill or redeveloping things, like that?
Keith Walzak 03:44
Yeah, so local governments, cities, incorporated municipal municipalities, they’re required to develop their long-range comprehensive plans. And at that point, cities are making a decision of their long-range strategy: how to develop, how to manage growth, how to accommodate future population growth, how to manage fiscally the cost of growth. Many cities look toward aggressive annexations as a way to increase revenues to support services that they’re required to provide. And so they’re very open and willing to consider, you know, annexations beyond the city limits, lines — number one — and other cities are realizing that that’s detrimental. And so they’re kind of focusing their policies inward. So cities have a strong role in this and in terms of how they decide where and how they’re going to grow, how cities interact with the adjacent counties, right, the counties next to that city is really important, too. So now we’re starting to talk about regional growth management. And there’s only a couple of states in the United States that actually have regional growth management statewide policies. Oregon state and Washington are both known to be really progressive in terms of ensuring that cities and counties and municipalities, unincorporated places are all working together to manage growth collectively — most states don’t do that. And so that’s a fundamental problem. From a policy standpoint, a lot of the places that we work in, just as an example, are destination, small communities, mountain towns, and they’re realizing that they have constraints on how they can grow. They’re growing rapidly, because people now have the ability to pick up and move and live in cities that they choose to want to live in. And so they’re struggling with how to deal with growth management, from a policy standpoint. And then the other factors that are is that we have very, I would say, liberal interpretations of how to use zoning, like single-family use zoning, which is predominantly the highest zoning classification. In most cities, if you look at a zoning map, for a city, that yellow that represents a single-family use shows up predominantly more so than any other zoning classification. And there’s a reason for it, because that’s where developers are, you know, wanting that type of development is where they want to develop. So these are all related to policies and decisions that local municipalities and counties are making in terms of growth management.
Sarah Steimer 06:11
Well, so then let’s talk a little bit about what those policies mean for finances, then. You know, are we talking about tax breaks to be able to do this? Are we talking about maybe not having to pay for legal representation to change the zoning rules? You know, what exactly is the financial incentive as it relates to policy?
Keith Walzak 06:32
One major disincentive is that the way our financial institutions are set up, and I’m not a financial expert, but I do understand broadly, some of these concepts that, for instance, home mortgage interest rates, deductions, tend to subsidize single-family detached home types. So if you’re a developer, and you’re looking for cost-effective ways of developing, one, you’re looking at how can I get utilities infrastructure to my property as as quickly and easily as I possibly can? What’s the volume of development that I can develop? You know, there’s a higher rate of return on greater volumes, and what deductions are, what incentives do I have? And so our home mortgage interest rate system is set up to actually subsidize developing single-family detached homes. And that is likely going to happen in these outwardly sprawling areas, these green field developments, if you will, beyond the city limits, which then results in annexations. That’s one big deterrent to combating this idea of trying to promote inward growth development, versus sprawl development. Another factor is school districts, how school districts are funded, program requirements that have, for new schools — whether it’s elementary, middle school, or high schools — in our experience, working with communities and doing master plans from the community and interrelating. With the school districts, school districts have a set formula on the types of acreage that they need for new schools. And I’m talking about new schools, not renovation of old or older schools within the city, I’m talking about new schools. It’s astonishing with the acreage requirements that they need for elementary, middle school and high school campuses. And the only way they can accommodate population growth in a lot of cities is to build new schools, to fund those schools, and then as a result, the amount of acreage that comes along with those initiatives is enormous. And so it chews up an amazing amount of land as they develop outward. And then finally, infrastructure costs. You know, it’s just the cost to build roads and utilities is one thing when you compare upgrading utilities and infrastructure within a city to do a small infill development project. You know, if you’re asking that developer to upgrade the sewer water lines, they may be able to figure out how to do that, right. But bigger developers that do large-scale developments that are looking at 200-, 300-, 500-acre, suburban-type developments, they’re looking at those infrastructure costs and weighing it with the volume, the amount of units that they can build, and get a return on their investment. So those folks that are building those kinds of developments outside the city are able to absorb those infrastructure costs to widen those roads and expand utilities, because they’re developing, you know, 300-, 500-households, new units out there, and they can justify that from a financial standpoint. So those two models — infill development versus outward expansion — they’re hardly comparable, in a way, from a financial cost and return on investment. It’s easier to build outwards as a result.
Sarah Steimer 09:30
I mean, we’re talking a lot about the pessimistic angle right now. I mean, but it is the reality. So let’s shift focus a tiny bit. You know, you mentioned some states who are getting their communities to collaborate more on maybe reducing sprawl, things like that. What are some of the high points right now where policies are changing? Or maybe lenders are changing their habits? What can we look forward to potentially as it disincentivizes urban sprawl?
Keith Walzak 09:55
Well, again, I’m not a financial expert, but generally speaking financial lenders, they’re looking at the amount of risk. And so the lower amount of risks, the likelihood that they’re going to fund those projects are not projects. And that’s straightforward. When you’re developing or redeveloping areas within the city, there are a lot of variables that come into play, not only what we’ve been talking about here now about utilities, infrastructure, but the timeline to actually deliver that project. And sometimes those projects are impacted because there’s strong neighborhood opposition, there’s concerns, there’s what we call NIMBYism, those kinds of things can delay projects, right. And the development review process as a result to the city can sometimes be a little bit onerous, because you’re trying to design a project that’s compatible with the with the surrounding neighborhoods. So those projects become a little more risk-adverse, compared to, “I want to buy that 500-acre farm field out there and put a bunch of single-family lots out there where there is nobody else out there to really object to this project.” So risks comes into play with whether you’re a financial lender or developer. I don’t know if that completely answered your question.
Sarah Steimer 11:06
But you did. That’s actually something that I think’s important to talk about here is really when you’re trying to decide where you’re going to go if you have fewer barriers to entry, you know, you want to be able to reduce that risk. You know, you mentioned there’s not really, there’s not a ton maybe necessarily that a city can do in terms of NIMBYism, and that’s for those who are unaware of NIMBYism: Not In My BackYard. There’s not really a ton you can do as far as that goes. But what about maybe incentivizing as far as a tax break to, you know, maybe renovate an old building, things like that, versus making it simpler to just sprawl, sprawl, sprawl? You know, are there any cities that seem to be leading the way in terms of reducing risk, reducing that barrier to entry as far as developers and lending institutions might go?
Keith Walzak 11:59
Yeah, there’s a couple of very important things that any city and every city should be doing. And I made reference just a minute ago about the city’s requirement to do long-range 10- to 15-year comprehensive plans. And this is the starting point, you know, that when projects come online, and there’s going to be some sort of objections, there’s, there might be a lot of support as well. But the starting point is having a very clear vision as to what you’re trying to achieve as a community, how you want to grow, what those incentives are to make sure that growth pattern works as smoothly as possible. So setting the vision, setting those policies upfront in the comprehensive plan is critical. We’re working with a community in central Colorado right now, Glenwood Springs, and they’re doing their comprehensive plan. And they’re constrained physically, because there’s a couple of rivers that come through Glenwood Springs, there’s the slopes, there’s mountains, and they know that they’re going to continue to grow, but their land availability is limited. So they’re making a conscious decision to grow inward, and then they’re going to set their policies, adjust their policies to fit that vision accordingly. The second thing is that there’s a number of implementation tools that then need to be readjusted. Implementation tools are zoning codes, development codes, design standards, architectural landscape standards, all of these tools that helped guide the type and quality of development. And so making sure that your vision is in place, your policies are in place, but also the implementation tools are updated to make sure that it’s consistent with that vision. Those are all the things that you, that cities can do, policymakers can do. You know, though, that there’s still going to be projects that come online, that people either strongly support or they object to. And so this is where you have to have really strong leadership at the community level. People that helped develop that long-range plan need to endorse that plan and follow through with that plan, and stick to the plan as they go through the development review process. So all those things are really fundamental to how communities grow and how decisions are made, number one, and number two. Then there’s also financial incentives or development incentives, there’s fee waivers. Some cities can identify certain areas that are specifically what’s oftentimes referred to as areas of change where they know that they want or anticipate areas of change. You know, back in the 70s and 80s, when malls were developed, and they were prolific, and they were successful. Well, our retail environment is changing. And so a lot of these malls and the retail storefronts, the brick and mortars are not as productive as they once were. And so you’re starting to find in these inner city ring areas, that malls are starting to become areas of change for redevelopment. And so cities need to identify where those areas of change are, and then actually develop policies, whether it’s through financial incentives, tax breaks, multifamily tax credits, or whatever it takes to actually help guide developers to look at those areas and participate in the community’s effort in terms of long-range vision and guide growth in those areas. So there’s a number of tools that cities have to guide growth accordingly.
Sarah Steimer 15:09
It’s really about sort of dangling the carrot, it sounds like, and that carrot does oftentimes have to be a financial incentive, versus maybe saying, Hey, this is bad for the environment. It’s taking those barriers down, it’s dangling that carrot, it sounds like.
Keith Walzak 15:22
It is. And the contrary to that thread is that you don’t want the development review process to be a hindrance as well. So you set up those regulations, you have architectural design guidance, or whatever it is, you don’t want that to be a hindrance to that developer, you want to be able to ensure that that developer can actually do their project through the development review process.
Sarah Steimer 15:45
Are there any lessons that you’ve noticed, you know, you mentioned the town in Colorado, that you really want to highlight that they maybe are doing really well when it comes to shifting their policies, their rules, this and that, that you think are going to be instrumental that maybe other cities can consider to help to spur development within the city?
Keith Walzak 16:07
Well, there are a lot of really great examples of communities that are doing some great things. The community that we’re referring to is Glenwood Springs, it’s a very small community, I think about 9,000, 10,000 people. It’s a tourist-oriented community. It’s on the Colorado River, beautiful setting. As much as they’re trying to do to understand how to direct and guide growth, their comprehensive plan — as an example — there’s a portion of the community on the west side of Glenwood Springs that was deemed to be a mixed-use walkable type development. And that’s what the long-range plan calls for. When the developer proposed the development and an annexation, a few of the outlying neighborhood representatives disagreed, and the annexation was ultimately turned down. The project is on hold at this moment in time. So the lesson learned is, what do the local neighborhood representatives — who are located next to that potential annexation — what is it that they envisioned for their community? And how can we better accommodate in the next go-around for that particular project? Because that project is in the right location for growth, it will accommodate housing units that are needed in the community. So what is it that we missed or the city missed on that, or the developer missed on that, that we could then retool and re address going forward — because it’s in the right location for development. But oftentimes, communities don’t have the staff resourcing to do the heavy lifting that’s needed to retool things like their zoning code. So a lot of communities that we work in, their zoning codes are outdated. There are new ways of looking at zoning codes moving away from what’s called a conventional Euclidean zone, which sets up zone categories that are all different and separated from each other. So you have single-family hear, multifamily here, commercial over here, industrial over here. And a lot of communities are moving toward what’s called a form-based code or a hybrid form-based code, which is really trying to de-emphasize the uses, and re-emphasize a stronger emphasis on architectural character and compatibility. And making sure that communities or projects are walkable, they’re vibrant, and their architecture really responsive to the community’s overall character. And so this is a big fundamental shift for a lot of communities to go from, you know, conventional zoning to this new hybrid zoning approach that’s called form-based coding. And we’re seeing more and more communities are interested in doing that. But it is a significant lift, from a staff resourcing standpoint, to actually do it and get it codified at the city level.
Sarah Steimer 18:43
I mean, and that’s, that’s a huge financial pool too, to get more people on staff, to add more salary to the budget, things like that. So no one’s surprised that things come down to money in this country, certainly, but you know, to be able to enact those changes, of course, you need to have the right people on staff to be able to do that. Well, Keith, those are those are most of my questions for you. Was there anything else that you wanted to mention as it relates to policy or lenders or, you know, any sort of a financial incentive or disincentive as it relates to urban sprawl?
Keith Walzak 19:15
Well, it’s complicated. It’s complicated. And it happens at all levels, from the federal level, to the state level, to the regional level to the local municipality level. You know, each one of those layers has a role in guiding how we develop our communities throughout the United States, right? Federal government does have a role in setting standards for mortgage rates or insurance rates, you know, the setting those kinds of policies. But then when it comes down to it at the local level, you know, cities, incorporated cities and counties, adjacent counties, they have to get along. They have to work together to manage regional growth and things like affordable housing and housing demand and supply They’re not just a one off from one city to the next. They are regionally based issues just like climate is a regionally based issue, it has to be addressed. And all these agencies have to work together. And we sometimes find that that’s not always the case, we are always advocating that local community, our client, doing a comprehensive plan has to work with their county, the cohorts in the county to work collectively on housing and climate issues. So it’s, it’s complicated stuff now. But there are some major improvements over the last few decades. And I think we’re heading in the right direction, there’s a long way to still to go.
Sarah Steimer 20:34
We see that the climate bill might be back in play now, things like that. So it’s constant movement, constant shifts, and hopefully, hopefully, policy will catch up with a lot of the research on climate change and things like that. And, you know, it’s always exciting to see who’s playing a role, who’s getting in on the ground, and helping to make these changes. Well, Keith, as always, thank you so much for taking the time to chat. And this is this is part two in our three-part series, where we are talking about urban sprawl and architecture. And I’m looking forward to our next installment here. And again, thank you for taking the time.
Keith Walzak 21:12
Thanks, Sarah. Good to talk with you.
Music for Good, Thoughtful Hosts was written produced, and performed by Sam Clapp. Our moderator is Sarah Steimer. Editing by Travis Estvold, and a special thanks to our content development team, Amanda Herzberg and Marni Moore. For more information about the podcast, visit thoughtfulhosts.com. Thanks for listening.