Windfalls and wipeouts: when the county rezones to create new parcels, what happens to the value of existing parcels?

Support free enterprise?  Not a fan of government intervention in the private market?  Think consumers and suppliers should shape supply-and-demand cycles, rather than government officials?

Then you should recognize that every time Prince William County officials rezone land to increase the development potential, government officials are intervening in the marketplace for buying/selling land or running a business.  That’s why, back in 2003, small mom-and-pop drycleaners got the county to change zoning requirements to restrict the potential locations of larger competitors such as Dryclean Depot.  Back in the 1980’s, the fight was over where to put a regional shopping center – on the Hahn parcel (now Potomac Town Center) or at what became Potomac Mills.

A rezoning increases the supply of a particular type of parcel.  After rezoning, one piece of land will be worth a lot more… but the value of other land parcels in the county will be affected too.   When Prince William rezones to create new residential potential and permits 1-3 acre lots, the county is increasing supply and reducing the potential value of existing 1-3 acre lots.

Developers regularly “do lunch” with county planners because rezonings can create windfall profits.  That’s why developers will always find excuses to bust the 10 acre minimum lot size in the Rural Area with dumb growth projects like Avendale.  You’ll see a lot of public outreach that rezonings are necessary to “meet demand,” to “provide alternatives,” to “satisfy the requirements for housing,” etc.  The only smart growth guarantee for rezonings: they are smart deals for growing the developer’s bank account.

What ever happened to hands-off capitalism, where supply and demand controlled prices rather than the government?  Owners of existing 1-3 acre lots should see property values appreciate, as demand increases.  When the county creates additional supply, however, the “invisible hand” of the free market is twisted.

Timeshare owners in resort areas such as Massanutten know all too well that when the resale prices start to climb, demand is exceeding the supply – and the timeshare developers will quickly build more condos to absorb the increased demand. Existing timeshare owners can still sell their property, but will get a lower price due to the new supply.

Government rezonings to increase the supply of parcels for housing might make sense, but only to meet a reasonable projection of demand and only when based on clear and consistent policies.  Prince William already has enough parcels zoned to accommodate the next 15 years of projected population growth.  As noted in an earlier post:
The March 12, 2008 Build-Out Analysis says “In summary, there is capacity for 46,336 additional dwelling units to be built.”  Without any changes in the current Comprehensive Plan, we could absorb about 135,000 new residents in those already-planned residential units.

Should we ever rezone?  Yes, based on a map in Comprehensive Plan with a 20-year timeframe showing where land use should change over time.  If landowners and taxpayers know in advance how many new parcels of different types will be created through rezonings, then we’d have a “no surprises” approach to development.  Currently, the Board of County Supervisors considers amendments once a year, and updates the Comp Plan every 5 years.  That provides reasonable flexibility.

Unfortunately, local developers are proposing an unreasonable, “free-for-all” approach, where changes in land use could occur almost overnight.  They want unlimited opportunity for Comprehensive Plan Amendments and rezonings to be considered at any time.  Neighbors and communities could be surprised by rapid, dramatic revisions in the development potential on adjacent parcels.

The Land Use Advisory Committee (LUAC) provides insight into the reasonableness of local developers, when asking for “flexibility.”  In the draft Land Use Chapter for the Comprehensive Plan update, LUAC identified 24 locations for “centers of community” and “centers of commerce.”  There was no consideration of projected demand; all “centers” were located on now-undeveloped land, just to maximize supply.

Developers on LUAC requested that each site for potential town centers be a 1-mile wide circle, roughly 500 acres.  As noted in a previous post, that would open the floodgates.  If developed at the urban density levels of the successful Virginia Beach Town Center project, the proposed “centers of community/commerce” would authorize 10,000 city blocks with room for 12 million new people in PW County.

That’s not realistic, flexible planning – that’s absurd.  If those 24 places were up-planned and up-zoned by county government, developers would get 24 “centers of unearned profit.”   Supply would expand like a balloon; existing landowners would lose out on normal appreciation for their real property, and no one would be able to predict what would be built (or where) over the next 20 years.

Prince William developers are not advocating free enterprise when they propose a free-for-all rezoning approach.  They’re trying to get government officials to change the rules, so developers can get windfall profits – at the expense of existing  residents who will absorb the costs of growth, see neighborhoods disrupted by unexpected development, and lose out on potential increases in property values.

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