Let There be Housing in Downtown Anchorage
Anchorage’s new mayor has the chance to make lasting and historic improvements to the heart of Alaska’s largest city.
August 30, 2021
Excerpts:
Anchorage’s new mayor, Dave Bronson, is on point in putting downtown near the top of his to-do list. A world-class urban center in Alaska’s largest city has long been the Holy Grail for Anchorage leaders. The quest has brought some success: walkable blocks of office buildings, hotels, restaurants, and shops; the Anchorage Museum and the Performing Arts Center; and, not far from City Hall, two trailheads to the “Moose Loop,” a 32-mile paved trail network.
The mayor’s transition plan focuses on downtown as a key driver of economic revitalization for the city. His team wants a vibrant year-round business environment and intends to focus on supporting tourism, filling office space, and boosting retail sales. Downtown restaurants, shops, and service businesses need a steady demand base to flourish.
The only way to create that permanent pool of customers is to get more people living downtown.
A 2018 survey by the Anchorage Economic Development Corp’s housing group found downtown was among the top three neighborhoods preferred by Anchorage residents. Seniors were the group most likely to want to live in close proximity to shopping, with 46 percent saying that was a top priority. A 2021 business confidence report by the Anchorage Economic Development Corp found 32 percent of 210 employers surveyed said the availability and affordability of quality housing is either a significant or moderate barrier to growth.
The high costs of construction in Alaska present a major hurdle for builders downtown. Currently, the only projects that make financial sense target the upper tier of the housing market because those buyers can pay enough to give developers adequate return on their investment. For homebuilders, putting up a single detached home in suburban Anchorage and selling it for half a million dollars is a much surer bet and far less logistically challenging than a downtown apartment project.
The following factors contribute to the high project costs faced by homebuilders downtown:
- Land is expensive. Underdeveloped land riddles downtown with dead space. While not technically vacant, many parcels are surface parking lots. Surface lots are lucrative and relatively cheap to maintain, giving owners little incentive to sell at prices that would make an urban residential project pencil out.
- Construction is also expensive. In Anchorage, construction budgets are about 37 percent higher than the national average because of the cost of shipping building materials, labor costs, and the shortened construction season, according to a 2012 study by the McDowell Group.
- Seismic concerns are very, very real. The Great Alaska earthquake of 1964 was the second-largest ever recorded in the world and devastated downtown. As a result, Anchorage has stringent seismic building codes that are expensive to meet for multi-story developments.
- Developers are on the hook for building or upgrading city infrastructure. Anchorage requires builders to shoulder improvements to surrounding roads and sidewalks, as well as sewage, water, and utility systems. Such expenses, known as “off-site costs,” can easily range into the tens of thousands of dollars per home.
WHAT HAS THE CITY DONE TO SPUR HOMEBUILDING DOWNTOWN?
The city has put in place some policies to encourage housing downtown, including tax abatement and letting developers choose how much parking to build, but it can do more. A few suggestions include partnering with developers to invest in projects; incentivizing housing builds on downtown’s numerous surface parking lots and other underdeveloped properties; mitigating offsite construction costs; zoning reform; and attracting foundational neighborhood businesses, like a grocery store.
The city has enacted a few key tax breaks and zoning allowances, but they have done little so far to entice a significant number of private developers.
Comment:
The demand market for moderate priced housing seems to be evident, so what more can be done to entice private developers to build affordable housing – typically attached and multifamily? Note the familiar lament: “Underdeveloped land riddles downtown with dead space. Many parcels are surface parking lots. Surface lots are lucrative and relatively cheap to maintain, giving owners little incentive to sell.” So far the city has adopted an array of regulatory policies and financial incentives that “… have done little to entice a significant number of private developers.”
Anchorage officials might take another look at the connection between underdeveloped sites and financial incentives needed to sell or develop. They would be well advised to try other options such as modifying the property tax structure. Evidence in cities in Pennsylvania and beyond shows that a Land Value Tax incentivizes capital investment in buildings. The recent LVT study by Northwest Economic Research Center confirms the hypothesis that shifting the tax rate off building assessments onto land values produces the desired effect: underdeveloped lots bear a high tax burden, raising the owners’ holding costs. But when they are redeveloped to maximum zoned capacity, the tax on multifamily housing for example is considerably lower than under the conventional property tax system. LVT provides the financial incentive to infill those downtown dead spaces. Furthermore, unlike tax abatements or tax increment financing, the city loses no revenue.
Tom Gihring, Research Director, Common Ground OR-WA
