Housing Industry Relief ?

Recently, I was speaking with Scott Malof of the Cincinnati office of SS&G Financial Services and Scott reminded me that on July 30, 2008 President Bush signed into law the Housing and Economic Recovery Act of 2008 (H.R. 3221). While there are several important aspects of H.R. 3221, most of the attention has been centered on the new First-Time Homebuyer Tax Credit which will function to give first time homebuyers a temporary refundable tax credit equal to 10 % of the purchase price of a home, up to $7,500 ($3,750 for married individuals filing separately). The tax credit will phase out for married taxpayers filing jointly with adusted gross income in excess of $150,000 ($75,000 for individual returns). The credit will remain effective for home purchases occuring after April 9, 2008 and before July 1, 2009. However, the taxcredit is not free money; it must be repaid to the government over 15 years. So, essentially the tax credit is an interest free loan from the government for first time homebuyers.

Among several other notable componants of H.R. 3221 it also addresses changes to the low-income housing tax credit (LIHTC), tax-exempt housing bonds and mortgage revenue bonds to name a few. The tax credits are being paid for through changes to reportable interest expense, application of gains from the sale of principal residences and acceleration of certain corporate estimated tax payments.

Given the how complicated the application of the benfits of H.R. 3221 is for individual taxpayers, the residential development community is disappointed that the tax credits were not given directly to the development community which could have used the same as reductions in sale prices. Nevertheless, if this industry incentive is going to have a meaningful impact, lenders and developers are going to have to educate their borrowers and buyers about how to take advantage of the benefits of the tax credits; and of course, tax advisors will need to create new strategies for their clients on how to adjust for the revenue offsets.

Metropolitan Statistical Area Shuffle (or the coming Demographic Inversion)

"Demographic Inversion", what is it, where has it occurred and why should you take note of this developing trend in the United States. My good friend, David Ginsburg, the President and CEO of Downtown Cincinnati, Inc., forwarded to me an article posted on The New Republic website entitled Trading Places written by Alan Ehrenhalt. The article discusses a trend which has its roots far back in the development of the urban centers of Europe, from Paris to Vienna, where middle class society lived within the urban core and the working poor and newly arrived immigrants lived further out beyond the urban core. Cities in North America from Chicago, Manhattan, San Francisco to Vancoover have witnessed demographic inversion over the last 30 years. The de-industrialization of our cities has made demographic inversion possible. As manufacturing and distribution facilities relocated in our outlying suburbs and exburbs the urban cores of these great cities opened up to permit the infusion of a service industry economy and the housing stock for those new "urbanites" to live and raise families.

As pressure is put on our "auto" economy the suburbs and exburbs in the second tier United States cities (Cleveland, Columbus, Cincinnati, Indianapolis, Dayton, Toledo, Akron, Pittsburgh, St. Louis) are ripe to take advantage of their own "demographic inversion." It is not just the need to change transportation and commuting habits, but lifestyle changes are driving this trend. The Generation X and Y segment of our population wants to live in an environment condusive to the social networking they participate on-line. An urban lifestyle in which work, play and learning can take place and stimulate growth and enhance the urban experience. Government and public institutions need to help stimulate this trend by permitting zoning law changes, development tax incentives, re-building the inner city public schools and development of efficient public trnasportation systems.

High Speed Rail for Ohio

In today's Cincinnati Enquirer the lead article discussed the allocation of anticipated state tax revenue generated by a proposed casino to be situated along I-71 around the Wilmington area. Just like the tobacco settlement funds, everyone is now going to spend the revenue even before the casino is approved and built. So, why not float another idea. One which will attract business investment into Ohio, make Ohio the center piece of a regional passenger rail network ??

This is the idea: Using the rights of way already in existence along Ohio's interstates and highways, build a high speed rail system linking Ohio's cities (see my earlier post). Of course a stop along the route would be the Casino. The first two legs of the system could be: (i) Cincinnati, Wilmington (Casino) Columbus, Akron, Cleveland; and (ii) Toledo, Dayton, Wilmington (Casino) where a transfer station would be constructed to link the two lines. Later Toledo-Cleveland and Dayton-Cincinnati could be built.

Federal transportation funds can not be counted on for financing rail transportation initiatives, so Ohio needs to be creative and think out of the box to take care of itself.

Now close your eyes and think about what this plan would mean for the real estate community. Rail stations, whether situated in downtown, suburban or rural areas would spur the need for commercial and residential development in and around the same. They would also serve as the local hubs for alternative transportation such as local light rail and bus transportation.

So, if you consider the other ideas presented earlier in this Blog (2% Solution) all of these efforts when taken together create a really powerful and solid base for economic development and growth.

The 2 % Goal for Ohio's Cities

The Brooking's Institute is known for promoting ideas and suggestions which promote out of the box thinking. Recently, I read Bruce Katz and Jennifer Vey's, fellows at the Brooking's Institute studing urban issues and trends, article The Goal for Ohio Metros: 43,000 residents suggests that Ohio's cities achieve 2% growth. The authors write "Imagine the economic, fiscal and psychological impacts of housing 43,000 residents in downtown Cleveland, 40,000 residents in downtown Cincinnati and 17,000 residents in downtown Dayton - substantial jumps from their current populations. The critical massing of people would attract amenities that lure businesses and jobs for downtown and metro-area residents, shoppers and tourists, and help stem the exodus of young workers. And appealing new housing with street-level cafes and shops would bring life and a virtuous cycle of growth to metropolitan hubs."

So, how do our leaders achieve this 2% growth and clustering of residents ? We are all familiar with the use of tax incentives for commercial development and entertainment venues. We are also familiar with the benefits brought to residential development by low income housing tax credits, new market tax credits, tax increment financing and other such tools.

The authors further suggest that universities locate satellite campuses in areas where residential and commercial growth is desired. Universities include associate, bachelor and masters degree programs. Take Chicago as an example. Several undergraduate, graduate and professional school programs are located in the LOOP business district and east and west of Michigan Avenue. These programs have helped spur the development of residential projects, commercial projects and transportation projects while integrating a student and professional academic population into the demographic mix of the respective areas.

The authors write "Some 50 four- and two-year colleges are located in the eight Ohio cities highlighted by our report and should be encouraged to develop downtown satellite campuses. Higher education institutions are not only major employers but incubators of new, creative businesses and jobs. As low-wage service-sector jobs replace industrial jobs, encouraging the expansion of tech ventures and health care facilities is essential to expanding the number of Ohio residents earning a good living in reborn downtowns."

The message to pull out of this article, the trend to create or capture, is that development projects will require a conglomeration of ideas and efforts pulling together the needs and interests of all sorts of private and public institutions. The development community should work with the universities, colleges and municipalities to enhance our use of our cities and expand educational horizons beyond the traditional campuses they call home.