S. S. Trudeau

Premium Zero: the Dismal Failure of Ann Arbor's Downtown 'Premiums'

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In November of 2019, Ann Arbor's City Council passed changes to our downtown development "premiums" ordinance, in a good faith attempt to entice developers to build more affordable housing and more sustainable, "green" structures downtown. After three years, it has been a dismal failure. At best, these premiums will have resulted in 14 market rate ($1MM+) condo apartment units and one hotel, all contained in two modestly sized LEED Gold certified structures downtown ... and zero new private-developer subsidized affordable housing units.

The Evaluation #

Over the course of this year, the City has engaged consultants to run an evaluation process on this program, given the widespread impression that these premiums have contributed to a lack of new downtown development after their passage, as reported in this Ann Arbor Observer article.

The consultants engaged by the City have held multiple sessions with Planning Commission and other bodies to receive input and to shape a menu of possible policy directions to offer Planning Commission and City Council. The city web page for this project links to some of their materials. I also found a few more reports/memos in the City's Legistar system: April 24th report to Planning Commission, Energy Commission and Renters Commission meeting materials.

When reviewing the consultant slide decks, there are many slides containing the timeline of downtown premium changes. A reading of these charts (like the one below) suggests that downtown development has been (more or less) consistent across the premium changes, but these charts are misleading!

Timeline and bar graph of housing development patterns and premium changes over time

I have compiled a list of every approved site plan on a D1 or D2 (the zoning designations where premiums apply) parcel from November 2019. Of these, there are six that have used some form of "premium." The consultants' charts would imply, because they received final approval after the rules change, that they are approved under the new, more stringent rules. They were not. The three, large developments that were approved between November of 2019 and March of 2020 were already in the City approval pipeline before the rules took effect, so they leveraged the pre-2019 version of the premium rules.

If we exclude those developments approved under pre-2019 premium rules, and those that did not exercise any premiums, there are three that have used and been approved under the new rules: 330 Detroit St, 300 W Huron and 121 Catherine.

330 Detroit St is a 14 unit condo building across from the Farmer's Market, each unit likely selling for north of $1 million. It does not include any affordable housing and did not exercise the affordable housing premium. The developers intend to build to the LEED Gold sustainability standard, and so are using the new "green building" premium. This is the only of the three approved developments that have actually broken ground.

300 W Huron is a planned hotel, also built to LEED Gold, using the "green building" premium. It has zero housing units of any kind.

121 Catherine Street is the only approved development to exercise the new affordable housing premium. It is the first of a handful of planned developments leveraging City-owned land to build affordable housing. It is a great project that will result in over 60 100% permanently affordable homes on this free City land, using our recently passed Affordable Housing millage dollars, and other sources of government and nonprofit funding. However, this project did not need the downtown premiums to be realized. The intent of the premiums is to get private development to create subsidized housing without the need for government subsidy. This 100% subsidized, government development cannot be counted as a success of the downtown premium program.

After three years, what have we achieved with this premium update? The 14 $1 million+ condo apartments on Detroit street in a LEED Gold structure will likely be built. The small LEED Gold hotel on W Huron might also be built. Other than that: nothing.

Where Do We Go From Here? #

The consultants have not yet finalized their recommended set of policy proposals. The documents prepared for their recent meetings with the Energy and Renters Commissions indicate that Planning Commission is considering either increasing downtown base density and eliminating the premium program entirely or increasing base density by a lesser amount and creating a simpler, possibly single (either affordable housing or green building) premium for additonal allowable floor area.

In my opinion, the premium programs never worked very well and we should just scrap them. The old "residential" premium (developers merely had to build residential uses downtown to get more floor area via premiums) worked well enough because it was in sync with the overwhelming demand for housing of any kind in this city. Prohibiting non-housing uses from building more densely also had a certain logic if the primary concern is housing demand: other uses (offices, shops, etc) are drivers of demand for even more housing, by bringing more jobs and other amenities. Allowing dense housing allowed developers to meet that housing demand but dissuaded developers from making the problem worse by building things like lots of office space and bringing even more workers into a severely constrained housing market.

Swapping out the residential premium to require a substantial amount of affordable housing, however, has a self-limiting logic. Affordable housing can't pay for itself, so this requirement becomes a tax on any new housing. We have predictably ended up with less and even more expensive housing overall, and no new affordable housing.

I would like to see more energy efficient and low/no-carbon development, but zoning is too awkward a tool to achieve those goals. Many of these requirements (and also allowances for green practices we currently make too difficult!) rightly belong in the building code. Countries that are far ahead of us in green building practices have not achieved their building sector transformations via zoning fiat. This kind of transformation requires financial incentives and support from State and Federal governments, in addition to building code changes. The zoning only needs to allow the shape of those green buildings to reach easy approval. Trying to use this ineffectual tool of zoning to achieve certain aspects of our sustainability goals works against all the other significant environmental benefits of compact new development.

The goals behind the downtown premium program are laudable. Our climate emergency and housing crisis are two of the most urgent problems we face, and require us to seriously reflect on how we can move faster to achieve more effective outcomes, more quickly. When you are trying to do a job urgently, and well, you must use the most effective tools at your disposal, and recognize when you are trying to drive a nail with a screwdriver. Let's go find a hammer.

As always, if I have missed anything, I welcome corrections, clarifications or questions: scott.trudeau@gmail.com

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