Friday, January 31, 2020

Dangerous Ideas for Land Use Laboratories #2: Train Infill Developers...for Free

Land use law almost always focuses on regulations and incentives related to growth.  Perhaps because of my past as an attorney representing developers in California, I have always thought that land use law did not spend enough time thinking about how we build a strong real estate community that is committed to the common good.  One take-away from those years of practice was that the developer clients I respected the most were those willing to do the brain damage of an infill project.  The financing on infill projects is tough, especially if there is anything unusual about the project like trying to do affordable units, preserve historic structures, or do green building.  Moreover, infill developers are those most likely to suffer from regulatory delay because of existing neighborhood NIMBYism, environmental problems from previous users, and heightened costs of demolition and removal of things like underground storage tanks.  It is much, much easier to be a greenfield developer.  

That said, urban cities increasingly are engaging land use policies that seek to encourage infill like never before.  California wants to build 3.5 million new houses in five years, according to Governor Newsom.  And retrofitting of existing single-family neighborhoods has support from both liberals and conservative factions in the land use battle...when does that happen?!

There is just one problem:  who is going to build those infill homes?  Even if every existing single-family neighborhood were re-zoned for fourplexes, there would still be a problem of finding competent developers who were committed to retaining fine-scale development at a higher urban density.  The reality is that we have never trained that person in earnest, except at elite real estate programs at institutions like MIT, Harvard, or Berkeley.  If we want to make that happen en masse, we need to commodify that knowledge and make it very, very accessible.  This flies in the face of how the real estate industry usually works, though, which is built on relationships that are often acquired over time and through families or, as noted above, elite programs in real estate development or design.

My idea is simple:  cities offer a year-long--free--real estate boot camp.  I saw a much smaller version of this when I was in practice, as San Francisco rolled out its first green building ordinance.  There were a lot of questions and concerns about the ordinance that were forestalled by excellent sessions run by the building and planning departments that did simple things like help retrain plumbers for green fixtures.  Why can't we do this with development?

What would it take?  What should be in the class?  Several thoughts I have include the following:  how to create a pro forma for an infill project that will get funded; invite banks to meet prospective infill developers; help train developers on programs like Low Income Housing Tax Credits and other credit schemes; introduce developers to architects that understand infill and committed to reasonably priced-plans that can be easily replicated rather than bespoke infill mansions; permitting assistance to understand how permits like PUDs might permit better long-term development of a property that is not evident from base zoning; and what else?

Above all, I think that cities interested in building housing need to think about how they build a committed developer community.  That means a city investment in building that community.  Might those developers go on to make some nice profits?  Sure.  Good for them.  But we must acknowledge that real estate is always an inherently risky business because of the amount of capital involved, and that upfront capital investment also serves as a barrier to entry to many would-be developers that do not have that access through elite connections.  Cities need to help develop this diverse community of developers that are committed to infill if they are serious about seeing new infill built.  Changing the code alone won't affect the process and social barriers that keep new infill from being built.

Prior posts in this series:

Ban Single-family Residential Covenants

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