Posted Wednesday, May 16, 2012, at 11:09 AM
The San Jose and San Francisco metropolitan areas are ground zero for the phenomenon of regulations that provide for an insufficient quantity of construction in America's high-value areas, so I was somewhat surprised to read an article about the municipality of San Jose implementing an incentive program to encourage more residential investment in the city. Why are incentives needed? The incentives, however, all turn out to be nothing more than temporary relaxation of anti-development rules:
The incentive package includes a 50 percent break in construction taxes; a 50 percent reduction in fees that downtown residential developers must set aside for a park as a portion of their project costs; expedited reviews by the planning department staff and eliminating a city requirement for an expensive air container system for firefighters in high-rise buildings.
What you have here are an explicit tax on construction, a de facto tax on construction, a regulatory barrier to construction, and a second regulatory barrier to construction. The "incentives" are relief from those barriers if your projects breaks ground by 2013. It's a pretty good idea. But the city should consider the fact that over the long-term, it'll benefit the city more to permanently reduce barriers to building. At the end of the day, having more businesses and residents located in the city is going to generate more sustainable tax revenue than one-off construction taxes. The air container system issue is a safety one that has to be evaluated on its own merits, but the rest of this seems pretty clear-cut to me.