News today that Boston Mayor Marty Walsh & Mass Governor Charlie Baker want to redevelop 5.5 acres along Kneeland Street, near South Station (Global Article) got me thinking about how our government needs to rethink how it monetizes development.
In much of our development, the City or State sells land to a developer (Hopefully near market value) and then the developer gets to build and then sell or lease their new property, creating a great revenue stream for the developer. Now, this process is less than ideal because there is much room for back room dealing (A common complaint about the BRA), or undervaluation of property for a well-connected developer (Such news blew up last fall about the Winthop Street Garage in Boston). Plus once the City or State sells of the land, the revenue producing nature of the land shifts to what can be gotten for property taxes or business/sales taxes generated by the site which are then limited by Prop 2 1/2 and others.
As I think about various properties owned by the City, State and other agencies, often hamstrung with tight budgets, is why do they sell these properties in the first place? Maybe the City/State needs to become a landlord.
When we talk about transportation outside the US, and why agencies such as the MTR in Hong Kong or the train companies in Tokyo are so successful and offer good service, it’s because their business is grounded in real estate, not transportation. The transportation is just part of the ecosystem they’ve built to better monetize their property. I’ve written at length about this on BMG before: http://bluemassgroup.com/2015/02/fixing-the-mbta-diving-into-some-numbers-talking-transportation-as-an-investment-transit-around-the-world-and-finding-cash-flow/
It’s exciting to see Boston, Cambridge and the surrounding cities thrive. And it’s great to see the reinvestment flowing back into our urban areas. But I think it’s short sited to watch the Cities & State simply sell off their most prized possessions without finding long term ways to build cash flow from them.
I’d suggest our esteemed leaders not rush to give away land to a developer. Yes, it may help repair a somewhat gritty area, bring in new desperately needed housing & more office space, but by simply selling the land off we’re missing a great opportunity to generate more steady cash flow outside of the normal channels of taxes.
If you want some quick reading on this topic, jump over to Wikipedia and read about Ground Rents: https://en.wikipedia.org/wiki/Ground_rent
Ever wander where the Queen Of England’s money comes from? It’s not taxes – they’re landlords, retaining ownership over huge chunks of prime London & UK real estate: https://en.wikipedia.org/wiki/Crown_Estate
We could follow a similar model, which could also be great as our non-profit and tax free colleges, universities & hospitals continue to gobble up land, depriving municipal coffers of much needed property tax revenues.