If you are interested in downtown development, pay attention: There is growing support for adopting a system of "density bonuses" downtown. The idea has been recommended by the Density Bonus Task Force of the Austin Design Commission, which was created by City Council for the purpose of . . . recommending a system of density bonuses.
The notion is simple. Every property comes with a base "entitlement" to a particular height or amount of floor space. Downtown developers routinely ask for additional entitlements so they can build larger, more profitable projects. These additional entitlements are worth a lot of money to the developer or property owner. Density-bonus proponents argue that the City can and should ask developers to provide a community benefit in return -- affordable housing, space for the arts or non-profits, transit funding, or the like.
For example, Central Business District zoning imposes a floor-to-area ratio (FAR) of 8-1. Developer Tom Stacy needed and got a 12-1 FAR limit for his proposed 700-foot tower at 5th and Congress. Spring, a slender, 400-foot tower under construction at Third and Bowie, needed a waiver of the 120-foot height limit in the Downtown Mixed Use district. There is no question that the right to build taller -- and thus denser -- projects is valuable.
Over the last couple of years, the City Council has considered requests for extra density case by case. The price seems to have settled between $200,000 and $250,000 worth of community benefits. That price wouldn't necessarily have to rise under a density-bonus program; the program could simply standardize the compensation, saving transaction costs for everyone. But the real point is to extract much, much more for the City -- that is obvious from the Design Commission's report and the suggestions of the various groups that want in on the goodies. No one believes the City is going to all this trouble just to standardize a $250,000 fee. (The Chronicle has previewed some of the possibilities.)
So: Why not make developers give back something in return for the opportunity to build more profitable projects? It's "win-win," right?
No. It more likely is "lose-lose." I'll elaborate in the next few posts, but here is the argument in a nutshell:
- Downtown condos already provide massive spillover benefits. These benefits are consistently undervalued by density-bonus proponents. The stream of extra tax revenue generated by a single downtown high-rise is worth tens of millions of dollars. And there are many less tangible benefits.
- Density bonuses cost real money. Some seem to think that having to provide a "community benefit" is not a real cost because the owner/developer is not entitled to the additional density in the first place. This is just rhetoric. The "community benefit" required for a density bonus is just a price, a surcharge on density.
- If we raise the price of density, we will have less of it. Really. We may have a frenzied condo market today, but the density-bonus program will not apply to the many projects that have been approved. It will apply only to distant projects facing a saturated market. Many of these projects will be only marginally feasible and thus very sensitive to any increase in cost. The loss of just a couple of them will swamp the "community benefits" we receive from all of the projects that do get built. We will be worse off than if we had never adopted a density-bonus program in the first place.
I also think there is an equitable argument. Don't laugh. I know that many downtown property owners have seen a windfall from skyrocketing property values. It's not necessarily unfair to require them to contribute some of that toward the community's benefit. But lots of property owners -- thousands of property owners -- have enjoyed huge windfalls over the last few years. It is unfair to saddle a discrete group of property owners downtown with obligations that ought to be broadly shared.
Next post: Downtown development's spillover benefits.
Postscript: Some commenters read me to advocate a free pass for additional density downtown. That is not what I intended -- the post is entitled "Raising density's price," after all, and I pointed out the real point of the density-bonus proposal is to extract much, much more than the City currently charges. As I'll show later, some proponents (but not all) see a density-bonus scheme as an opportunity to extract millions more in community benefits. I'm sorry if I was unclear.
I think the City's job is to maximize the community's welfare. Charging a price for density may help do that if it does not deter development that will provide massive benefits anyway. The price could simply be to require a developer to minimize the development's adverse impacts on the community. It could be that and something more. A density-bonus scheme that requires millions more in compensation, and that does so according to a rigid schedule of charges, will not maximize anyone's welfare. The case-by-case approach we use now is working just fine, at least for downtown development.
