Testimony: Urban Homestead Zones May Help Revitalize City Centers

By Samuel R. Staley, Ph.D., posted April 26, 2007

Summary of Testimony

Provided to the
Ohio House of Representatives
State Government and Elections Committee (RM 122)
Statehouse, Columbus, Ohio

 April 26, 2007

Chairman Daniels and members of the State Government and Elections Committee, thank you for giving me this opportunity to provide comments on H.B. 26 and the proposal to create Urban Homestead Zones in Ohio’s largest cities.

Major Program Components

Urban Homestead Zones are intended to help revitalize Ohio’s inner cities. The zones would be voluntarily created by property owners in Ohio’s largest cities (the “Big 8”—Akron, Canton, Cincinnati, Cleveland, Columbus, Dayton, Toledo, and Youngstown) and cover between 10 and 150 acres.

In order to qualify as an Urban Homestead Zone, the area would have to be considered “blighted”. An area would be blighted if the following trends were evident:

• Population has declined by at least 10 percent between the most recent censuses;
• The zone’s poverty rate exceeds the city’s poverty rate by at least 10 percent; and
• Homeownership has fallen by at least 10 percent between the most recent censuses.

These zones would be allowed to take two very important, independent steps that help encourage revitalization:

1. Establish a private security force, financed by a special assessment on properties within the zone; and
2. Establish a legal right to an educational voucher for households that invested in residential renovation (a minimum of $120,000) that can be used to offset tuition at private schools.

Thus, the legislation directly tackles two core issues—personal safety and educational opportunity—that are critical to the revival of our central cities.

Fresh Thinking on Revitalization

HB 26 reflects a fresh approach urban revitalization and has the potential to give new, important tools to citizens and public officials in our traditional central cities.

Revitalization in established urban areas happens on an incremental scale, often through the ongoing and interconnected decisions of individuals and households. Few urban areas or inner city neighborhoods, for example, are revitalized by large-scale redevelopment of entire blocks (commercial or residential). On the contrary, revitalization happens parcel by parcel. Urban Homestead Zones recognizes this process and provides a mechanism for reinforcing this dynamic.

This point should not be underestimated. Too often, revitalization efforts focus on large-scale projects such as sports stadiums, convention centers or downtown office buildings to pump prime neighborhoods. While these projects change the physical landscape, they do little to support broad based revitalization in the neighborhoods.[1]  Moreover, they do little to address serious deficiencies in core urban services such as education, infrastructure, and prime prevention that are primary drivers residential and employment migration to suburbs and other areas.[2] 

Urban Homestead Zones, in contrast, encourage city policymakers to think at the neighborhood level and of the kinds of investments on the parcel level that provide a foundation for long term, sustainable redevelopment. Central cities have distinctive neighborhood qualities, and the homestead zones provide a way for these neighborhoods to further tailor public services to their specific needs.

Moreover, H.B. 26 proposes to address two core problems in central cities directly: physical safety and access to quality education. Both of these factors are critical to retaining existing families as they move up the housing ladder and attracting new families into cities as they look for high quality places to live within a metropolitan area.

Concerns about Current Legislation

Despite the clear potential benefits of Urban Homestead Zone concept, the current legislation has several features that may limit their potential effectiveness.

1. The investment threshold is too high. $120,000 is a very large investment threshold for all but the most robust and vibrant neighborhoods in Ohio’s large central cities. For example, in the Wright Dunbar neighborhood in Dayton, the average selling price of a newly constructed home is about $150,000 according to local real estate experts. This is the only non-historic district neighborhood capable of sustaining these kinds of home values.  Homes targeted toward the middle class often sell for between $50,000 and $80,000.
   
   The bill, as it currently reads, implies that a family moving into a city (or buying another home in the city) would have to shoulder the burden of the mortgage on an existing home plus invest $120,000. For a new family, this could mean financing $200,000 or more.   Alternatively, they would have to build an entirely new home. Investments on the scale of the current bill, then, really end up targeting high-income households, and these households already locate in safe neighborhoods (in and outside major cities) and can afford to send their children to private schools.
   
   A threshold this high is unnecessary, and the benefits of the proposal could be expanded dramatically by lowering it. Bringing the investment financial threshold to $50,000 or $75,000 would allow for significant remodeling and investment (bringing many homes to contemporary standards and codes) while providing access to the program for lower middle-income families. Cities need to retain the families they have and minimize the incentives to move outside the city.
   
   
2. The nonresidential land use maximum of 15 percent in the zone should be increased. Particularly in the current economy, where more and more professionals are working at home, neighborhoods in dense urban environments can tolerate (and thrive) with higher commercial/residential mixed uses. This is particularly true if the commercial property houses professional and neighborhood services that provide its social infrastructure. These commercial uses contribute to creating and sustaining a neighborhood identity. One of the most important deficiencies older neighborhoods have is the lack of amenities—grocery stores, dry cleaners, good restaurants, etc. By placing such a high threshold on residential land use, these amenities become a programmatic burden. The non-residential threshold could be increased to 25 percent without compromising the fundamental goals of the program.
   
   
3. School vouchers should not be limited by the General Assembly if they are paid for locally. The current legislation allows the state legislature to establish the total number of school vouchers available. This is consistent with current legislation. But at least part of the funding for the Urban Homestead Zone program will come from a Tax Increment Financing program designed to fund the vouchers (an Education TIF). The legislature should not be able to limit the number of vouchers provide in a zone if the TIF fully funds them. Indeed, the fact the legislature might limit the number of vouchers will likely dilute the incentives to form a zone (and reinvest in the neighborhood) because politics may limit the number of vouchers available in the future. For the program to be effective, the program must have as much certainty as possible linking benefits to neighborhood revitalization.
   
   
4. City approval of zones. The current legislation calls on the local legislative authority to approve the zone. This puts the host municipality in the position of approving a citizen initiative that may be inherently critical of the city’s ability to provide effective services. The politics of approval could be minimized if the legislative authority is only given veto authority over the petition, but the veto could be overridden by a super majority of 60 percent of the members of the proposed zone.

Overall, this legislation represents a significant step forward in rethinking urban revitalization in large urban areas.

I am available for comments and questions.

Samuel R. Staley, Ph.D. is a senior fellow at the Buckeye Institute and director of Urban and Land Use Policy at Reason Foundation in Los Angeles. An Ohio native and resident, he is co-author of the forthcoming book Mobility First: A New Vision for Transportation in a Globally Competitive Twenty-first Century (Rowman & Littlefield) and co-author of The Road More Traveled: Why the Congestion Crisis Matters More Than You Think, and What We Can Do About It (Rowman & Littlefield, 2006).