Your Tax Breaks at Work

terraces_at_manchester

Terraces at Manchester

by James A. Bacon

The Terraces at Manchester, a 148-unit luxury apartment across the river from downtown Richmond, opened in August. Its amenities include views of downtown and the river, an outdoor pool, a club room, a sky lounge, a rooftop dog park and, of course, an active urban lifestyle. Its cheapest apartment, with a small bedroom, a small bathroom and a living-kitchen area, rents for $1,200 per month.

Thank to an “affordable housing” ordinance enacted in 2014, the developer was able to pocket $2 million in real estate tax breaks over 10 years by renting 15% of the units to individuals making $41,000 a year or less. The company isn’t required to offer reduced rents in exchange for the breaks.

poolNow City Council has activists’ remorse. Councilwoman Ellen F. Robertson, author of the measure, wants to close the “loophole” she designed in the first place. “Once we realized there was a loophole, we decided to revise the legislation to make it more restrictive,” she was quoted as saying by the Richmond Times-Dispatch. “It was unfortunate that we did have a developer that didn’t operate in the true spirit of the law.”

Yeah, right, it was the developer’s fault! He read the fine print. Shame on him!

“We fully complied with the ordinance,” said Robin Miller, one of the principals in the project. However, he added, after the project’s use of the tax breaks were reported last month, his staff has reduced rents for some tenants.

Isn’t that special? Tenants making up to $41,000 (more than the median household income for the City of Richmond) who voluntarily signed a lease, presumably because they found the cost-to-value proposition attractive, suddenly get a break in their rent. Well, that certainly promotes the cause of affordable housing for the city’s lower-income residents!

So, what’s Robertson’s fix? Here’s the T-D’s explanation:

Robertson … said her proposed changes tighten eligibility requirements for developers seeking to qualify. Among the changes the City Council will consider: requiring developers to charge rent proportional to a qualifying tenant’s income and lowering the maximum salary that a qualifying low-income tenant can make up to $31,200, which is 60 percent of the area’s median income.

If the program changes are adopted, the most an individual tenant could be charged is $780 monthly.

Charge rents proportional to the tenant’s income? That sounds like a winner. Imagine how tenants will game the rules on that one (with landlords doing a wink, wink, nod, nod). Say an unmarried couple wants to live in a project qualifying for the tax break. The partner with the lowest income rents the apartment in his or her name, qualifying for a rent reduction. Then the other partner moves in, too, and pays all the utilities and groceries. Trust me, this fix is ripe for abuse.

Here’s an idea: Maybe City Council should stop trying to “fix” the housing market and start acquainting themselves with the law of supply and demand. Instead of passing tax breaks and incentives, maybe it should loosen up zoning restrictions against building new housing stock. If the supply of housing increases faster than the demand, prices will fall.

But what happens, I hear the economically illiterate ask, if builders just build luxury apartments that generate the biggest profits?

Here’s what happens. People moving into the luxury apartments and condos presumably lived somewhere else. They put their properties on the market (or free up apartments for someone else to rent). Someone else moves in, and they create vacancies where they formerly lived. Ultimately, vacancies open up in the lower end of the housing market, creating options that poor people didn’t have before. Here’s the really astounding thing — it doesn’t take any tax dollars, and it doesn’t herd poor people into crime-ridden projects.

Unfortunately, a fostering a free market in housing doesn’t help the politicians. After all, any politician worth his or her salt gets re-elected by “doing something” that proves they “care” (regardless of whether what they do actually works). Even scarier for politicians, their low-income constituents might move out of their district — maybe out of the city entirely — to be replaced by affluent constituents living in luxury apartment who, gadzooks, might vote for someone else!

Sadly, in the war between economic logic and political logic, political logic usually prevails. As the T-D article concludes, Robertson’s proposal is on Council’s consent agenda, an indication that it is considered “likely to receive unanimous approval.”

There are currently no comments highlighted.

14 responses to “Your Tax Breaks at Work

  1. Interesting piece.

    As to “relaxing zoning restrictions”, I think localities are in a bind. What is really attracting talent nowadays? Tight, compact, “urban”, architecturally unique, walkable spaces. Go to any of the nation’s hotspots for vibrant economic sectors, and you’ll find plenty of 20/30 somethings who will live there. If you were to relax the zoning restrictions….would that kill the vibe that these people so desperately want? I agree that affordable housing ordinances are jokes. Let the ones who can’t afford it live in the now cheap suburbs. But….it is my experience that the older a building is in a hot urban locale, the more demand that there is from young people to live there.

    • Cville, I would argue that relaxing zoning restrictions — particularly those regulating density — would allow developers in urban localities to design spaces with the vibe that you are talking about.

      • I think that’s true to a point. But another aspect of that vibe is “authenticity”. At some point, would the new construction degrade the vibe? Who wants Short Pump type construction in the Fan? (At least that’s what I imagine some would ask).

      • Fairfax County worked on its transit oriented development policy for several years. It concluded high density is not feasible outside 1/4 mile of a heavy rail station. And even then, it has imposed arduous traffic demand management requirements on developers. Even with high-quality mixed use development and good bike and ped facilities, more development equal more traffic. It will work like that everywhere.

        This is not to argue against any density. But it is no magic bullet.

  2. “…if builders just build luxury apartments that generate the biggest profits?”
    Logically, the builders will (or should) only build units they can sell or rent – so the amount of luxury building will be limited by the law of supply and demand
    .
    What if the builders make a mistake and build more than the market wants? Those units then have to become cheaper and non-rich people get to live in “luxury” apartments for a cheaper price. Pretty good, isn’t it?
    And all done without the government using your dollars to tell builders what to build and people where to live.

  3. Meanwhile per The VA Pilot, at The Beach, developers are trying for a sales tax break in the construction of a Hyatt. Competing hoteliers understandably are not too happy about it. Council was about to approve before the State had questions about it.

  4. Fairfax County has required all those seeking rezoning to the 2010 Comp Plan for Tysons to devote 20% of their rental units for workforce housing. Construction costs are too high for the lower-income affordable housing. However, Macerich, which was rezoned earlier, has committed to some affordable housing and is under some pressure to increase the amount with proposed changes to its current zoning and building proposals. Macerich is well below 20%.

    Interestingly, the apartment owners are finding fewer takers for some workforce housing at the highest income tiers. I suspect many fear the County will require income verification that might catch some unreported income and the policy that would require workforce housing renters to vacate their apartments within one year of their incomes hitting the caps.

    The newest problem is how to handle workforce housing in condos. Upon resale, who gets the gains and in what proportion? No easy answers. Builders also oppose mixing condos and rentals in the same building as it tends to decrease the attractiveness of the condos and their value.

    Stakeholders are now talking about the builders contributing to a county fund to build more workforce housing in other buildings. That seems fair to me if the fees are adequate and required to be spent in Tysons.

  5. I don’t really buy the “if they’d only let us build dense – housing would be dirt cheap” argument.

    suburbs exist everywhere in the USA and Canada and many other countries – outside their “ring” roads – which is what they call beltways in other countries.

    the idea of “walkable” is similarly suspect – as many dense cities in the world are now imposing various kinds of penalties for driving in urban areas – not to generate revenues but to discourage too many cars.

    what folks want is non-car “enclaves” in which :

    1. – they can walk to the edge of and get in their car and go to wherever else they want to go.

    2. – enough vehicle accessibility so that they can get food, furniture, repair serves and fire and rescue.

    Can you imagine – for instance, someone succumbing to a life-threatening incident and the EMS folks have to go on foot for half a mile to get to them?

    So every one of these “developments” has access for vehicles.

    In terms of “affordable” housing – I a flummoxed – in just about every other thing – the conventional wisdom is that if there is demand for something – a particular thing at a particular price – the market will provide it.

    I do not understand how all of this boils down to a failure of govt to allow more density.

    People who move to Fredericksburg from NoVa – don’t want an “affordable” Condo. They want a traditional home in a subdivision with a front and back yard on a cul-de-sac.

    They wail and cry about their commutes and the lack of sidewalks in their subdivision but the bottom line is if a developer offered a subdivision that was “walkable” they’d lose out to their competitors who skip the sidewalks.

    I think young folks are much more tolerant – but there is no heavy intellect going on as to what attracts them or their market behavior to get something they want. Their goals for life and living are far far different from married people having kids…

  6. Dear Jim,

    I think that the problem with the “vibrant” new urbanism is what Larry is talking about. It is not family-oriented, but it is all aimed at hedonistic couples, heterosexual as well as homosexual, with lots of disposable income. The long-term future of society depends on families, not the fleeting pleasures of the young & the selfish, look at not only Europe but Japan and China for this. Also, I would dispute, that, in some regions, like Northern Virginia, your contention that “the market” beneficently provides all needs for “low income housing” because the same economic actors who make up the market for supply, who build more housing, are, in their “political capacity” or activities, also promoting immigration to supercharge the demand for low-end housing. Thus, economic actors aren’t just functioning in an economic vacuum, but push political agenda to fulfill their economic ambitions. The purpose of politics for such people, then, is not politics itself, but economics. This is not esoterica. Much of the root of the Republican party’s ongoing self-destruction is related to this. The donors, capitalists, want high immigration to be able to keep their residential and commercial properties filled with customers, so they promote political candidates like Jeb Bush, Marco Rubio and the rest, except Trump &, maybe, Cruz, who will do this while paying lip service to “borders.” The idea that politics and economics can be divorced in our system is naive. The capitalists, on this issue, act in their own interest, which is to heighten BOTH supply AND demand. They have no interest in achieving an academic economic “equilibrium” between supply and demand by building more to “meet” an existing demand, because they are also, at the same time, stimulating demand through control of the political process while continuing to build, so that the theoretical benefits to consumers of “the market’s magic” of increasing supply, are intercepted by this immigration-stoked demand. THAT is one of the major sources of opposition to Trump by the Republican donor class, which would be their perception that they would lose control of their current ability to perpetually increase demand for, and the value of, their properties and products. In this case, politics is the tail and economics is the dog. These Republican capitalists would rather break or destroy their party in order to save the economic policies that benefit them, then have it go against the same. The Party is merely a vehicle for interests, which if it gets commandeered, will find the passengers going their separate ways. Markets, like Governments, are composed of sinful human beings, and thus imperfect.

    Sincerely,
    Andrew

  7. Good Lord Andrew!

    there ARE .. Plenty of “places” in the world where people – with Kids live dense!!!!

    People say they want “walkable” and perhaps what they mean is places where pedestrians and bikes have even access to cars.. but mostly I think some are wanting an archaic settlement pattern that existing before cars.

    All of these modern incantations of “walkable” have facilities for cars nearby.

    there are no areas of any substantial size – size as a mile square where everyone is on foot.

    the more density there is – the more cars and car traffic there is.

    that’s the essential issue in Tysons as TMT will confirm.

    mixing density with walkability with home affordability – in mega conflation… I’m not sure the 3 are really related in any real way.

    If you REALLY want affordable housing just require that a certain percentage must be provided – AND at a specific price range – and hopefully adjusted for prevailing local income and indexed both to local prevailing and to inflation.

    I guess doing that – crosses the line for some folks who espouse free market “principles” but at the same time advocate for the govt involvement.

  8. Dear Larry,

    The Market and Government are both manipulated in favor of the wealthy by the Republicans. The Capitalist claims to oppose “Government interference in the Market” is usually used only when it is done on behalf of the poorer. They avidly favor Government intervention on their own behalf. The “supply and demand” graphs are meaningless when this is the case, because manipulation is what all parties are doing, and the strongest and wealthiest, usually win. The Democrats try to manipulate the Market in favor of their groups, too. The “Free Market” only exists in Economic textbooks and in journals.

    Sincerely,

    Andrew

  9. Why is it that the business community is automatically assumed to be just looking out for its interest – and judged fair – while the decision maker is automatically assumed to have not done her homework and the consumer is automatically assumed to “game the rules” and to make poor decisions that are not in the consumer’s best interest? I wonder who wrote the rules in the first place, the decision maker or the business? At minimum, I’d bet the business “assisted” with writing and had far more available resources than other parties. That’s the Virginia Way.

  10. not to expand – but the name of the game from the get go for all businesses is to get a leg up on their competition – by exercising any/all opportunities that are available to be exploited – and that obviously includes anything the govt does that perturbs the market!

    companies will sell bad products – i.e. let the buyer beware

    the govt steps in and says “no no” – and the meaning of “bad” is litigated… etc..

    but also – density is a perverted subject because developers depend on govt-provided infrastructure and services to get density.

    streets, water/sewer, schools, public safety , etc.

    water/sewer is a finite resource – for instance. It does not magically flow from the tap for as many taps as the developer wants to sell.

    water/sewer infrastructure requires pipes – if you want a LOT of density – it takes much larger pipes than lower density.

    who puts the pipes in and what size – to support future development?

    if a development was self-contained and took care of all it’s infrastructure and services needs – then density would not be the problem it is with govt having to be the provider.

Leave a Reply