As we spend time on Minnesota's Iron Range this week, we're introducing some Strong Towns 101 concepts using local data and examples.
For Iron Range cities, as with cities all over North America, post World War II development has been horizontal. Cities and regions have predominantly grown outward -- not upward -- and building styles have become wider and flatter. This is a sharp contrast to pre-Depression development patterns which favored narrower buildings with a greater emphasis on height.
The shift is the result of regulations, financial incentives and technology improvements that create significant advantages for large projects on the periphery of a community and significant burdens for incremental improvements within existing neighborhoods.
This puts today's local governments -- and local taxpayers -- at a great fiscal disadvantage. Building up is the way traditional cities became wealthy. Without an easy path for adding multi-story structures to a community, the city's tax base is essentially capped. Most efforts to grow the community's wealth will end up on the periphery where financial productivity is low and the long term return on investment is nearly always negative.
Consider a 1st Avenue NW in downtown Grand Rapids. In that street there is a fixed public investment -- pavement, curb, sidewalk, pipe, lighting, etc... -- and a long term maintenance obligation. Those are the costs and they are fairly stable. The revenue, however, can vary over time based on how financially productive the properties on that street become.
The way traditional cities built wealth was to increase the tax base while keeping expense stable. More wealth at the same cost. The easiest way to accomplish this is by adding stories.
For example, there is a small bakery in a single story building on 1st Avenue NW. It sits on a lot that is 2/3 of an acre and has a total value of $70,700. The financial productivity of the bakery is $19.78 per square foot, 57% greater than Walmart and 164% greater than Cub Foods. Here is what it looks like.
Two sites over is a building that contains the Wellson Group. The lot is the same size as the bakery. So is the amount of street frontage. In other words, the costs to service and maintain these two properties is the same. Yet, the addition of a second story makes the Wellson Group building worth $110,100, an increase of 56%. Taxpayers are receiving 56% more property taxes from the Wellson Group than the bakery despite having the same costs. Here is what that building looks like.
These two are essentially the same building, at least from the perspective of the assessment roll. The operative difference is the second story. When stories are added to a building, the wealth of a community goes up. Public expenses do not.
Pre-Depression communities -- traditional cities building with traditional techniques -- ensured that their core downtown and adjoining neighborhoods were doing well. These were the last places to go into decline. The healthier downtown became, the more market incentive there was for property owners to maximize their investment by adding additional stories or rebuilding with a taller design. Local property owners became wealthier while the community became wealthier.
Here's the great thing: Every city in Minnesota's Iron Range, and most cities in North America, were originally built in this traditional framework. The capacity to build real wealth in this way still exists. In fact, it's just sitting there waiting for us to tap into it.
Some questions to consider this week:
- What are some of the barriers or disincentives to adding a second story that exist today? How do we go about reducing or eliminating those?
- What could be done, assuming we don't have lots of extra money to spend, to capture the upside potential of the traditional development pattern in the downtown of Iron Range cities?
- What impact does the property tax -- where the tax increases as improvements are made -- have on the ability to build community wealth? Would a land tax, where only the value of the underlying land is taxed and not any of the improvements, provide better incentives for achieving a broad prosperity?
All week we're discussing these questions and more here in the comments section below as well as on our discussion board. Please join the conversation.