Tax liens: anaerobic bacteria
Any ecosystem encompasses both growth and decay, leading eventually to death — which, in a housing ecosystem, means foreclosure, abandonment, or demolition. But economic death is no end of the economic cycle … indeed, it can accelerate rebirth.
Spot the value!
A lot in
In this real estate taxes and their corollary, tax liens and tax lien takings, act like anaerobic bacteria, breaking down decayed dead organisms and turning them into a nutrient-rich environment
And this is how we return it to its essence ….
that sprouts new growth, as revealed by this New York Times story:
They were the most unsightly evidence of a city in decline - 5,000 vacant lots taken over by New York from delinquent taxpayers during the 1970’s and 80’s, strewn with weeds and garbage, dotting the landscape from central Brooklyn to Harlem to the north shore of Staten Island.
But beginning today, the city will sell the last 248 of those lots, Mayor Michael R. Bloomberg said yesterday, primarily to developers who agree to build housing for low-income New Yorkers on the plots. The city has already disposed of 100,000 housing units that had also been left to rot by owners who stopped paying their taxes.
The anaerobic cleanup also applies to properties, not just lots.
The 248 remaining lots, which are mainly clustered in
Pockets of former decay, now pockets of opportunity
So we start with the city as catalyst, recovering decayed matter and preparing it for redevelopment. But the city has gone further, not only stimulating development, but also channeling it:
The scarcity of inexpensive land around the city has made developers, some of them priced out in a heady market, all the more eager to build on city land, lured by the tax incentives (soft equity) and mortgages (hard debt) offered by the government in exchange for providing below-market-rate homes.
Further, neighborhoods that were once too bleak to retain landowners now attract new immigrants and other New Yorkers who are happy to use a subsidy to buy a home.
Demand-channeling requires include both the carrot (the incentives) and the stick (requirements):
Given that surging demand,
Since land value is a residual, the extractable ante rides up and down as economics influence the cost-value gap.
For the first time, the city’s Department of Housing Preservation and Development will give top priority to developers willing to build more than the required minimum of low-income units in the buildings they put up, in exchange for government subsidies and access to tax-exempt financing.
Notice here that there is a combination of a minimum and an auction. The minimum serves as a filter to bring into the development game only those who embrace and understand affordability.
“What’s really different here is that we are changing the rules,” said Shaun Donovan, the commissioner of housing preservation and development. “We’re saying the developer who wins is the one with the most affordability.”
The auction efficiently finds market equilibrium:
For example, on lots where apartment buildings will be erected, the city will require that 20 percent of the units be set aside for residents whose family income is less than $50,250 a year for four people.
That amount, $50,250, is HUD’s low income ceiling (80% of area median; link in .pdf).
The equilibria may vary at some fine-grain detail, particularly if an incentive is added as sweetener:
On smaller lots fit for two-family homes, at least one-third of the units developed must be for those low-income buyers in order to receive the tax credits and cash subsidies that offset the selling price.
From government’s perspective, markets move too fast to measure, so to find market value from time to time, let the market tell you, via its bidding. Significantly, by becoming a passive partner rather than the active developer, government can achieve large volumes indirectly (government should “steer, not row“):
“The city is not interested in being a landlord,” said Mr. Bloomberg, standing amid the crabgrass and beer bottle caps in one of the last lots for sale, in East New York,
Sweeney among the nightingales
In 2002, Mr. Bloomberg announced that the city would build or rehabilitate 65,000 housing units, much of it for poor or middle-income residents. Today, 28,500 units are in the development pipeline, city officials say.
That works fine as long as the city has an endowment of in-kind tangible assets.
“It is very good news, and it is disturbing news,” said Hilary A. Botein, the executive coordinator for Housing First!, an advocacy group. “The good news is, the city has absolutely done a terrific job using much of its vacant land to create affordable housing. But the flip side is that the city is saying that they have done what they can do with all of its available land.”
Observe also that since land recovered and held for a time becomes an asset, the city now has a powerful economic incentive to enforce against delinquency. That, in turn, motivates owners not to default. So the cycle of economic death is also a bracing tonic for the living. But at some point, it becomes ‘too successful’:
Yesterday, John Kelly, the co-chairman of the New York Housing Conference, a consortium of developers and housing advocates, said that finding new land to develop will be the city’s greatest challenge, now that the land it took over during its darkest moments is gone.
“It really requires a whole rethinking of how we find sites and make them available for really low-income housing,” Mr. Kelly said. “Everybody talks about brownfields. That is definitely one place where we have to look, but we might have to create more land by more dense zoning.”
