TODs Require Even More Subsidies

Urban planners believe that “vibrant, walkable neighborhoods” can be created around rail transit stops that will prove attractive to many people. Studies show that most people who live in such developments don’t have children, so urban planners assume that most people who don’t have children want to live in such developments. That’s like saying all dogs have four legs; horses have four legs; so all horses must be dogs.

The reality is that most Americans, regardless of age, family size, or ethnicity, prefer to live in single-family homes. Most cities already have sufficient multifamily housing to meet the demand for such housing. This means that the market for more multifamily housing around transit stops is quickly saturated. In order to persuade builders to build such so-called transit-oriented developments (TODs), cities have to subsidize such developments.

In most states where it is legal, the subsidy of choice is usually >tax-increment financing (TIF). (Arizona has never legalized TIF and California, which invented TIF in 1952, made it illegal in 2011 because of the drain on the state treasury.) TIF uses the taxes collected from new developments that would otherwise go to schools and other basic services and instead spends those taxes on subsidies to developers. The subsidies can come in the form of land purchases and resale at less-than-market value; installation of infrastructure that the developers would normally install themselves; construction of parking garages or other structures to be used by the development; and direct grants to the developers.

TIF was created to fix neighborhoods that were so blighted by decay that private investors were supposedly unwilling to invest in their own land. But now TIF is being used to shape lifestyle choices by giving developers incentives to build high-density projects that are less marketable than single-family homes.

Planners in the Portland and San Francisco Bay areas have set goals that almost all new housing in those areas should be high-density housing near transit stops. They use urban-growth boundaries and other restrictions to drive up land prices and use zoning to restrict new single-family homes. They then streamline the permitting process for building multifamily and mixed-use developments in the areas they wish to see redeveloped.

But all of those things aren’t enough to stimulate that development without subsidies. Portland has aligned all of its urban-renewal districts along its streetcar and light-rail lines. To date, it has sold $1.4 billion worth of bonds to subsidize the redevelopment of those districts.

When Denver opened a new airport in 1994, it decided to redevelop its old airport, Stapleton, into a dense, walkable neighborhood on New Urbanist principles. Single-family homes were allowed but on tiny lots so they had almost no back or side yards. The development also included lots of multifamily housing. Rail transit through the development is scheduled to open in 2016, but the first stages of the development opened in 2004. To persuade developers to build to such densities, Denver spent nearly $300 million in TIF money on the project. Other Denver TIF projects are described in this report from the Independence Institute.

Anytime someone claims that rail transit has spurred a new development, simply search the web for the name of that development and the word “increment.” For example, in 2009, the New York Times reported that “New Rail Lines Spur Urban Revival.” The first example was a development in Carrollton, Texas, on a light-rail line from Dallas. It turns out this development received a $13 million subsidy including the construction of a six-story parking garage. The only other examples in the New York Times article were Stapleton and a development in Columbus that received $800 million in TIF subsidies but is nowhere near a rail transit line.

The high-density, mixed-use developments built near rail stops aren’t even all that transit-oriented. Studies by Oregon’s Cascade Policy Institute have found that the people in these developments are just about as likely to drive to work and other destinations as people in other parts of the Portland area.

For more information about tax-increment financing, see these papers.