The Answer to the Farmer’s Cash Poor/Land Rich Dilemma?

Last night in class I asked about the difference between conservation easements and the purchase of development rights (“PDR”). While I wasn’t as familiar with conservation easements I was somewhat familiar with PDRs. I attempted to stumble my way through an explanation of PDRs as this “goofy” sort of conservation tool. Well I did a little research to see what I could come up with and I found two web sites of interest. (1) The Tennessee Land Trust is a group located in Nashville that manages and on occasion purchases conservation easements in Tennessee. As I read a little more I discovered that conservation easements sound a lot like PDRs. (2) I looked up PDR’s and I found this web site from Ohio State University that discusses PDR’s and conservation easements and told me that they are essentially the same things.

Here is how they work…

In an effort to preserve natural and historic landscapes for future generations and to allow current farmers to continue farming and resist the urge to sell farms to developers seeking to capitalize on the expanding urban fringe some states have established land trusts. Land trusts may come in the form of government affiliated organizations or, as in the case of Tennessee, 501(c)(3) organizations. Land trusts manage and acquire conservation easements or they purchase development rights from families, individuals or organizations. The land trust will acquire these properties in one of two ways. First, donation of development rights by the land owner to the trust which results in a substantial tax break for the land owner and makes him fell good while managing to sufficiently anger his money hungry children. The second way is for the land trust to purcahse the development rights. This is slightly more complicated because it requires determining the value of the land to produce agriculture or timber and the value of the land at market to a developer. Suppose the land has a value in agriculture of $2,000 per acre but that a developer is offering the owner $5,000 per acre to acquire the land for development. The Land trust would pay $3,000 dollars per acre to the owner for a restriction on the deed that restricts the uses of the land in perpetuity. The farmer continues to own the land and can keep farming it or pass it on to his heirs but neither he nor any subsequent purchaser or owner can ever develop it. Typically these restrictions contain some form of allowance for structures related to the use such as a house or a barn or may have some clause that states that only 10% of the land may be developed.

In many ways this is similar to landowners in Texas selling the mineral rights below the surface of their cattle farms to oil and gas speculators. The land trust owns the development rights regardless of whether it is a farm, natural area, or historic site and owes a moral and legal obligation to enforce the deed restrictions in perpetuity.

After class Charlie asked me what Char Miller would say about the subsidizing of these farmers?




Regardless land trusts are used for all kinds of non urban land uses but one thing that I keep thinking of and Kevin mentioned in class, is that while they claim to be protecting open space but the land that is protected remain in private ownership and trespass laws still apply. The one thing they do successfully is to protect view sheds from development which is particularly important in middle and east TN’s rolling hills.

~TP

"Superstars"

Inelasticity, willingness-to-pay, and MSAs are all terms we’re familiar with, but how do they relate to “superstars,” and what is a “superstar” exactly? Authors Joseph Gyourko, Christopher Mayer, and Todd Sinai have created a working paper in which they’ve categorized several cities as “superstars” or cities with an inelastic supply of housing. In other words, construction is difficult within these cities due to geographical constraints or zoning. Similar to arguments set forth by other scholars we’ve read, such as Jan Brueckner, the authors of this paper assert that an increase in high income families has resulted in higher income families outbidding lower income families for scarce housing in preferred locations. The authors found that Los Angeles and San Francisco were the only two cities which qualified as “superstars” during the years ranging from 1960-1980. However, during the years ranging from 1970-2000, twenty more cities fell within the “superstar” classification, two of which were Boston and New York. Below are the links to an abstract and another description of the articles. You must subscribe in order to obtain a copy of the working paper.
http://papers.nber.org/papers/W12355
http://www.planetizen.com/node/23302

...and the race is on

This blog will center upon the growth explosion for DeSoto County in Mississippi. From the article, which appeared in the Commercial Appeal's Monday, March 26th paper, DeSoto County ranks in the top three among the fastest growing counties of the Mid-South states (Tennessee, Mississippi, & Arkansas). According to the article, the growth is fueled by people moving out of Memphis and Shelby County and people moving into the the "Memphis" area and choosing it as the place to live. This revelation is interesting in the fact that the ex-Memphians are moving to the outer fringes of the metropolitan area only to come back into town to utilize its amenities. The DeSoto Civic Center can only host so many attractions, thus leaving Memphis as the central locale for entertainment as from cruising the Dairy Queens and holding impromptu car conventions at the AutoZone parking lot. But why are these people flooding Mississippi? Urban growth has, in my opinion, had a negative effect on the city of Memphis and a positive influence for counties such as DeSoto County in Mississippi and Fayette County in Tennessee. Once viwed as prestine farmland, now is only used as a cash cow. The developers don't want a growth plan because it simply stymies their earning potentials with converting once low demanded land to land that will generate a sizeable profit. It is just a simple numbers game to them. How many equals how much (money that is). Just simply look at the Tunica Casino growth area and how cotton fields turned to gold. The number one source for this hasty exodus from the city of Memphis, in my opinion, lies at the root of the problem; CRIME! If people feel safe in their homes or neighborhoods, they tend to want to stay there; not pack up and head to Mississippi. If Memphis officials could really get a hold on the crime issues at hand, Memphis would benefit in the sense that smart growth would be checked. That is, there wouldn't be such a demand for undeveloped land to be developed at the pace that it is currently reaching. In just under seven years, DeSoto County has moved from 5th place in Mississppi's 82 county population, to the number 3 ranking. Now that's smart growth. And you don't hear DeSoto county officials complaining about the economic boom to their once small area. In fact, Jim McDougal, DeSoto County planning director, says he sees no end to the growth. The housing slump that has been seen in other areas of the country have not affected DeSoto. With the notion of cheaper housing costs and the idea of moving to a crime free area, no wonder DeSoto County ranks 3rd on the list. Come on Memphis, you stand to lose more that just the race..... this is my opinion, I could be wrong.

Sub-prime Suburbs

Last week's New York Times article Foreclosures force suburbs to fight blight (March 23, 2007) describes how housing foreclosures are hitting several Cleveland, Ohio suburbs so hard the local government is spending big bucks (think millions) to forestall neighborhood blight by providing housing maintenance and working to keep home owners in their houses or to help them find apartments when evicted. The cause of the foreclosures is the large number of high-interest loans issued by the sub-prime housing loan market.

The rising federal interest rate has resulted in increased payments on adjustable rate mortgages and oftentimes homeowners cannot afford to make payments because of the lax standards in the predatory sub-prime market. Banks foreclose on properties but do not maintain the properties . Shaker Hills, Ohio, Mayor Judith H. Rawson notes that "managing the damage to our communities will take years."

Nationally, economists are concerned that the high rate of sub-prime loan foreclosures will result in tighter lending standards--thus reducing the market of qualified buyers--at a time when the market is being flooded with foreclosed properties. Locally, neighborhoods are looking for ways to respond to this very real threat that is developing.

In February 2007, Channel 3's Andy Wise reported that home foreclosures are skyrocketing in Shelby County. According to Wise, the Memphis Daily News reported that Cordova posted a 128% increase in foreclosure sales from 2004 to 2006 and Frayser's 926 foreclosure notices in 2006 set the record. As in Ohio, the culprit is predatory lending.

In January 2007, the Frayser Community Development Corporation received a $25,000 grant to inform and educate residents about smart borrowing practices. According to the March 23, 2007 Commercial Appeal, the Southeast Community Development Corporation is facing over 300 active foreclosures in the 38125 zip code--along with a myriad of other issues affecting its neighborhoods. In response, the Southeast CDC is providing credit counseling and looking into creating a nonprofit mortgage brokerage. RISE Foundation and former Orange Mound CDC executive director Roshun Austin (now at Homecoming Financial, LLC) are also working to educate consumers on the dangers of predatory lending and to provide financial counseling to help homeowners stay in their houses.

Unfortunately, responding to foreclosures resulting from predatory lending is taking scarce resources away from nonprofit and community leaders who were already struggling to overcome a host of urban decay issues. This should not be their battle to fight alone. If economists are correct, the housing market is ill-prepared to correct this transgression. While federal and state officials argue over who is to blame, they need to make sure that funding is available to specifically address housing foreclosures.

Note: Check out David Gest's commentary, Physical Effects of the Declining Housing Market over at Planetizen.com, for an excellent summary of this issue at the national level.

Urban Economics Potpourri

Tim Harford's recent article on Slate.com, The Renter's Manifesto: Why home ownership causes unemployment, is probably the most interesting thing I've read in the past few weeks. For an urban economist, it's got it all: globalization, economic restructuring, the importance of proximity in the face of technological advance, urban migration patters, and a quirky little theory about the economics of cities.

When in Rome, what?

http://www.palmbeachpost.com/politics/content/state/epaper/2007/03/04/m1a_TAX_REVOLT_0304.html

Over the past few months there has been talk of an impending tax revolt in the Orange State over rising property taxes. In the upcoming legislative session, an effort to “equalize” the tax burden is being led by House Speaker Marco Rubio who is starting to feel the heat from his retired constituents. In his plan, he’s seeking to repeal the property tax and replace it with a 2.5% increase in the state sales tax, bringing the total state sales tax rate to 8.5%. According to his logic, a consumption tax is fairer because "[it] means you decide how much taxes you're going to pay". After studying how the burdens of various taxes are distributed, this argument doesn’t seem to make much sense. After plugging a few numbers into Excel from the 2004 Tax Rates and Tax Burdens study, there’s definitely some “fuzzy” math going on behind the scenes in Florida. Just comparing the percentage of income for a hypothetical family of four, the regressivity of a sales tax is more than obvious.

	Property tax % of income	Sales tax % of income
$50,000	1.76%	1.72%
$75,000	2.43%	1.72%
$100,000	2.57%	1.63%
$150,000	2.72%	1.55%

An additional problem with Rubio’s plan is that it ignores the additional burden that’s going to be placed on the lower socioeconomic households who typically don’t own a home. While it’s true that property taxes are eventually passed along to renters, the burden of the tax is already known to them on the front end when they see the rent in the lease. By trading the property tax for an increase in the sales tax, the state would be asking families in lower economic brackets to pay an unfair amount of the cost to run the government.

Civil libertarians are trumpeting this as a potential victory for individual freedom, but where is the line between personal liberty and moral obligation, and whose job is it to be looking out for those who aren’t represented by the nation’s largest political lobby group?

Here's a link to the story: http://www.palmbeachpost.com/politics/content/state/epaper/2007/03/04/m1a_TAX_REVOLT_0304.html