So Why Can’t We Turn That Building into Apartments?
From rural to urban communities, appropriate, affordable housing is in demand, and is increasingly hard to come by. In different places, appropriate and affordable take different forms. In our work, we have worked with rural communities that had a surplus of aging single family homes, but few rental apartments appropriate for single person households. We have also worked with urban communities where multi-family housing was being built, but all the units were out of the price range of a middle income earner, such as a teacher.
In places that are facing a shortage of appropriate, affordable housing, the question often asked is, “Why can’t we just convert that old school/warehouse/abandoned church into apartments?
It seems like a simple trade – there is a need for space, and these structures have a lot of it. Oftentimes, they are a link to the community’s past, such as an old school or a mill building. But the process of transitioning a commercial, industrial, or institutional use to residential is complex and expensive, and not a fit for every community.
Zoning
The first hurdle is zoning. The principle behind zoning is to keep land uses separate, and sometimes for good reason; that old industrial warehouse along the river may have been part of a loud, noisy, and potentially polluting complex fifty years ago.
If that warehouse is now located along a riverfront rail trail, and within walking distance to bars and restaurants, it may make sense for the zoning around it to change. In order to do that, the city would either have to change the zoning, or grant a variance – a specific waiver that allows the property to be used in a way that is not permitted by the current zoning ordinance.
Zoning variances take a long time to be decided and are not a sure thing. This is especially true if the change in zoning would require more infrastructure and city services to be delivered to an area that formerly was not active. In property development, time is money, and the more time a property is tied up in zoning proceedings, the less likely it is to be redeveloped.
Market Forces
Retrofitting an industrial or institutional building into residential involves many different factors, and one of those factors is money. Older buildings are more likely to hold outdated and dangerous materials like asbestos insulation and lead paint. Utility systems and elevators may not conform to residential and accessible standards. And finally, building footprints (such as classrooms) may not align with codes for residential units.
Addressing each of these factors is expensive. Those costs add to the total project budget, resulting in higher costs that are eventually passed on to the owners or renters of the building’s units. As remediation costs pile up, the developer will compare the budget with other new build construction rents and development costs. If renovation costs push unit prices high above market rate, the rehabilitation of the structure will be untenable. And if it can be profitable to the developer and deliver a product within the market range, these costs can push the prices far above what is affordable.
What can we do?
Successful conversion of large, older buildings into residential properties can be encouraged by lowering municipal policy and financial barriers.
Municipalities can review zoning to determine ways to allow for conversion of properties, for example, considering if a former industrial site should be zoned light industrial or mixed use, or allowing for multi-family units in single-family residential neighborhoods which could allow reuse of churches and schools. Parking requirements can also be a barrier – it is likely that the residents of an 8 unit building will not have the same parking needs as a 50 person company.
Financial hurdles are harder to address from a municipal standpoint, but programs such as the Low Income Housing Tax Credit provides some incentive for building affordable units. The Historic Tax Credit is another way to alleviate financial hardship, thought this program is practically only useful for project over $5 million. If the project is in an Opportunity Zone, there may be a heightened possibility of attracting outside investment, thus relieving the need for bank financing, which can be difficult to secure for unconventional projects.
There is never a simple answer to how to create more affordable housing, and converting buildings from industrial and institutional is no exception. It requires flexibility and ingenuity from both the private and the public side to make sure there is a perfect fit.
6/14 Webinar: Opportunity Zones for All
Creating a Prospectus to Drive Equitable Development
WHO
Emily Brown, Director of Economic Strategy, Fourth Economy 
Jerome Jackson, Executive Director, Operation Better Block
WHEN
June 14, 2019
2:00pm EST – 3:00pm EST
WHAT
Opportunity Zones (OZs) were developed to funnel $6 trillion of private investment into designated low-income census tracts. With the roll-out of this legislation, it appears that without intervention, capital is likely to flow to those OZs that would have seen development anyway, unless community-serving projects that are investment ready are highlighted for Opportunity Funds.
Now is the time for municipal leaders and economic developers to act quickly to ensure that community-driven and benefiting projects in OZs are a strategic part of a community’s vision for growth, framed as a mutually beneficial investment, and, where needed, coupled with incentives to attract truly revolutionary investment.
In this webinar, you will learn how Fourth Economy has helped facilitate community-driven prioritization of development projects from Jerome Jackson, Executive Director of Operation Better Block in the Homewood neighborhood of Pittsburgh, PA. His organization recently completed a key land-use plan for 10 sections of the largely black neighborhood, which has more than 2,000 vacant lots and 600 vacant buildings. Fourth Economy was part of this process, and assisted in prioritizing development projects with the community.
Emily Brown, Director of Economic Strategy at Fourth Economy, will explain how Fourth Economy’s work in Homewood informs their approach for helping create a community driven Investment Prospectus for Opportunity Zones.
Questions we will address are:
- How can I market to Opportunity Funds and individual OZ Investors that align with my community’s needs and values?
- How can I leverage this tool to further the goals of equity and equality in my community?
- What happens after the 10 year period of investment is over?
- Can we (and should we) start our own Opportunity Fund?
- How should we prioritize our Opportunity Zones and the specific projects therein?
- What should we try to create in our Opportunity Zones, and how can we get the surrounding communities’ support for these projects?
Lobstah Rolls, Blueberries & Civic Innovation
Anywhere you go – when you tell people that you live and work in Maine – almost always the reaction is “Ooooo – I LOVE Maine.” Chances are if you have been to Maine – let alone live here – you have a deep affinity for the place and people. Whether it is the picturesque pine lined coast, the perfect peeping foliage, powder laden mountains, the ridiculous amount of delicious cuisine or the quant draw of classic New England communities – there is a lot to love about this place.
What you may not know is that there is a frothy tidal pool of local government innovation seeping into tributaries of infrastructure, technology, policy and economic development that led to a State at truly a watershed moment. To that extent I am grateful to find myself navigating the frontiers of these territories as Fourth Economy takes on a growing role helping facilitate smart, connected, and resilient policies and practices throughout the State.
Having helped define and distill the City of Portland’s Innovation Agenda in 2018 – we now find ourselves helping The City of Lewiston develop a first of a kind Smart Infrastructure Strategy. As Lewiston seeks to leverage a significant housing and neighborhood transformation plan – the City seeks to establish a comprehensive smart city overlay of policy, infrastructure and operations. It is an exciting opportunity to work with civic innovators already investing in street light upgrades and advanced water meter networks.
Through the work with The State’s two largest cities – we are excited to be working with the Maine Technology Institute, GrowSmart Maine, and The Island Institute in the launching of a Smart Communities Maine a network of Maine municipalities, regional agencies, nonprofits, private companies, developers, and universities converging around the need to address smart infrastructure development opportunities at a regional scale. The aim of the initiative is to both develop local capacity to design place-based strategies that reflect community priorities to inform smart infrastructure investments, public policy, and economic development partnerships.
Due to these projects and partnerships we are proud to help support two unique events taking shape in June that contribute to the growing momentum across multiple sectors to foster smart, connected, innovative and resilient communities across Maine.
June 5-6 The Build Maine Conference hosted in Lewiston will be a unique opportunity to introduce cutting edge business practices and focused conversations with leaders in transportation planning, real estate development, and public service, demonstrating a breadth of knowledge we can apply locally.
June 20-21 The StartUp Maine Annual Conference will seek to align the robust Maine startup ecosystem with local government and policy innovators. I am proud to be producing a series of conversations around how smart and connected infrastructure is percolating in multiple sectors across the state.
The 3 Ls of Collaborative Economic Development
In 2015, Fourth Economy had the opportunity to work with economic development stakeholders in Butler County, PA to develop a new system for delivering county-wide services. Ultimately, we recommended an organizational structure and defined partnership roles based on our process of stakeholder engagement and best practice research.
Now, over 3 years later, the Butler County Growth Collaborative is taking shape! I sat down with Dr. Nicholas Neupauer, President of the Butler County Community College and a member of the Collaborative’s advisory board, who is the primary convener of the Collaborative, to learn what it takes to create a new model of collaborating around economic growth (spoiler alert: it’s leadership!).
1. Leadership
While our work with the Butler County Growth Collaborative began in 2015, the desire to create a more coordinated approach to economic development was years in the making – since 2009. However, earlier efforts were “bottom up” in their approach, minus ultimate support at the County Commissioners level, leading to the classic plan on the shelf. But as new Board of Butler County Commissioners were elected in 2015, there was an opportunity to try again.
Fortunately, this new Board of Commissioners (Osche, Geyer, and Boozel) shared this vision for greater collaboration and coordination on economic development. Such support was the missing piece that allowed over a decade’s worth of work to move the concept forward.
…There was a clear leader to establish roles, make decisions, and identify shared priorities around which to work.
2. Leadership
With the Commissioners leading the way, Butler County hired a full time director for the Butler County Growth Collaborative. The former CEO of a steel company, Mark Gordon was the right person for the job. Because the Collaborative had been functioning as a group of roughly 10 organizations with no clear leader, it was trying to be everything to everyone. When Mark came on, there was a clear leader to establish roles, make decisions, and identify shared priorities around which to work. Furthermore, the Collaborative engaged a third party convener (Bright Lights Innovations of Hermitage, PA) to facilitate advisory board meetings. This helps to ensure that no one advisory member drives the agenda.
3. Leadership
The organizations on the Board of the Collaborative include leaders from: the Butler County Chamber of Commerce, Tri-County Workforce Board, Butler County Housing and Redevelopment Authority, Butler Transit Authority, Cranberry Township, Butler County Tourism and Convention Bureau, Community Development Corporation of Butler County, and Butler County Community College. Most of the individuals representing these organizations have over a decade of experience in their respective positions.
They know each other, they’ve fought hard battles, and while they bring experience, they also bring open minds. Over the years, they have been consistent and gentle champions of collaboration. If someone wasn’t playing along, the others would bring them back on track. And now, thanks to their patience and leadership, the Butler County Growth Collaborative has enough small wins under its belt, that they are taking steps to establish a more permanent and formal structure through which to advance shared economic prosperity for Butler County!
Transforming the Way We Do Development
The PCRG Community Development Summit was held on May 8-9, 2019. It was titled Capital and Capacity: Replanting Roots in an Ever-Shifting Reinvestment Landscape. The title was an undersell to say the least. I would characterize this year’s summit as Transforming the way we do development.
The summit’s first session on May 8, Under our Own Power: Games to Inform, Organize, Build Capacity, and Compel Action was not your ordinary “we can make community engagement engaging” kind of session. The session was facilitated by the Andrea Elcock of the Port Authority of Allegheny County, David Totten of the Southwestern Pennsylvania Commission and a team from evolveEA that included Christine Mondor, Elijah Hughes, Ashley Cox and Daniel Klein. Christine set the tone early by framing levels of engagement from low (transactional) to high (transformational).
These levels of engagement can and should build off of each other. Just because an engagement is transactional, that doesn’t mean it is bad. Sometimes you just need to inform people. However, if you need to get things done, it will require a more significant engagement effort. This goes far beyond the typical community engagement process of Inform, Collect Feedback, Ignore Feedback.
On May 9, Andrea Batista Schlesinger of HR&A Advisors fired up the breakfast club with a call for Equitable Development. Ms. Schlesinger did not pull punches, for example she led off by saying that “Economic development is not neutral, it is political and the tools of economic development and planning are often used to enforce racial segregation.” She called for equity to be a central focus and not an “extracurricular activity.” She advocated for an approach to Equitable Economic Development that I have boiled down to four critical questions for every development program or initiative:
- Who wins?
- Who loses?
- Who made the plan? Or who runs the program?
- How do you protect people from your good intentions?
At the lunch keynote, Nathaniel Smith of the Partnership for Southern Equity made clear that the problems of inequity today are rooted in our history. Early in his address he quoted James Baldwin: “History is not even the past; It is the present.” Mr. Smith made clear what he meant when he said “Extreme Extraction = Extreme Inequality” that he matched with maps and photos of America’s slave trade and the Trail of Tears that displaced native peoples from their historic homelands.
Source: U.S. Census Bureau, Wealth, Asset Ownership, & Debt of Households Detailed Tables: 2014.
Today the net worth of black households is only seven percent of the net worth of white households. While we might like to confine the sins of slavery and racism to the past, they are in the words of James Baldwin, very much a part of the present. New research by Dionissi Aliprantis and Daniel Carroll at the Federal Reserve Bank of Cleveland explore the causes of the wealth gap. For an easily digestible summary of their research, see the article by Brentin Mock of CityLab, “Why Can’t We Close the Racial Wealth Gap?”
If we are going to transform the way we do development, so that it is something that benefits people, then we need to reframe the development debate.
Under the hypothetical scenario used in their model, wherein no income gap exists since 1962—meaning all things equal in payscale between blacks and whites—they claim that the wealth gap likely would have mostly been closed by 2007. That’s because their model predicts that by 1977 the labor income gap has become a stronger contributor to the wealth gap than the initial conditions, and then accounts for more than 80 percent of the wealth gap by 1990, as visualized in the chart below.
If we are going to transform the way we do development, so that it is something that benefits people, then we need to reframe the development debate. Nathaniel Smith challenged us to consider the following: What would Pittsburgh look like if every policy were evaluated based on the impact on the most vulnerable?
So wherever you live, ask yourselves that question before you sink the next bucket of tax dollars into a development deal.
The Broad Impact of Broadband
On Friday, April 12th, President Trump and Federal Communications Commission Chairman Ajit Pai announced the repurposing of $20.4 billion from the existing Universal Service Fund, which provides subsidies to various rural telecommunication programs, to create the Rural Digital Opportunity Fund. This follows the creation of the ReConnect Program through the 2019 Farm Bill, a $600 million grant and loan program through the USDA to also support rural broadband development. On the state level, we see states like Pennsylvania making broadband infrastructure development a major priority in the $4.5 billion Restore Pennsylvania initiative. Locally, regions are grappling with how they can best fund and manage local broadband networks after being inspired by successes in Ammon, Idaho or Chattanooga, Tennessee.
Here at Fourth Economy, the impact of broadband infrastructure is rising to the top as an issue facing our clients. In the United States, roughly 20 million Americans lack access to speeds of 25 Mbps, the FCC’s minimum threshold for broadband (This is barely enough for a 4-person household to stream video). Broadband is not only important for the next tech hub or to enable the gig economy; it’s critical for business transactions, marketing of products, and further development of local economies.
As we learn more about the issues and impacts of broadband, we wanted to share two interesting points that have come into focus:
1. Broadband is not just a rural issue
While access to adequate broadband is undoubtedly an issue that is hampering growth in many parts of rural America, a 2018 Pew Research Center survey found that 13% of adults in urban areas say that access to high-speed internet was a major problem (24% of rural adults reported it as an issue in the same study). In our work with Connect Greater Newport in Rhode Island, the lack of reliable, fast broadband has inhibited the expansion and investment in businesses in the region. In fact, the network went down on Labor Day weekend, which was the last major tourist weekend of the season. Businesses were unable to process credit cards most of the day, causing a major loss of revenue. Broadband plays a pivotal role in dense business districts as well as rural communities.
2. Every industry relies on the internet
Broadband supports more than tech companies, advanced manufacturing, or businesses in similar industries. During our work with agricultural communities in West Virginia, one of the most mentioned issues in the community engagement process was the lack of access to the internet. Without the internet, farmers have a difficult time marketing their products or acquiring technology to increase efficiency for their operations. As the use of robots and other technology reliant on broadband develops for agriculture, these areas need access to support their local communities and economies. This issue relating to agriculture specifically has led to organizations like the Farm Bureau adding broadband access to their platform as well as the inclusion of more funding in the 2019 Farm Bill.
What can be done to improve access?
So, after highlighting broadband and its vast impact, the question is, what can be done to improve access? Like many development issues, collaboration and coordination between state and local stakeholders will make the process much easier. The development of public-private partnerships, nonprofit authorities or other governing bodies can play a role in funding and managing the deployment.
While these local efforts are continuing, we see federal initiatives kicking off, including the major funding allocations mentioned above. As the 2020 presidential race picks up, we hope the leaders of tomorrow, especially those looking to connect with voters in rural areas, recognize broadband for what it is – broad in its application and benefits, and central to the conversation around regional growth and development.
Worthy of Investment: The Problem with the Devaluation of Communities of Color
Andre Perry of the Brookings Institution and members of the Fair Housing Task Force recently discussed barriers to fair housing in Pittsburgh and suggested policies to promote housing equity across protected classes.
Andre Perry shared information from a recent report by the Brookings Institution that explored the devaluation of assets in black neighborhoods. The report found that, “differences in home and neighborhood quality do not fully explain the devaluation of homes in black neighborhoods.” In the nationwide study, homes in majority black neighborhoods were found to be worth 23% less than similar homes in neighborhoods with fewer black residents, even when controlling for variables like quality of home and access to amenities. This devaluation equates to an equity loss of $48,000 per home and $156 billion in lost equity across black neighborhoods nationwide.
The effect of housing devaluation has a negative impact on upward income mobility. Raj Chetty, who publishes studies with Opportunity Insights at Harvard University concluded that there is a significant racial disparity in economic mobility and that mobility varies widely across neighborhoods within cities. Their research provides support for “policies that reduce segregation and concentrated poverty in cities.”
In Pittsburgh, devaluation in majority black neighborhoods has resulted in an average 11.6% difference in home value and a -$11,919 absolute price difference. Disparities extend beyond home valuation. Homeownership rates are lower for African Americans. According to the 2010 Census, African Americans represent 26.1% of the population in Pittsburgh, but account for 16.4% of total homeowners. One-third of Pittsburgh’s African-American households own their homes, while nearly two-thirds of white households do.
The Fair Housing Task Force, organized through the City of Pittsburgh Commission on Human Relations, represents interests of protected classes under the Fair Housing Act, which include color, disability, familial status, national origin, race, religion, and sex. For the past two years, the task force has worked with 44 organizations across Pittsburgh to assemble recommendations that address fair housing access in neighborhoods across the city. These policies build off of the work of the Affordable Housing Task Force by using a fair housing lens to address long-standing racial economic disparities within housing.
Why the US Economy Needs Immigrants… and Where.
Earlier this month, President Trump made headlines by repeatedly claiming that the United States is “full”—suggesting that, therefore, new immigrants to the US would no longer be welcome.
Journalists, commentators, and others were quick to take issue with the statement. Some argued on philosophical grounds. Others took issue on a more factual basis. In one response, reporters from The Upshot at the New York Times—in characteristically astute form—pointed out that, between declining birth rates and an aging population, prime-working age population is already decreasing in many places around the US. Without immigration, these places will face a decline in their labor force in coming decades.
In other words, not only is the US (and specifically, the US labor force) not full, many places are in serious need of migration.
A few days later, President Trump further confounded critics with the suggestion that migrants to the US would be sent to so-called sanctuary cities (a ubiquitous but legally informal phrase that has been self-designated by many cities, including many of the country’s largest, as well as many counties and several states).
In response, residents and representatives of many of those jurisdictions proudly suggested that they would be happy to accept immigrants. (I was glad to read that Pittsburgh’s own Mayor Peduto said as much.) But amidst all of the rhetoric, I worry that we are collectively paying woefully insufficient attention to important economic issues that underlie the conversation about immigration and workforce.
At Fourth Economy, we encounter workforce issues throughout our work. Attracting, retaining, and preparing the workers of tomorrow is a challenge that touches nearly all of our clients, from the Agricultural System of West Virginia to the Metro Hartford, Connecticut, and throughout the US. The age distribution of the workforce is also an important factor in the framework of our Community Index.
But communities around the country are not affected equally by this ongoing challenge. One way to measure the likely challenges of future labor force needs is to look at the concentration of an area’s labor force by age. The map below shows the percentage of the resident labor force in each US county that is above 55 years-old—that is, people who are active in the labor force, but who are older than what might generally be considered prime working age (25 to 54 years-old).
Communities where the current labor force is highly concentrated among older workers are likely to face increasing economic struggles in coming years. As older workers retire, there will likely be too few younger workers to take their place. Growth will decrease. Employers in some industries will compensate through automation. In other industries, remote work will become more common. But many employers in hard-hit areas will likely relocate or close.
The confounding bit is that the communities facing labor shortages are generally not the “sanctuary” communities where the President is threatening to send more new immigrants. They are instead more likely to be rural, and politically conservative communities, as shown in the scatter plot below. (Whereas many of the countries largest, youngest, and most rapidly growing cities are sanctuary cities.) Indeed, among the counties with greatest share of their labor force over 55 years-old—what we might reasonably designate the communities most in need of new workers—92% voted for president Trump in 2016.
Those facts on the surface are not that surprising. Sure, “Trump Country” is populated by rural communities with older labor forces. But the economic implications are being glaringly overlooked. What is being used to threaten to one part of the country is, in fact, a significant threat to the economic vitality of another.
Community Gut Check: Not All Anchor Collaborations Are Created Equal
Key questions to consider when assessing the strength of your anchor collaborations.
It’s no secret that anchor institutions (anchors) – those large nonprofit enterprises, such as universities and hospitals, that are unlikely to move due to their mission, customer base, and ownership – are vital assets and economic drivers to local economies.
Read any economic impact report published by such institutions and you’ll discover their significant purchasing power. Collectively, they are spending billions on local goods and services. Dig a little deeper and you’ll find that anchors are (1) often one of the top employers within an area; (2) have significant capacity to acquire and develop property; and (3) at the nucleus of many innovation districts/hubs, making transformative discoveries with new technology.
Yet, not all anchor institutions are the same; not all are addressing issues of great importance to a community; not all communities are benefitting equally.
Anchors are also playing an increasing role in community revitalization – providing capacity for communities to respond more efficiently to local needs and, through collaborative models, ensure pathways toward equity and economic opportunity. Yet, not all anchor institutions are the same; not all are addressing issues of great importance to a community; not all communities are benefitting equally.
Nonprofit Quarterly’s recent webinar on “Remaking the Economy: Leveraging Anchor Institutions” sheds light on some of the challenges that exist for anchors in supporting local objectives, particularly in low-income and minority communities. On one end, anchors whose business models aren’t community-oriented or whose frequent changes in leadership – and subsequently, priorities – can add tension to existing partnerships. On the other end, a lack of consensus among grassroots organizations and/or the inability to frame issues and understand solutions (“the ask”), can deter anchors to get involved.
It will take a cultural shift at all levels, a shared vision and a bold champion whose committed to working together for anchor collaborations to truly be effective. Within this spectrum of difficulty, where do you and your anchor collaborations fit? Lets assess your relationship. Ask yourself these questions:
- Are your anchors’ investments in real estate contributing to local economic growth, aligning with the economic vision of your area, and/or directly benefiting low-income and underserved neighborhoods?
- Are you building partnerships with anchors at all levels of the organization? Is there a “community partnership” lead at the anchor? Is the imperative to be a community-oriented anchor communicated and encouraged from executive leadership?
- Beyond local hiring and purchasing, are your anchors thinking about scaling their impact to address issues that are indirectly related to their mission but are, say, health and/or education adjacent (e.g. housing)?
- How are your anchor collaborations measuring success? In what ways are they exploring whether or not their investments are on the right track?
- Does your community have an intermediary, a third-party convener/entity that can help initiate a partnership, liaise with local organizations and anchors, hold one another accountable and ensure the community is at the center of its work?
- Are anchors engaged at the start and present at the table in community-level strategic planning processes and/or strategy sessions around key areas of concern?
- Is your anchor collaborative’s business model sustainable? Is there funding available that can support long-term engagement?
Though not an exhaustive list of things to consider when evaluating the strength and impact of your anchor institution collaborations, it’s certainly a starting point. Some of the most pressing socioeconomic challenges still persist today that widen economic disparity. Creating lasting partnerships – and doing them right – can help reverse these trends and lead to lasting change.
Do you know of any anchor collaborations that are doing things well? Let us know!
Transforming the Trendline: Pennsylvania Economic Development Association Spring Conference
This week I was pleased to be able to provide a keynote address at the Pennsylvania Economic Development Association (PEDA) Spring Conference in Harrisburg, Pennsylvania. The presentation titled “Transforming the Trendline”, focused on the State of Pennsylvania’s economy and ideas for how to improve. In addition, I was able to share the results of an economic impact study sponsored by PEDA and conducted by Fourth Economy in partnership with Econsult. This study demonstrates that the Economic Development Corporations in the state support $15.6B in economic output that includes $7.6B resulting from retained jobs; $5.1B in construction impacts and $2.8B resulting from new jobs.
While these impacts are significant, Pennsylvania is losing ground to other states that are more aggressively supporting economic and quality of place strategies. Pennsylvania’s support of economic development has been diminished drastically over the past few years. The trendline predictions over the next decade point to troubled times ahead. The economic development ecosystem is making an impact but with far fewer resources than their peers it will not be enough to change the economic realities. The call to action is now and a collaborative approach to developing a vision, goals, and the necessary tools is the only way to transform the trendline for a more prosperous future.