Incentives and Development

If you find yourself in a fair fightyou didn’t plan your mission properly.”

– Colonel David Hackworth

Let’s begin this post by laying out that there is no such thing as a level playing field. Someone always has an advantage. Whether it’s information, capital, experience, motivation or even patience everyone has a different base and set of criteria they’re working with.

Now let’s get into the world of incentives and their effect on development.

Collins English Dictionary defines tax incentives as : “A tax incentive is a government measure that is intended to encourage individuals and businesses to spend money or to save money by reducing the amount of tax that they have to pay.”

Not all incentives are tax based but the definition helps to set the stage for how incentives work. They’re used to encourage specific activities desired by those providing the incentive.

Cities use them to overcome real or perceived obstacles to entice developers to build specific buildings in a desired area. Chattanooga used tax incentives to draw developers to start building residential units in the downtown core. With 6000 units built in five years and at least 2000 more in process I’d say those were successful. Would residential have been developed without those tax breaks? Very likely yes but at a different timeline and without the focus provided by what is a pseudo public / private partnership.

So are they fair? In a word, no but that’s not the goal, nor is it a cities obligation to be fair. Cities, ideally, are interested in the best possible outcome for everyone. Obviously there are plenty of stories of incentives being taken advantage of by less than scrupulous individuals but our point here is not to address criminals. So, cities are able to bend the rules in order to get something they want.

Incentives are used extensively in affordable housing development. Affordable housing projects are notoriously difficult to make a return on investment – without incentives. The forced cap on income limits the viability and interest from developers. There is a small subset of developers, however, who have been able to build up a very good business focusing on affordable housing by mastering the incentives, both federal and local, that can be leveraged to finance a project.

So, as you look around a city and see all the distinct elements that have come together realize that some things have been given a little nudge in order to be built the way they are. It all goes into making up the cities we live in and shape the world around us.

Wise Acreage

Short advice on real estate and life

Obstacles are those frightful things you see when you take your eyes off the goal. – Henry Ford

Just because you’re being taught a lesson doesn’t mean your learning. – M.D. McKee

Failure and invention are inseparable twins. – Anonymous

“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.” – Franklin D. Roosevelt

“In any market, in any country, there are developers who make money. So I say all of this doom and gloom, but there will always be people who make money, because people always want homes.” – Sarah Beeny