True love is hard to find and never more so than when your love is for thriving, equitable communities with access to high quality transit, affordable housing, and a mix of jobs and services.
Leading voices in the affordable housing and TOD communities have united in support of equitable transit-oriented development (TOD), which promotes a people-based strategy to the traditionally place-based approach. Ideally, equitable TOD results in the same economic development success from traditional TOD but paired with greater economic opportunity, such as affordable housing and middle-skilled jobs for low-income residents.
Yet limited public budgets and a weak economy have pushed advocates to call for a deeper understanding of the policy and financing tools necessary to create mixed-income transit-oriented communities. While implementing an equitable TOD strategy is not easy, a recent Living Cities-sponsored webinar by Enterprise Community Partners and the Low-Income Investment Fund (LIIF) revealed that there are indeed silver linings to the challenging financing environment.
A growing number of places as diverse as Boston and Dallas to Salt Lake City and Seattle are working to strengthen their regional economies and improve quality of life through coordinated investments in transit, housing and business development. This map from The Transport Politic shows anticipated transit projects in 2013 and demonstrates the potential for equitable TOD implementation across the country. Indeed, in the past 10 years transit use has grown by over 20 percent - faster than either highway or air travel.
Yet with recent increased demand for infill housing, equitable TOD stakeholders struggle to find sufficient funding to pay for new transit and development. Failure to keep pace with the market after transit investments are made can mean that lower-income households are priced out of neighborhoods and fail to benefit from quality of life improvements or greater access to regional jobs.
Financially speaking, TOD projects are more complex given higher land value near emerging transit, additional infrastructure and utility costs, and financing that still tends to favor single use developments. As a result, low-income residents are left behind as developers counter these higher costs through market-rate housing that places a price premium for improved transit access, good design, and quality of life improvements.
To support the field’s ability to implement equitable TOD, the recent Living Cities-sponsored webinar (which drew from soon-to-be released research by Enterprise and LIIF) provided a snapshot of myriad strategies and challenges to financing equitable TOD. The good news from the presentation is that over the past five years, more communities have advanced projects and policies so best practices and lessons learned have increased in number and diversity.
The bad news is that there is no silver bullet – especially for comprehensive or corridor level TOD financing. Some communities have used tax increment or special district financing to help fill the gap. Others have created new programs (i.e. the Massachusetts TOD Bond program and Twin Cities Livable Communities grants) to support pre-development activities. However, not all communities are able to create and implement these programs, and most of these tools only fund individual projects or don’t provide permanent financing. Even the often lauded TOD acquisition fund may not work for all communities, since securing the required patient capital can be a challenge, especially if there is not a strong philanthropic or public sector partner.
Webinar presenters Brian Prater and Melinda Pollack further highlighted key components of the equitable TOD financing gap:
- the importance of financing for acquisition, predevelopment and remediation for which a number of philanthropic and public resources are being developed;
- the growing gap in infrastructure funding- not only for the transit, but also for sewer, water, sidewalks and street connectivity;
- the importance of access to debt and equity financing during construction and permanent financing phases.; and,
- the need to move beyond individual project financing, in which investors require greater evidence on the reduced risk and performance of TOD projects.
Brian and Melinda note that in many instances, the amount of gap financing needed may be relatively small but still proves too much to overcome. Further work to unlock credit enhancement or guarantees holds the potential to turn unused capital into needed permanent financing. Through this mechanism, subordinated loans backed by local funds can used help absorb risk from TOD projects and secure additional financing or create revolving finance programs to fund additional future projects.
Indeed, convincing financial investors on Wall Street to invest in TOD can be daunting for a region. The silver lining is that communities often have the power themselves to overcome substantial finance challenges – primarily by updating zoning and building codes to support equitable TOD. Case studies from Atlanta, Denver, Minneapolis, and San Francisco illustrate the added risk and cost of outdated codes, sluggish environmental approval and weak TOD programs. For example, additional costs resulting from parking requirements designed for auto-dependent suburbs can add millions to a project’s total cost. Left unchecked, these policy barriers can make obtaining financing even harder or create new finance gaps that must then be filled.
There are other promising solutions. Expanding collaborative partnerships across the transportation, housing and real estate sectors by engaging decision makers from each can unlock financial resources within their control. With the growing devolution of federal funding, state agencies like Housing Finance Agencies, Departments of Transportation, and Economic and Employment Agencies, should be pushed to better support metropolitan TOD efforts. Each allocates hundreds of millions of dollars annually through grants, formula funds and low-income housing tax credits. Better alignment of these state programs to support equitable TOD through improved funding criteria, coordinated planning requirements, common grant applications, and priority consideration for established TOD investment areas should be part of the next frontier for filling the equitable TOD financing gap.
Mariia V. Zimmerman is Founder and Principal at MZ Strategies, LLC.