Research and discussion for citizens and decision makers

David Crossley

President, Houston Tomorrow

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[Note: this commentary is also posted at the Chronicle blog The List]
The bottom line is this: property values - and the tax base - along the Main Street light rail line increased much more from 2003-2010 than they did in the City as a whole. In fact, that area added more than $4 billion in value during that time.

People commonly look at a metric called co-investment ratio for big infrastructure projects and if you do that for the rail line, which cost about $350 million, you’re talking about a ratio of 11:1, a spectacular return.

By comparison, the investment in Discovery Green, which has been enormously successful, was 2.67:1. The project is newer so we’re looking at fewer years, but only by a couple.

Of course, there are serious arguments that many factors go into rising property values. These were already high value places is the first thing I hear. But big rises above high prices are hard to come by. I have a business friend who once told me “if a company brags about its fast growth, it’s a small company.”

So if a neighborhood that has been depressed and has land values of, say, $5 a square foot, suddenly gets some redevelopment, those values can jump several times, because they started low.

Somebody at Metro or the City of Houston should have already done some analysis of the values along the three rail lines now under construction, and the starting point should be the year before the lines were announced, not the year construction began.

In an analysis of the City’s financial condition, the Controller’s office has made some spooky forecasts about long term deficits in a time of slow moving property value increases. The City is running out of fees to add to services and the idea of increasing the sales tax is one to just forget. The only way to gain revenues is by increasing property values.

So how do you do that? Well, one way is to deploy important infrastructure that doesn’t displace land that is now paying taxes with uses that stop paying taxes, namely freeways or roadway expansions.

The Mayor of the City of Houston has a very tough choice to make today or tonight if she hasn’t already made it. Should the City continue to take hundreds of millions of dollars away from Metro to pay salaries in the Public Works department and do some street and drainage work, or invest that money in something that will drive up revenues from value increases?

There may be some evidence that street and drainage improvements raise property values, but I haven’t been able to find it. However, there are many cities that have deployed light rail in recent years, and they have pretty consistently enjoyed big value increases as soon as the line is announced and those grow further as service begins and ridership grows.

Better Houston has done some study of the increase around streetcar lines, which tend to attract somewhat less development than light rail. Still, they’ve found that every dollar invested in such a rail line in three cities has yielded $11 in value increase.

Coincidentally, that’s what we saw in the 2003-2010 increase along the Main Street line. Presumably, if you could go back to the announcement of the rail line you’d find even lower values, and might see a 12 times co-investment ratio or more.

Beyond that, we have credible stories from some management districts that businesses wanting to establish a presence in them will only do so if they can be confident light rail transit is coming. Otherwise, they’ll go to a place further out where they think they’ll be closer to their employees - or to another city altogether.

And finally, the kind of development you see around light rail stations tends to include a lot of retail, which produces sales taxes.

The point is, and the bottom line is, halting transit expansion as so many elected officials are urging in order to keep the money flowing to them instead of investing it in property value increases, is a sure way to slow down such increases, and to slow down the rise of the tax base.

Spending our transit taxes on transit is a win/win/win from a business and economic point of view. And is one of the most important thing a city can do to improve quality of life. I hope the Mayor and the Metro board have that set of dynamics in front of them when they decide what to do tomorrow morning: invest in prosperity or go with the status quo, in more ways than one.


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