For quite some time (I’m not sure how long) the City of Alexandria has aimed for “balance” in it’s property tax base - IE to avoid having too much of its property tax revenue come from residential properties compared to the amount from commercial properties. I would like to address this and examine if it is actually an economically rational approach, as it effects several local policy decisions.
Before we address property taxes, let’s remember there are reasons why mixed use development is good, that are not about tax revenues. When retail, office employment and housing are close together, this provides opportunities to walk between them - at least a few people will walk to work, and many will walk to retail. People who drive will drive very short distances. Mixed use helps transportation in other ways - because of typical commute patterns (to work in the AM, from work in the PM) mixed use development utilizes both mass transit and roads more efficiently. Beyond transportation, mixed use as particular advantages for retail - residents will use local retail the most on evenings and weekends, and office workers will do so during the day on weekdays (all of these are impacted by the work from home trend, but I believe are still real benefits)
Note however - these benefits are dependent on the balance of uses, NOT the balance of property value. Adding new offices and retail to an older, cheaper residential area will do this, and adding new residences to an older, lower value commercial area will also do so. And of course all of the benefits are finite, and not a reason to turn really good new development (both offices and residences probably always benefit from local retail, but the mix of employment and residences, while useful, may not be worth turning down development) Note also, this is NOT about a jurisdiction wide balance, it’s hyper local - an individual walkable development.
The usual argument for balancing property tax values on a jurisdiction wide basis is to limit the burden on existing homeowners. That is certainly a goal important to voters - but does the balance between NEW commercial development and NEW residential development matter to that? Let’s do a thought experiment.
You have a million dollars of City expenditures on services. To start all those are paid by 1000 homeowners, at $1000 each. They want some relief. Say you build offices generating a half million dollars in property tax revenues (for now lets assume no new expenditures relative to the new development - an heroic assumption to be sure, we will return to that later) Now you can reduce the tax from the homeowners to half a million, and their property taxes are cut in half. Yay! Does this show the need for commercial - residential balance?
No, it does not. Suppose instead of the commercial development, you built new condos generating half a million dollars in property taxes. The burden on the existing homeowners is again cut in half, exactly the same as in the commercial development scenario. The existing homeowners (if economically rational) are indifferent whether the new development is condos or commercial They benefit from a reduction in the burden on EXISTING property, not a reduction in the total burden on all residences (including new residences) This suggests that the concern about balance is based on a failure to think rigorously about incrementality.
Now, you might object, there ARE new expenditures, and they aren’t the same for commercial and residential - commercial sends no kids to school, doesn’t use social services, etc. That is true. But as has often been noted, new market rate multifamily residential does not involve that many services - at least in Alexandria it generates few public school students, and as far as I know, residents of such developments use relatively few social services. Of course they will need public safety and transportation expenditures, but so will employees in commercial developments (and some folks think the arena will involve particularly large expenditures in these areas) Bottom line, while it is almost certain that new commercial is more financially beneficial to the City than new residential with the same assessed value, its difficult to see this as justifying great concern for the ratio of total residential to total commercial - and it certainly does not justify opposing new dense market rate residential, or discounting its value in a location planned for commercial, but where commercial development may not be attainable or may be attainable only with creative financing.
Well said. And the arena seems like a drop in the bucket too. Plus the office market is trash now so maybe having a higher residential base is good for Alexandria