Archive for the ‘Chicagoland’ Category

Local land prices show that location still matters

taken about 8 years ago by Zachary Korb, via flickr (cc)

A different vacant parcel, about 8 years ago by Zachary Korb, via flickr (cc)

Crains reports the sale of a vacant parcel in the fashionable North State Street neighborhood for $70 million — $4075 per square foot. The article says that “Under a zoning agreement the city approved in 2006, a developer could build as many as 261 residential units on the parcel,” which would work out to about $268,000 land cost per unit.  You can buy a nice residential lot in many decent neighborhoods for a lot less than $268,000 (and in less-decent neighborhoods land is practically free). Perhaps the buyer is expecting to obtain an increase in permitted density.

The article also reports that the seller, a “Miami-based developer” who has held the parcel only four months, will realize a $42 million profit.  It’s unfortunate that none of this profit goes to support the intensive and expensive infrastructure which helps keep the neighborhood functional.

Mismeasuring, or at least misreporting, America

image credit: wstera2 via flickr (cc)

Another Andro Linklater book, Measuring America, certainly worth the read especially if you’ve not read John C. Weaver’s The Great Land Rush.  Not only some history of America’s Public Land Survey System and how it facilitated prosperity (at least for a while), but also some discussion of how the new nation almost adopted the metric system. But, as with Owning the Earth, Linklater commits a big error which makes me wonder how sound the rest of the book is.

In 1830 James Thompson, a surveyor and engineer, was commissioned to lay out a town in Illinois, in the square mile of Section 9, Township 39, Range 14, Second Principal Meridian…[page 181]

No! Not the Second Principal Meridian, and even if it was, there would have to be an “east” or “west” specified (as there should be a “north” after the “39.”)  This is not an obscure fact and is referenced commercially as well as by surveyors, assessors, real estate attorneys etc. As this is wrong, how much else in the book might be incorrect?

Two dumb tax policies give Aussie millionaire a bite of your lunch

Image Credit: Marshall Astor (cc) via flickr

From Crains we have a report that McPier — the Metropolitan Pier and Exposition Authority which controls McCormick Place and Navy Pier — has paid $5.5 million for about half an acre which sold last year for just “over $1 million.” It seems to be an awfully nice profit for Drapec USA, the California-based Australian real estate operator who earlier was expected to develop the property themselves.

I don’t know that this deal was in any way particularly corrupt or dishonest.  Maybe the parcel actually quintupled in value over 14 months.  Or maybe Drapec really has better “analytical and negotiating skills in finance and real estate” than McPier (or the seller last year, BMO Harris).  But there are two things I do know:

(1) The multi-million dollar profit will be paid by everyone who patronizes restaurants in or near the central part of Chicago, where McPier imposes a 1% tax on all meals. To keep the math easy, figure the average fast-food meal costs $5.50, yielding 5½¢ for McPier.  At that rate, it’ll take a hundred million meals to buy this real estate. Of course, McPier has other tax revenues, too. And actually, not quite all meals are subject to the tax, since some nonprofit organizations, as well as governmental agencies including McPier, are exempt.

(2) The asserted purpose of McPier is to “strengthen the local economy.”   Why should the economy need to be “strengthened?” What are the obstacles preventing people from finding productive employment? Certainly one of these obstacles is taxes, not only the amount of taxes paid but also the difficulty and expence of conforming to all the applicable tax rules and regulations. Another, perhaps more important obstacle, is the vacant and underused land throughout the City.  Land can be forced into productive use by collecting its full economic value through a land value tax.  Since nothing can be produced without labor, productive use means wages will be earned. That is the way to strengthen the local economy.  Of course, under a full land value tax, the selling price of that half-acre parcel near McCormick Place would be nominal, and Drapec would not have bought it unless they planned to begin development promptly.

Retiring regional leader on how to fund infrastructure

from Wikimedia

from Wikimedia

From Marni Pyke’s interview in the Herald:

One way to pay involves value capture — establishing special taxing areas that assume that development like a new road benefits landowners by growth in sales, rents or property values, he said.

“I’m a developer,” Ranney said. “I think developers need to pay more for the value that is generated (by the project). Value capture makes sense. That is something that the real estate community isn’t too keen on — but let’s get real. If you use public dollars to generate private wealth, you can darn well pay for it.”

And an observation regarding transit progress in the region:

Noting he takes the same train from Libertyville that his father took, Ranney added that “nowhere else in the world do they have complacency about exactly the same level of service.”

Quid Pro Brew

image credit: Bernt Rostad (cc) via flickr

image credit: Bernt Rostad (cc) via flickr

I was wondering a few weeks ago why Revolution Brewing supported the lobbyist-friendly “Transit Future” funding effort.  How foolish I was, is not brewing a regulated industry desirous of government favors? WBEZ reminds us of the “Small Brew Act,” which would cut the federal taxes on the first 60,000 barrels produced. Senator Kirk, who has never done anything constructive that I can recall, toured the Lobbyist Revolution Brewery and spoke kindly of the act.

Of course, there is no just reason to impose any tax on production of beer or anything else people want, provided that land rent is collected by and for the benefit of the community. In the same situation, I might do the same thing Revolution has done, especially if I knew more about political strategy and good beer than about smart fiscal policy and public finance.  But it’s a shame they’re doing it.

 

America Fast Forward to Transit Future Obligations

Sunday on CTA Route 49

Sunday on CTA Route 49

Over here in Illinois a coalition of powerful and dangerous people and organizations seems to be supporting a “transit future” initiative to harvest a “robust revenue stream,” inferentially a further increase in the sales tax. I say “seems to be” because I haven’t verified that everyone listed (including southern California’s moveLA) is in fact a supporter rather than a typo. And “inferentially” because the examples cited on the site involve sales tax increases.

GETTING TO HYDE PARK…

There is some fancy mapping at vision.transitfuture.org (more…)

What the Tribune missed

iTax Dodge protest

image from Michael Casey via flickr (cc)

Last year the remnant of the Chicago Tribune requested ideas for elements of a new “Plan of Chicago.” They even posted a few of the responses on their site. I suppose some were included in the hardcopy newspaper too.  But those don’t seem to have included my submission, so I probably ought to post it here.

My proposal, of course, relates to how public revenue is raised.  The protesters pictured on the right probably wouldn’t realize that it relates to their concerns, and would almost certainly cause Apple to make a greater contribution to local coffers than they do now. But it wouldn’t increase any corporate tax rate nor prevent Apple from playing accounting games.  It doesn’t need to.

Here’s the proposal as submitted on October 24 2013: (more…)

Residency requirements….

envelope1When the dinky suburb I live in decided to outsource the water bill processing to a firm six towns distant, I didn’t really object.  Maybe it’s more efficient to have the work done elsewhere.  But when the Cook County Assessor asked me to send a form to an address just outside the county boundary, I wonder what message he is trying to send.

Land value depends on the definition

Image of Drake Hotel by Teemu008 (cc via flickr)

Image of Drake Hotel by Teemu008 (cc via flickr)

In an urban context, absent special environmental issues or legal constraints,  land value and location value are pretty much the same thing.  So we read in Crains that the Drake Hotel is on a 63,000 square foot parcel valued at $150 million, implying this land is worth about $2381/square foot.  But no, the location probably isn’t worth that much.  Rather, the land is leased by the owner of the structure, and the lease document says that, every five years, the land value is to be estimated and the annual rental set at 10% of the land value.

Possibly 10% was a reasonable return in the past, but in today’s zero-interest-rate world no safe investment would yield that much. Rather, the owner of the land actually owns two things: (1) the land, and (2) the privilege of requiring the building owner to pay an above-market rental rate.  Were we to value the land “as vacant,” which is the correct way to estimate land value for taxation purposes, then (2) would disappear and the land would be worth, more or less, the same per square foot as other land in the very prestigious immediate neighborhood.

It would be interesting to see what the lease says specifically about how the land value is to be estimated, and to read the (certainly confidential) document describing how the $150 million value is justified.

For more discussion about methods of valuing land for assessment purposes, duck around for works by Ted Gwartney on the subject, or consult the old but still-relevant TRED volume.

Lobbyist vs. Lobbyist: How Chicago enterprise works.

Photo credit: Adam Greenfield via flickr (cc)

Earlier this week the Tribune carried a pretty good report on Chicago’s Uber vs. cab situation. Altho many of us transit-dependent mundanes may have missed the story, it seems that people who can afford cabs can also afford smartphones (or can text using dumb phones), and many of them prefer Uber as a way to get service without having to speak with a person. You can choose a taxi at regular taxi rates (but with a minimum 20% “gratuity” that the driver splits with Uber and the credit card processor), or a classier vehicle for considerably higher cost.  I am surprised that folks pay such high rates to avoid dealing with traditional taxi companies.  A few years ago I learned that, for those who pre-book and travel more than about ten miles, limousine service is likely to be much cheaper (even for a person traveling alone) than a conventional taxi; I suspect this is still the case.

Naturally, owners of medallions (and existing dispatch services) don’t particularly like this idea, so both sides are trying to improve their service to entice more customers have hired lobbyists to “persuade” the investment banker/politician who holds the Mayoralty to throw things their way.

I guess I’m surprised too that medallion prices are holding at high levels (most recent median price $345,000, up from $260,000 about a year before, based on data compiled by Chicago Dispatcher). Whether this is really an open market, or perhaps subject to manipulation by major owners, or another symptom of financial repression, I have no knowledge.

Of course Uber’s pickup zone doesn’t encompass the entire city of Chicago, missing much of the south side, but it does extend service beyond the City boundary into some relatively affluent suburbs.