Development

Is Smart Growth Smart?

Brokers and Developers Should Consider Land-Use Issues to Understand What Works Best for Their Communities.

As metropolitan areas sprawl farther out and rural cornfields sprout housing subdivisions almost overnight, a debate is waging at federal and local levels over how best to accommodate this growth. Government officials, commercial real estate professionals, and community activists are seeking the right balance between expanding developed areas and preserving green space.

Recent statistics suggest a need for structured land planning. The United States more than doubled its annual development of open space in the 1990s, according to an Agriculture Department report. Almost 16 million acres of land were developed between 1992 and 1997 — a rate of 3.2 million acres per year. Between 1982 and 1992, the rate was 1.4 million acres per year.

Aside from disappearing open space, a variety of other concerns are associated with urban sprawl, including traffic congestion, ailing downtowns, and environmental effects. More intangible issues, such as a sense of community and quality of life, exist as well. As a result, more cities and towns are becoming concerned with unchecked development.

Often, community members suggest smart growth as the answer. However, smart growth has no clear-cut definition. To its proponents, smart growth is a reasonable approach to dealing with urban sprawl and the problems associated with it. But opponents maintain it means no-growth policies designed to stymie new construction at every turn or complicated regulations and fees that discourage all but the most determined developers.

Both sides do agree on one basic tenet: Growth is inevitable, and its challenges can't be ignored. Commercial real estate professionals should become familiar with smart-growth policies because they are sure to play a role in future development. Brokers and developers with experience in this area even have found ways to use smart-growth strategies to improve their investment decisions.

Urban Growth Boundaries One of the more controversial methods of reining in expansion is the use of urban growth boundaries, which limit or regulate growth on the outskirts of a city or metropolitan area. Portland, Ore., a pioneer city in smart-growth planning, instituted UGBs in 1980. The move was supplemented by an efficient mass transit system, and a development boom in the core city resulted. But critics claim that Portland's vibrancy has caused high housing prices, a housing shortage, and increased traffic congestion.

Other areas also have tried to implement UGBs. An Arizona growth initiative requiring communities to adopt growth boundaries is slated for the November ballot. In an attempt to head off the referendum, a less-radical measure calling for voluntary, rather than mandatory, growth boundaries was passed in the legislature early this year.

What's frustrating about the groundswell behind UGBs is that they offer a simplistic solution to a complicated problem, says Gregg Wolin, CCIM, chief operating officer of Inca Capital LLC in Scottsdale, Ariz.

“Smart growth is a great idea,” Wolin says. “But smart implies ‘smart' — meaning scientific methods and cost/benefit analysis. Proponents have looked at the benefits of smart growth — the warm fuzzies — and haven't considered the societal costs. At the root of this entire discussion across the country there has been less science and analysis done than the public has been led to believe.”

Wolin did some analysis of his own on the effects of UGBs. Comparing housing costs, he found that in the last 10 years, housing prices went up 45 percent in Phoenix compared with 110 percent in Portland. “You can't restrict the supply without affecting prices or demand,” he says. “That's my biggest gripe.”

David Worden, CCIM, principal broker at Windward Commercial Real Estate Services in Half Moon Bay, Calif., notes that much of the no-growth sentiment in his area is generated by newcomers who have moved there but then want to prohibit growth. Half Moon Bay, a coastal community south of San Francisco, has taken on an influx of Silicon Valley workers, pushing up housing prices and heightening growth concerns.

But Worden maintains that no growth means exactly that, and infrastructure improvements such as schools and road construction are given short shrift because they could be considered growth inducing.

More importantly, Worden says that no-growth policies have aggravated traffic congestion — something true smart growth tries to alleviate. Housing prices in Half Moon Bay average around $550,000, but the community has few jobs, so residents must drive elsewhere to work in order to be able to live there. On the other hand, those who do work in town — teachers, firefighters, and police officers — can't afford to live there. “There's an imbalance between jobs and housing,” Worden says. “Smart growth should be able to achieve a reasonable balance.”

Transportation Patterns Another sprawl solution is to focus on higher-density development in town centers, but that also can provoke opposition, says Robert Vallera Jr., CCIM, senior vice president of IPC Commercial Real Estate in La Jolla, Calif., just north of San Diego.

San Diego had a growth-management plan, developed in the 1970s by then-Mayor Pete Wilson and aimed at stopping leapfrog development. (Developers that build farther and farther out from the city often “leapfrog” over undeveloped or agricultural land, which results in uncohesive and unplanned sprawl.) The plan “followed some classic planning principles of concentrating density close into the urban core — an approach now referred to as smart growth,” Vallera says. However, he says he avoids the term because “What we're really talking about is simply good planning,” he says.

The plan soon was compromised. In the 1970s and the early 1980s, neighborhoods began to convert from single-family to multifamily use, Vallera says. But local homeowners opposed the trend and pressured the City Council, which responded by downzoning much of the multifamily land in the central city. “New multifamily construction got pushed out farther into the suburbs ... and created traffic congestion,” he says.

“What we're finally seeing now is an admission that a mistake was made,” Vallera says. “There's a growing consensus that we need to concentrate the population closer in and along the major transportation corridors.” The city also currently is building a light-rail system; so far, three lines emanate from downtown, with plans to build more.

Transportation patterns have played a deciding role in Vallera's real estate practice. With a master's in urban and regional modeling, he examined the area's transportation network and projected traffic pattern changes. He then focused his investment portfolio in neighborhoods closer to downtown that looked ripe for gentrification.

One consequence of San Diego's growth has been a tight rental market, which makes it easier to incorporate smart-growth principles for redevelopment projects closer to the urban core. “Downtown San Diego is a success story in terms of these planning concepts,” Vallera says. “It's created opportunities for investors to fix up older apartments or reuse older commercial properties.

“Many of us in the industry take the position that growth is going to occur,” he says. “We'd rather attempt to accommodate it and steer it in such a way that we minimize the impact, rather than bury our heads and deny that the growth is going to occur — and then have an even greater set of problems to deal with later.”

Unlikely Allies Problems also can arise in balancing community agendas. Robert Knight, CCIM, president of Knight Real Estate in Austin, Texas, is involved in a project to subdivide and reassemble an older neighborhood near Austin's convention center. The neighborhood currently is residential, while Knight's plan would redevelop the area into multifamily, retail, office, and hotel use.

Because the neighborhood is listed on the National Register of Historic Places, Knight faces opposition from preservation advocates. “We're dealing with it through the political process,” Knight says. “What we're doing is meeting it head-on and saying to the city, ‘This is a balancing act.' It takes a lot of careful ... study and cooperation to work out an acceptable compromise between two goals that appear mutually exclusive.”

However, Knight has found unexpected allies: environmentalists who normally might not side with developers. Since these activists want to prevent growth in environmentally sensitive areas west of Austin, they support Knight's project because it focuses development in the core city.

Other Initiatives Smart-growth advocates propose a variety of approaches to sprawl concerns — higher-density urban redevelopment, conservation-oriented master-planned communities, and improved or innovative public transportation systems. Many areas already have implemented various smart-growth initiatives.

In Maryland, smart growth is a statewide effort thanks to Gov. Parris Glendening, an ardent advocate. In 1997, the state's General Assembly adopted smart-growth measures that include priority development funding for designated growth areas, funds for conservation easements for agricultural and natural areas, and a job creation tax-credit program that encourages midsize and small businesses to invest in smart-growth areas. Glendening also advocates “smart codes,” more-flexible building and planning code revisions that would help communities with infill projects and maintain the character of older neighborhoods near city centers. Many current building and zoning codes actually contribute to urban sprawl, Glendening believes, because they often can be so cumbersome that developers simply find it easier to build in new areas.

Austin has had a comprehensive smart-growth program in place since February 1998, setting guidelines that focus on areas such as urban design, land use, transportation, neighborhoods and housing, infrastructure, and the environment. The program aims to simplify the development process and define development zones. It also includes an incentive matrix (http://www.ci.austin.tx.us/smartgrowth/smartmatrix.htm) that evaluates development projects and awards city financial incentives based on the number of points a project receives. Elements evaluated include land-use contribution, neighborhood planning, transit access, and water conservation.

Educational Needs While individual solutions may vary, participants in the process should look for common characteristics in smart-growth initiatives. The Urban Land Institute, a smart-growth proponent, details such a list in its publication Smart Growth: Myth and Fact . Among them are economically viable development that preserves open space and natural resources; comprehensive, integrated, and regional land planning; and collaboration among public, private, and nonprofit sectors. (The publication can be downloaded from ULI's Web site at http://www.uli.org.)

Some states are attempting to educate interested parties on smart-growth issues. The Maryland Office of Planning offers a 15-hour course for planning-commission members that also is open to real estate professionals, developers, and others. The course teaches participants how to implement local comprehensive planning and growth-management programs. It also covers agricultural and historic preservation, environmental protection, and infrastructure use.

The real estate community is educating its own as well. A National Association of Realtors advisory group formed to study growth-management issues conducted public opinion surveys and focus groups and developed a blueprint for action on growth issues.

The initiative encourages real estate professionals to become active in local land-use planning guided by five principles: provide housing opportunity and choice; build better communities that include affordable housing, good schools, and efficient transportation; protect the environment by recognizing the importance of local decision-making, private-property rights, and the value of a healthy economic sector; protect private-property rights; and implement fair public-sector fiscal measures.

NAR plans to create an outreach training program on growth-management issues to provide local and state associations with information and training on land-use issues.

“The real estate industry in general needs to work toward local and regional consensus,” says Ron Myles, CCIM, a broker with Realty International in Denver. Myles, who chaired the advisory group, adds, “We have to be extremely sensitive to what the public thinks and work with local officials as well.”

Although Vice President Al Gore has positioned smart growth in the national spotlight, those on all sides of the issue concur that the most workable solutions will come at the local and regional levels. “Every area has its own unique characteristics and concerns,” Myles says. “For some, it's congestion and heavy traffic; for others it's open space and greenfields.”

Smart growth doesn't necessarily rule out new development away from urban core areas. A number of new master-planned communities around the country meet smart-growth goals. Orenco Station near Portland mixes a variety of housing types with office and retail uses. The community is linked to downtown Portland by a light-rail system. Civano, a new community on the southeast edge of Tucson, Ariz., will include houses and apartments as well as commercial, retail, and light industrial uses. It also aims to place half of its population and two-thirds of its jobs within a five-minute walk of its town center.

Prairie Crossing, an upscale development in Grayslake, Ill., 40 miles northwest of Chicago, was built as a conservation community. Homes are clustered on small lots, but the development contains 450 acres of open space and abuts a 2,500-acre nature reserve. However, in an effort to adhere to high-density planning, developers proposed a cluster of 141 townhomes around the nearby train station. Grayslake said the addition was too dense and would permit no more than 45 new units.

Smart Opportunities Smart-growth opportunities may take some work. “It takes a lot of patience and stamina to go through this process,” Knight says.

On the other hand, Vallera says, “If you're working in a community that does not openly embrace new development or redevelopment, if you do have a project that does conform to smart-growth concepts, it gives you a solid leg to stand on.

Infill development, in particular, holds a lot of potential, Myles says. “There are lots of opportunities in commercial areas, where our expertise is needed to do turnarounds. There are solutions that we can offer, but we've got to get engaged,” he says. “If you don't monitor what's going on, and [you] wait until it's in the newspapers, it's going to be too late.”

Sarah Hoban

Sarah Hoban is a business writer based in Chicago.

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