What are two things that Greg Nickels, Mike McGinn, and Ed Murray all have in common? If you said, “Roman Catholicism,” your knowledge of Seattle mayors is exceptional! Another thing they have in common is that, from their City Hall vantage point, each man had (has) the pleasure of viewing from their office the expansive, desolate site at the lower right of the picture below:
The view is very similar to what Seattleites could have seen at 4th Avenue and Cherry Street way back in February 1911:
If anything, the sight of an antique steam-operated shovel would be an improvement on the boarded-up streetscape that exists today.
In 2005, the old Public Safety Building was torn down, and the city sold the vacant 57,000-square-foot lot to Seattle-based Triad Development for $25 million. Triad envisioned a grand replacement for the site: the Civic Square, a $350 million, 43-story skyscraper, including retail, office space, and residences. Its showpiece was a 30,000 square foot plaza. Following a nearly two-year deliberative process by the City Council, the measure was finally approved, and Seattle was set to have a new landmark join its skyline.
That was in 2007. When the global financial crisis hit, Triad’s project financing vanished, and little has happened at the site. Citing a case of “bad timing,” the City Council granted Triad a permit extension until the end of 2015. The company remains optimistic on the project, as it now searches for new investors, be they foreign (perhaps Chinese) or domestic.
How does this fit alongside Sightline’s advocacy for land-value taxes (LVT)? Today, the 4th and Cherry site has a base land value of $28,560,000—a considerable sum, but quite understandable given that the land is prime real estate just blocks away from the historic Smith Tower and Pioneer Square.
Highly valuable land. Prime location. Seattle policymakers now confronted with an alarming rise in rent prices, a sign of a shortage in housing. Yet a large, centrally-located land parcel has sat inactive for nearly a decade. The absurdity rankles.
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But what’s the root cause? In one sense, it seems like a complicated situation, involving city processes, global economics, and the real estate financing market.
Yet it’s hard to see how a situation like this one would persist under a land-value tax. Such a system would raise taxes on idle urban land, while reducing the tax rate on land that’s intensively developed. LVT might not be a panacea for compact urban development. But at the very least it would offer clear incentives for prompt development of properties like the one at 4th and Cherry. And with strong enough incentives in place, all players in the market—from developers to credit markets to potential buyers and tenants—would have financial motivations to get projects like Civic Square moving, rather than sitting idle for a decade.
If completed, the Civic Square will certainly be a place that attracts new business, tourists, and long-time residents alike. But until the expansive plaza is complete, long-suffering city residents will continue to be forced to walk around this chained-up, boarded-off—yet incredibly valuable—plot of land.
Matt the Engineer
I’m trying to picture what would have happened if we had a strong LVT here. They still wouldn’t have had the deep-pocket investors required to build this project sooner. But maybe, if the LVT was high enough, they would have built something temporary on the site. I’d guess just a cheap suburban-style low-rise box – enough to earn some cash over the short term but cheap enough to tear down after a decade or two.
Construction cost is around $190/sf for a low-rise apartment. At 57,000sf x 4 floors, that’s around $45M. Plus money to either fill in the hole or span it, let’s guess it lands at $50M. To pay off that $50M in 10 years, they’d need to make $2.5M in profit per year. Assuming 1500 gross square feet per unit, that’s 152 units. Let’s guess $3k/month per unit (they’re low-quality, but it’s still downtown), that’s $5.5M per year. So you’d think if my assumptions are even close they’d build it even without the extra tax. Even if my $2.5M number doubles because of financing, taxes, maintenance, etc. I would think that a LVT might have shifted this short-term project into the profitable category.
The one factor that could strongly push against this is the fact that the future is unknowable. If they go ahead with a 2-3 year process to build a low-quality apartment building on this spot and the economy picks up right when they’re finished, then they end up tearing down a brand new building and lose all of that construction money.
Matt the Engineer
(and by “in 10 years” I actually meant 20 years – obviously this is around 1/2 as attractive as a single decade project)
With a well-designed LVT, this kind of minimal development shouldn’t have much impact on the LVT. The value of the land doesn’t drop because just anything is built on it. The location – and that’s where the value is – remains the same. It’s more that the improvement isn’t taxed. With a “high-value” improvement, you’ve got more tenant cash flow to cover the LVT; a “low-value” development would end up needing to charge well over market to cover both the taxes and the improvement financing. Just how the development investment/tax trade off works is one of the hard parts of LVT/Georgian taxes.
It’s now pretty well documented that nature in the city, even if only visually accessible to the public, is both a psychic and an ecological amenity. A downside of a(n) LVT is that private owners of urban land that has remained in or been restored to a relatively natural state would be under increased economic pressure to sell or develop it. Given how little urban land falls in this category, I suppose this may be a relatively small price to pay, given the apparent benefits of a(n) LVT, though as the owner and part-time inhabitant of one of the two such parcels in my immediate neighborhood, I’ll need more convincing than some.
A bigger loss may come from similar pressure on small, modest, often old buildings housing small businesses of a sort that are now also being recognized as contributing to the quality of urban life, but which would no longer be economically viable if taxes were based solely or primarily on land value. Some such buildings and uses could probably be preserved by mitigating taxes on historic structures, but many wouldn’t qualify for this status.
Moral: remember to consider the costs as well as the benefits of implementing what looks like a good idea.
Thank you for your response!
Presently, Seattle has over 400 parks and open areas, with Discovery Park the largest at 534 acres. This is an amenity that is not going to vanish under a new progressive tax regime.
Secondly, you implicitly refer to the work of Seattle’s Historic Preservation Program. Have a look at their website, since they are a group hard at work preserving old structures throughout the city. Although I see the utility in preserving a small amount of structures, I argue that they should scale back their efforts, with possibly some type of cap on the amount of historical buildings for the city.
For policymakers, there will always indeed be costs and benefits to the decisions they make. For every building that is designated a landmark, that is one less space that is available for development. For every preserved green space, that then leaves little room for multifamily developments. City builders certainly need to be realistic in their aspirations, but the city must be a place for individuals to live, work, and play in. Creating more and more space for parks, or laying down heavy anti-development regulations, is not the way to achieve this goal.
I agree with your assessment – sadly. Old buildings housing small businesses – there doesn’t seem much hope for them – anywhere. People are making the choice to destroy both.
When I moved to Stamford, CT, in 1975, there was a ~4 acre property downtown known as the hole-in-the-ground. When I moved from Stamford in 2013, it was still a hole, and had even called that on the city assessment rolls for some decades!
Its lot is roughly the same size as the Marriott across the boulevard. Under LVT, the taxes on the two properties would be very similar. The Marriott provides hotel rooms, meeting spaces, meals, parking, and most important, jobs. The hole might provide a few hours work a year for the tax accountant. The Marriott’s land (243 Tresser) is valued at $28 million, and its improvements at $17 million (see http://gis.vgsi.com/stamfordct/Parcel.aspx?pid=10432), and both are taxed.
I now see that the HITG sold for $32 million in 2014; the current assessment is $26 million. (See http://gis.vgsi.com/stamfordct/Parcel.aspx?Pid=13647 and http://gis.vgsi.com/stamfordct/Parcel.aspx?pid=13648)
Does it make sense to tax the Marriott more, for its effrontery in providing things people want? Or does it make sense to base our taxes on the value of the land, which would have nudged the owner of the HITG to either put the land to good use himself or to lower the asking price and sell it to someone who would … in 1975, or 1980, or any of the years since then?
What do we want to achieve, and what incentives will best get us there?