The following is an excerpt from a speech prepared for a statewide conference on smart growth held in Greensboro, N.C., in January 2000.
Plans for inner-city projects must take into account that cities are characterized by continuous change and by economic and social diversity. As a result, 40 is a dangerous age for buildings and neighborhoods. The original purpose for which buildings were built no longer exists, original design and construction errors are evident, design styles and the economic and social functions of the surrounding area have changed.
The sense of place which is present in great cities is created by the inventory of buildings built over a long period of time and rehabilitated many times for contemporary functions. Many cities have not preserved portions of their built heritage; the result is that they are placeless and unattractive areas to live and work.
All cities are unique; the mix of geographic location, history, economy, population, religious characteristics, construction, political and social styles differs in each community. Czech writer and politician Vaclav Havel describes each locality as possessing "an inimitable spiritual climate." Plans for inner-city renewal need to be customized to fit each local situation. In the past, many local initiatives have been based on prevalent community development fads, on federal and state grant regulations, and on "model` projects which may not fit local conditions.
Promote Public-Private Partnerships
Buildings in downtowns and neighborhoods are allowed to deteriorate and are demolished due to changing market conditions and the absence of local government initiatives to modify these trends. Local community rehabilitation initiatives need to be designed in recognition of the fact that private lenders and equity investors are motivated to invest in real estate to receive returns in the form of cash rents and tax benefits.
From the private investor`s perspective, commercial real estate is viewed as a commodity whose value is directly related to the amount and timing of profits; generally a property`s value (or cost) can-not exceed about 100 times its monthly net rental income, (CR=NOI/VALUE). Typically, downtown rehabilitation projects` costs are higher and rents are lower than at greenfield locations. As a result there is little incentive to invest in these properties.
Public-private partnerships provide a mechanism for increasing investment in rehabilitation projects by making high-risk downtown projects feasible. The role of local governments and their non-profit surrogates is to define public rehabilitation priorities, to provide financial support needed to bridge the financial feasibility gap, and to provide a loan packaging service to assist private sponsors in utilizing public financial tools.
The private partner`s role is to underwrite, construct, and operate the project. The private sponsor assumes the financial risk and the public elected officials assume the political risk. It needs to be emphasized that primary responsibility for built environment decisions rests with elected public officials and private developers since they are in control of the check-book. Public officials are fiduciaries to voters and private developers are fiduciaries to lenders and equity investors.
Repopulate and Diversify Downtowns
Over the past 50 years, local public officials have initiated a number of activities to revitalize downtowns. Some of these public strategies include:
- Urban renewal-property acquisition and redevelopment for hotels, convention centers, parking decks, and government facilities
- Interstate highway and public transit improvements o Art and culture centers
- Restaurant and entertainment districts
- Visitor centers and tourist attractions o Marketing and promo-ion activities
- Sidewalk and pedestrian improvements
- Sports stadiums
- High-rise office construction
- Research centers and business incubators
- Farmers` markets
Experience has shown that these public initiatives have not arrested downtown decline. Individuals typically do not make multi-purpose visits to downtown activities. A downtown trip to a festival, to work, to an art exhibit, or to a sports event does not materially affect property values. Successful downtown districts have multiple functions.
The key to downtown revitalization is for the public sector to focus resources on repopulating downtown districts by adapting the existing historic building stock for loftstyle housing on upper floors and small shops (maximum 50 foot deep) fronting on pedestrian streets. Holes in pedestrian blocks should be infilled with new structures that are compatible with neighboring buildings. Housing should be composed of about 80 percent market rate and 20 percent affordable rental and owner occupied units. All rehabilitation should be carried out in accordance with the Secretary of the Interior`s Standards.
Downtown high-rise buildings should be located away from existing historic pedestrian blocks. They should contain shops at side-walk level, and mixed office and residential uses on upper floors.
When the number of downtown dwellings reaches about 1,000 units, then restaurants, entertainment establishments, and business-es will begin to expand to serve the residential market, and pedestrians will reclaim the sidewalks. Downtowns are renewed the old fashioned way, "one building at a time." Address Housing Needs
Renewal of inner-city neighborhoods has been a priority of local community development efforts for the past 50 years. In the 1960s, federal funding encouraged cities to undertake large-scale clearance and redevelopment of blighted neighborhoods. Although much was accomplished with urban renewal projects, experience has shown that many renewal plans created massive dislocation of vulnerable populations, which, in turn, destabilized neighborhoods. Further-more these projects showed little respect for the inventory of historic buildings, and resulted in construction of new multi-family rental housing projects, which increased the concentration of low-income and racial minorities in central cities.
Over the past three decades, neighborhood renewal has focused on the rehabilitation of existing single-family dwellings. This strategy has extended the life of dwelling units, but it has not revitalized neighborhoods. Future inner-city neighborhood renewal should first focus on reconstruction of existing, sub-standard housing projects to reduce population density and to broaden the income, racial mix, and tenure of inner-city residents, and on construction of new replacement affordable housing located in the suburbs, convenient to emerging employment centers. A general goal is that a minimum of 20 percent of the housing stock of each suburban municipality should include rental units which are affordable to households at or below 60 percent of the county`s median income.
Second, the existing emphasis on the rehabilitation of single owner-occupied family dwellings should shift toward adaptive use of vacant schools in neighborhoods, and historic buildings in downtowns, and construction of new residential units on infill sites. New housing should include both rental and owner-occupied housing targeted to households above 80 percent of median income and to special needs populations. All future public single-family rehabilitation activities should include requirements for ongoing maintenance that ensure that units are not permitted to deteriorate. Tools
A variety of tools can be used to create financially feasible rehabilitation projects. Some of these tools include:
- 10 or 20 percent federal rehabilitation tax credits for non-historic and historic structures, respectively.
- State tax credits, avail-able in some states. For exam-ple, 20 and 30 percent rehabilitation tax credits are available in North Carolina for rental and owner-occupied historic structures, respectively.
- Four or nine percent per year, for ten years, federal affordable housing tax credits (maximum 60 percent of median income).
- State housing credits, offered in some states. For example, housing tax credits equal to 25 to 75 percent of federal housing credits, depending on the project`s county location, are available in North Carolina.
- Soft second below-market interest rate financing from HUD, HOME and CDBG entitlement grants or other city sources.
- Historic easement donations.
- Historic property tax assessments, available in some states. In North Carolina, for example, after-rehab property tax values are reduced by 50 percent.
- Public infrastructure improvements.
- Write-down of property acquisition costs.
- In-kind donations of local government services.
Some Next Steps
The federal government should make it a condition of all future state and local grants that governments adopt and implement a five-year "smart-growth" program for urban regions, covering a 60-square-mile radius commuting area. Plans should include:
- Minimum goals for the location and type of assisted housing for each political jurisdiction.
- Location and characteristics of new urban districts (10,000 population, 1/2-mile radius, mixed use, etc.).
- Location of open space buffers paralleling all major streams` one hundred year flood plains.
- Location and timing of public transportation, utility, and facility improvements.
- Renewal plans for downtowns and inner-city neighborhoods. State governments should take the following steps:
- Define state and multi-state urban regions.
- Change general enabling statutes to require all municipalities to prepare and implement "a smart growth five-year urban region pro-gram," and to develop 20 per-cent of their housing stock for rental units which are affordable to 60 percent median income tenants.
- Direct all state investments in transportation, public facilities, and federal pass-throughs toward plan implementation. Local governments should implement the following:
- Urge local candidates for elected office to define positions on affordable housing, and suburban and center city growth issues.
- Re-engineer the local government`s administrative staff to be active participants in public-private partnership underwriting.
- Revise land development regulations to create new multi-purpose districts at locations where environmental impacts will be mini-mal and where residents will have easy access to public transportation and other services, and restrict all new development from undesired locations.
- Develop and approve National Register Historic District nominations to qualify inner-city buildings for tax credits.
- Budget local funds to support inner-city rehabilitation and infill.
Nonprofits organizations should consider the following steps:
- Take the lead in pre-serving flood plain open space buffers.
- Monitor local government`s performance in implementing the smart growth program and lobby for election of candidates who support implementation of the program.
Cities represent one of man`s most complex economic and social systems. Renewal of inner-city districts and better control of new suburban growth will require large amounts of public financial resources and political willpower. Other-wise, it is likely that the negative public health, environmental, and livability consequences of unplanned city growth will be allowed to increase to a point where judicial intervention will be needed to force smart growth action by federal, state, and local government authorities. Publication Date: