Changing how we fund schools could help us build more housing

It’s not NIMBYism so much as real economic issue facing many localities. States and the federal government can help.

As policymakers in the metro area wrestle with the intense need for affordable housing, among other land-use and zoning concerns, there is frequently backlash from neighborhoods, as we have just seen with the vote to create the city of Mulberry in Gwinnett County. Often the go-to explanation for this resistance is racism or irrational Not-In-My-Backyard “NIMBYism.” A May 22 Atlanta Journal-Constitution article about the incorporation of Mayberry noted the racial composition of the new city versus the county: “The new city would also be wealthier than the county as a whole, and it would be majority white in a county that is now less than 36% white.”

Racism or NIMBYism might play a role, but that misses the very real economic drivers behind these concerns. Further, though it’s hard to overcome the “darkness that lurks in the hearts of men,” from a public policy perspective, economic concerns are much more amenable to real solutions.

Credit: DUSTIN CHAMBERS

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Credit: DUSTIN CHAMBERS

Many of the intense political debates at the local level — from gentrification, to school zones, to affordable housing — are grounded in how we finance local governments, particularly school districts. These governments rely heavily on property taxes, which are levied as a percentage of the underlying value of a home or commercial property.

Importantly, households or businesses in the same community pay significantly different amounts in property taxes depending on the value of their homes or properties, with schools being the primary recipient of those tax dollars. Schools are by far the most expensive local public service. Though homeowners (and commercial properties) pay significantly different amounts of taxes, everyone gets a roughly equal “package” of public services, such as access to roads, parks, police, fire, etc., with the exception of families with children who consume more public services because of the expense of educating children.

The underlying challenge for local governments is that families in high-value homes, families in homes without children and nonresidential commercial properties typically pay more in property taxes than the services they consume, while households with children living in lower-value homes (in other words, affordable housing) or multifamily residential properties often don’t cover full cost of their local service package. Adding more of these properties, all things equal, increases the taxes for everyone else, because more subsidization is needed to cover the local public service package — particularly schools. Meanwhile, adding high-value homes and commercial properties reduces property taxes for everyone else because they contribute more to the tax base than they consume in services.

Obviously, in the real world there are many complexities to this scenario, but once you understand the underlying intuition behind this model, the competing pressures behind so many local government fights become clearer. What this means is that from a public finance perspective there are strong economic and political incentives for a local government to compete for commercial property and higher-end homes and to exclude lower-value homes, particularly those that will include families with children.

Homeowners are most likely not sitting down and calculating their property tax burden relative to their “package of public goods.” Rather these concerns are experienced more generally as a worry about crowded schools, road congestion and other degradation of public services even as property taxes rise. For instance, a central issue in the creation of the city of Mulberry was the desire to control zoning to prevent more multifamily housing in the community.

Further, the quality of public services, particularly schools, is built into the value of homes in most communities in this country. Many middle-class families hold the majority of their wealth in their homes and tend to react strongly to anything that is perceived to threaten their value, including the degradation of public services and increasing taxes.

So how do we approach the challenge of affordable housing, which is quite desperately needed? We must have places for young people to buy starter homes, for our teachers, police officers, young professionals and service workers. By not having an economically integrated community, we also pay a significant price, albeit more subtle, in congestion, livability, workforce availability and the concentration of poverty.

One solution is changing local public finance arrangements or addressing these issues at a different level of government. For example, the state could more aggressively fund local services, perhaps supplementing local funds specifically in areas that build multifamily housing. By drawing on a broader tax base that includes income and sales taxes, the state could reduce the very localized pressure on property taxes. Recognizing this problem, some in Congress are looking at ways to create financial incentives and support for local zoning changes through community block grant and transportation programs.

Barring this, local planning becomes critically important. Affordable housing needs to be integrated into new development and balanced with support for commercial development; new schools need to be built before the old ones become crowded; communities need to invest in transit and roads to address congestion with some anticipation of where new homes and apartments will go.

This is also why “creating a sense of place” is important. Projects such as the Beltline in Atlanta and creating a city center or “downtown” with festivals and parks, as seen in cities across the metro area, help lure higher-income residents to live in more mixed-income communities and attract commercial development.

That said, advocates need to recognize that issues such as affordable housing often poll well at a high level and then prove brutally difficult to implement locally. But if we can innovate solutions that recognize and integrate the very real economic concerns of communities, we will have a better shot at solving these types of public problems over the long term — and perhaps avoid the buzz saw of local political resistance.