(Before I present my report on studies of Shorewood's economy, I want to congratulate Chris Swartz, our Village Manager and Pete Petrie, Director of Community Development on the outstanding work they have done in making the most of our TIF as a functioning redevelopment process.)
Shorewood is attached to the heart of its metropolis, as it borders on Milwaukee on two sides, a great lake forming its third side and its other side has been shared for decades with another fully developed suburb.
Whether implied or not, communities like Shorewood have taken action through conventional and traditionally accepted means to keep these land values up. High values act as a double sword. More on this later.
Although land has implied value, its real value comes through appropriate utilization.
The normal depreciation or value decline of land improvements bring with it a decline in the economic appropriateness of its use. Urban redevelopment as a defined process has become the accepted means for regaining the “appropriateness” of use.
The community through its implied powers of compulsory purchase is able to acquire under-utilized land and prepare it for economically improved use.
What are the assumptions:
Assuming that adjoining and local uses are also appropriate, then the under-utilized land will take on increased values and return revenue to the community based on the type of improvements.
Tax incremental financing was a process taken up a number of decades ago for the purpose of “slum clearance” and now is also being utilized to upgrade property values in communities like Shorewood. In many cases the land was maintained in government ownership.
Land is a measurement of surface space that has utilization value within a global as well as within a local economy of increasing demand. It is a rather abstract in value, unlike improvement on the land which begins to depreciate in value at the moment of completion.
This results in one line of value (land) moving upward and the other (improvements) taking a downward direction.
If the investment in construction and improvements at a specific time was considered to be maximum in relation to the upward cost of the land and with the depreciation of buildings for example, beginning at the moment, at the point of balance, then the land in its upward value movement also begins its movement toward decreased utilization.
Our attempts at intervention:
Redevelopment is a process designed for creating value through appropriate land utilization. Now the question as to how long do we need to wait until we begin the process of redevelopment? And is redevelopment a one-time event that occurs every 25 or 50 years, or should it be rather a sustaining process?
Excluding the factors of inflation, we have land rising in value and the buildings depreciating. The solution would be one where the buildings or improvements rise in value as the land does; therefore, we would then come closer to the appropriate values and appropriate utilization of land, the correct proportionate values of buildings to land.
Under conventional means, communities wait for decades for buildings to decline to the point that land is so under utilized that it presents social as well as economic consequences. Land under these conditions can begin declining because of its obvious "under-utilization" and then it may begin to negatively affect surrounding properties.
At this point, it is expected that the land acquired and properly prepared by the community would make up for some of the cost of redevelopment, the remainder, it is expected would be made-up over the long run.
Some new approaches are possible:
If however, we could conceive of a system that would contribute to a steady state of “appropriate utilization,” automatic and re-occurring on a regular basis, the steady loss of land value would be eliminated as would the gradual declining conditions.
Meanwhile, we could await those long term redevelopment events that would occur only after many decades of decline.
Regular revenue to the community would be maintained through our property tax system and some of these land value increase funds could be used to provide a regular infusion for upgrading purposes. Of course, these upgrading subsidies would benefit the designated “owner” of the property as well.
The method for attaining land value increase funds will have to be discussed at another time.
I've indicated in other postings that land for redevelopment should be kept by the community so that the community would not later have to make huge economic sacrifices in its re-acquisition and therefore tend to postpone routine and regular redevelopment processes.
These costs could be best be reduced by leasing the land to the developer rather than assigning it to the developer. There would be no loss to the developer under this arrangement but significant gains to the community..
There are new factors to be studied here and better understood (a) that of “appropriate land utilization” and (b) “steady state redevelopment”. Steady state and the returns from steady state could help with upgrading and with “community building.”
One of the economic lessons that can be learned or re-learned here is that land is at the economic foundation of communities like Shorewood and that land's appropriate utilization is most important.
Another is, that if that balance of appropriate utilization could be maintained for extended periods that values could be maintained on a steady basis, forming a steady stream of revenue while maintaining high values and long term qualities.
Let's get together to discuss further what I've presented here.