Recovering Land Value to Advance Equity: Gowanus, Brooklyn as a Case in Point
Looking north from the Carroll Street Bridge over Brooklyn’s Gowanus canal, one can still see remnants of a devalued landscape (figure 1). Pawlonia and ailanthus trees cling to shallow pockets of soil along the canal’s retaining walls. Chainlink fences cordon off parking lots and one-story industrial buildings. On some days, a phosphorescent ooze floats on the canal’s surface: coal tar left over from the deeply toxic enterprise of compacting raw coal into gas in this neighborhood during the late nineteenth and early twentieth centuries. Even on a sunny afternoon, massive outfall pipes stand as a reminder of the 375 million gallons per year of combined stormwater and wastewater that flow into this already-contaminated shipping channel (figure 2). Yet in the past twenty years, as a result of market trends, local land use policy, and an announcement by the U. S. Environmental Protection Agency that the canal will be remediated under the federal Superfund program, the neighborhood that bears the canal’s name has become one of New York City’s hottest property development prospects.
Figure 1: Gowanus, looking north towards downtown Brooklyn from the Carroll Street bridge across the Gowanus Canal. Photograph by Laura Wolf-Powers, 2019.
Figure 2: The Carroll Street wet weather discharge point into the Gowanus Canal. 375 million gallons of combined stormwater and wastewater flow into the canal at this and other outfalls annually. Photograph by Laura Wolf-Powers, 2019.
In the middle distance, to the left and right of the soon-to-be-cleaner waterway, sit Gowanus Houses and Wyckoff Gardens, which, along with a third complex, Warren Street Houses, are part of the 178,000-unit portfolio of the New York City Housing Authority (NYCHA). These three campuses provide homes for over 4,300 people (figures 3, 4). They are virtually the only source of affordable housing in an area where median rent climbed by 35 percent (from $1,900 to $2,900), between 2010 to 2015, due partly to a precipitous decline in rent-regulated units.
“in conjunction with the rezoning, the public sector can recover value and invest it in nearby social housing without making development unprofitable in Gowanus”
Gowanus’s publicly owned social housing, while affordable, is fragile: the Pratt Center for Community Development estimates that $237 million in capital funds are required at the three complexes to restore livability by repairing elevators, replacing outdated ventilation and plumbing systems, and relieving residents of chronic infestations of mold and vermin. Superstorm Sandy did significant damage to Gowanus Houses in 2012 [1]; sewage backups are common at Wyckoff Gardens. Thanks to the efforts of public housing residents involved with the Gowanus Neighborhood Coalition for Justice (GNCJ) these buildings have become a flashpoint in the Department of City Planning’s current initiative to up-zone the Gowanus neighborhood, changing large swaths from manufacturing to residential or mixed use and allowing buildings of up to fourteen stories. Despite being literally boxed out of the neighborhood rezoning area, Gowanus’s public housing residents loudly insist that city officials, as they deploy new zoning that will set in motion a massive increase in land value, find a way to fix their homes.
Figure 3: Wyckoff Gardens, Gowanus, Brooklyn, a NYCHA campus with 528 units in three 21-story towers. Photograph by Sydney Céspedes, 2019.
In 2018, the Pratt Center for Community Development and the Fifth Avenue Committee (which convenes the Gowanus Neighborhood Coalition for Justice) engaged the real estate consulting firm David Paul Rosen and Associates (DRA) to estimate the increase (“uplift”) in value that the Gowanus Neighborhood Rezoning would generate for those who own land in the rezoning area. Working from this estimate, the Pratt Center for Community Development now proposes that the city, as part of the rezoning, create a mechanism to sell development rights from the NYCHA campuses into the rezoning area to generate funds that it would directly reinvest into repairs at Gowanus Houses, Wyckoff Gardens, and Warren Street Houses. The proposal embodies the principle of public value recovery, namely, that the public sector should use value it creates through its own regulatory actions and investments to redistribute resources from higher- to lower-resourced households. In recent years, public actions associated with the term “value capture” have contributed to out-of-control urban real estate markets and the fraying of the social fabric. The call for a value recovery approach in Gowanus is one part of a larger effort to shift the value capture paradigm. The goals are to exhort elected officials and city administrators to reclaim land-value gains produced by their own actions and to use the financial value thus realized to reduce inequality by investing in public goods.
Figure 4: Gowanus Houses, another NYCHA campus in this neighborhood, has 1,134 units in 14 four- to thirteen-story buildings. Photograph by Sydney Céspedes, 2019.
The Value Uplift Estimate
The first step in the process that yielded the Public Action, Public Value report was a technical analysis that reveals how much current property holders stand to benefit financially from changes in use, height, and bulk reclassifications in Gowanus. DRA’s estimate of residual land value started with an estimate of property value within the rezoning area in 2018, using data from New York City’s PLUTO database of sales transactions. Existing property value was treated as a baseline. The analysts then calculated the difference between the current values of three prototype sites and their future value under the city’s plan (figure 5). At 537 Sackett Street, for example, post-rezoning, a residential building of up to fourteen stories could replace the current one-story manufacturing building. Netting out development costs and investor return (which would be required to transform the sites to their “highest and best use” from an income perspective), the analysts arrived at a figure for each prototype that estimates the difference between the current and future site values: 537 Sackett Street’s value would increase from $28.3 million to $56.9 million, yielding a residual land value of $28.6 million (these staggering increases in value, achieved by changing a letter on the zoning map, defy the imagination). The analysts then extrapolated residual values from the prototypes across a total of 387 parcels likely to be redeveloped under new zoning. The total value uplift estimate for the rezoning area ranges from $108 million to $1.3 billion, varying with the capitalization rate used to estimate the income value of new development. The existence of this much residual value is particularly notable given that many properties in the area changed hands in speculative transactions (also known as “front-running”) during the 2010s, yet DRA conservatively used 2018 as the base year when calculating the uplift in value. Income estimates used in the analysis also assume compliance with the city’s Mandatory Inclusionary Housing program.
The Value Recovery Proposal
DRA’s analysis clearly shows that in conjunction with the rezoning, the public sector can recover value and invest it in nearby social housing without making development unprofitable in Gowanus. The challenge, however, is to determine a viable mechanism for this process. The report urges the city to create a transfer of development rights (TDR) regime under which property owners in Gowanus would be able to purchase approximately 370,000 square feet of unused development rights on the NYCHA campuses, estimated by the City Council Land Use Division to be worth $111 million. (This dollar value is based on using a floor-area-ratio [FAR] of 2.43; if the campuses were upzoned from 2.43 to 3.0 FAR, there would be 794,000 square feet, which could raise as much as $217 million). The authors of the report (full disclosure – I am one of them) selected TDR as a value recovery strategy after considering numerous tools including impact fees, purchasable bonuses, and special assessments. Some of these were legally unacceptable while others were problematic from an equity standpoint. TDR is alone in hewing to legal equity standards while being accessible to city policymakers without state legislative action. The report proposes that the city establish a central TDR bank to facilitate air rights sales and sponsor a detailed, transparent planning process, with strong resident input, to determine how to prioritize and complete repairs funded by the revenue generated. The Public Realm Improvement Fund created by the 2017 rezoning of East Midtown offers a precedent for this. The GNCJ is adamant that residents of Gowanus public housing participate in developing any framework for investing new capital funding, and that they have an oversight role as repairs are implemented.
Figure 5: Prototype Locations in Gowanus, showing the rezoning area with NYCHA developments and value uplift prototypes. Reproduced from Pratt Center for Community Development, Public Action-Public Value: Investing in a Just and Equitable Gowanus Rezoning, 2019.
Reflections
It is important to put the brain-melting details of residual value analysis and air rights transfer aside and think both about the place-level implications of this work in Gowanus and about its applicability in other places. The first point to note is that this analysis was done in conjunction with a neighborhood-based organizing effort set on achieving equitable outcomes for people and interests in Gowanus who were marginalized in the neighborhood rezoning. Recent and current mayoral administrations have had an abysmal record of planning for densification in ways that respect and protect incumbent low-wealth neighborhood residents. The Gowanus Neighborhood Coalition for Justice has demanded that the city implement value recovery and dedicate associated funds to Gowanus Houses, Wyckoff Gardens, and Warren Street Houses, in response to a city plan for the neighborhood that is completely silent on the topic of public housing renovation. The Public Action, Public Value report is useless without a social movement that is pushing city agencies and elected officials to act justly and responsively.
Second, this is not only about Gowanus. Value capture as practiced in recent urban history is, in the words of Sam Stein, “a boondoggle in Georgist trappings,” generating massive value for landowners as the public sector claws back only a small portion of it. Devastating wealth and income polarization demand new modes of research and action. Planners (perhaps drawing on practices from the Netherlands and Germany) must devise a policy and legislative framework by which the public sector retains and redistributes property value it has helped create. We must also align with activists, using the power of protest and resistance to reshape the institutions of the “real estate state” and make the stewardship of land more accountable to ordinary city dwellers. Value recovery can and should mitigate the inequality that speculation and rent-seeking have inscribed on the landscape.
NOTE
[1] At Gowanus Houses, 2,836 residents went without heat and electricity for ten days when basement flooding destroyed boilers and shorted out electrical cables. Roofs were also damaged; if roof replacement funds were not forthcoming from the Federal Emergency Management Agency, the capital needs estimate would be higher.
