The Smart Math of Mixed-Use Development

Are cities across the country acting negligently in ignoring the property tax implications of different development types? Joseph Minicozzi thinks so, and he's done the math to prove it.

The wisdom of man never yet contrived a system of taxation that would operate with perfect equality. -- Andrew Jackson

Downtown Pays

Asheville, North Carolina -- like many cities and towns around the country -- is hurting financially.

It's not that Asheville is some kind of deserted ghost town. Rather, it's a picturesque mountain city with a population of about 83,000 that draws tourists from all over the world, especially during the leaf-peeping season. But it's also a city that appeals to its residents, who revel in strolling about a true walkable downtown chock-full of restaurants and retail shops featuring locally grown and crafted products. Downtown is not only one of Asheville's main draws; it also serves as a major driver in helping the city overcome its budgetary doldrums.

Most of us – city planners, elected officials, business owners, voters, and the like – understand that the city brings in more tax revenue when people shop and eat out more. However, we often overlook the scale of the property tax payoff for encouraging dense mixed-use development.

Many policy decisions seem to create incentives for businesses and property developers to expand just about anywhere, without regard for the types of buildings they are erecting. In this article, I argue that the best return on investment for the public coffers comes when smart and sustainable development occurs downtown.

We'll use the city of Asheville as an example. Asheville realizes an astounding +800 percent greater return on downtown mixed-use development projects on a per acre basis compared to when ground is broken near the city limits for a large single-use development like a Super Walmart. A typical acre of mixed-use downtown Asheville yields $360,000 more in tax revenue to city government than an acre of strip malls or big box stores.

Comparison of Asheville big box with downtown mixed-use development

If you were a mayor or city councillor facing a budget crisis, this comparison should serve as an eye-opener, both in terms of your policies and your development priorities. The comparison should also get you thinking about not just how you could encourage more downtown development, but also what kind of development could increase the value of buildings in the surrounding neighborhoods.

It's not just officials in Asheville who should be asking these questions. In the growing number of diverse cities where we have studied this same equation (such as Billings, MT, Petaluma, CA, and Sarasota, FL) we've found that the same principle applies: downtown pays. It's simple math.

The more valuable downtown properties become, the more revenue the city can generate to address its budget gaps, while also serving the best interests of its citizens. Unfortunately, our public officials may not always make their decisions with full knowledge of the trade-offs.

Average county property tax/acre ratio across sample set of 15 different cities from Montana to Florida.

Go to Jail...

Consider the story of how Public Interest Projects (PIP), a for-profit development company founded in 1990, first came to uncover this economic inequality.

A few years ago, PIP was looking to develop several parcels in a neglected section of downtown Asheville, just off the main core. At the time, it was filled with decaying auto shops, warehouses and semi-industrial space. In other words, it was ripe for mixed-use redevelopment. Unfortunately, while we saw visions of rehabbed living spaces intermixed with retail and office space, the leaders of Buncombe County had other ideas.

In close proximity to the parcels PIP was considering, the county owned a 1.7-acre parcel upon which leaders first announced plans to build a new jail, then, as an alternative, a 24 hour center for emergency vehicles. While few could argue that the community as a whole would benefit from the addition of such facilities, the county's plan to plunk one of them right in the middle of an area so ripe for re-development didn't make much sense to us. Although we weren't on the same page as our county leaders, that didn't stop us from trying to get them to see things our way.

Subsequently, we embarked on a comparative analysis of the impact of different development types and scales on the county's tax rolls as a way to demonstrate the comparable benefits of mixed-use development versus the facilities they we considering. We tried to show them the money.

To do that, we set about analyzing various properties within our community to come up with an estimate of what kind of infill development would be feasible for the county's site. What we found was striking. If the county continued with its plans for building the more objectionable uses, the loss of this property's tax base plus the detrimental effect on the surrounding property's development potential could actually result in a net loss of more than $1 million each year in property tax revenue for local government. That information got the County's attention and good sense prevailed.

Upon realizing that this equation had broader implication, we began applying the same analysis to other key Asheville landmarks. Our next test case involved a comparison of a high-visibility shopping mall located just outside of downtown with a historic downtown building, dubbed the Old Penney's building, which we had restored into a six-story mixed-use structure. Once we ran the numbers, just as before, the results were dramatic. Whereas the mall, considered one of the county's biggest revenue generators, yielded $8,000 an acre in annual County property tax, the downtown building's yield was $250,000 per acre in County property tax.

It's easy to see how you might now be scratching your head. How can you compare a mall with a building? Is that really comparing apples to apples? The point is that we have been perpetuating an error when it comes to how we think about real estate. Our mistake has been looking at the overall value of a development project rather than its per unit productivity. Especially relevant in these times of limited public means, every city should be thinking long and hard about encouraging, and not accidentally discouraging, the property tax bonus that comes with mixed-use urbanism. Put simply, density gets far more bang for its buck.

For comparison, let's consider an everyday example of measuring economic value. When we buy our cars, do we make our buying decisions based on the vehicle's miles-per-tank rating? If we did, we'd all be driving Ford F-150 Lariats that get, on average, 648 miles per tank versus a Prius, which boasts a modest 571 miles per tank. However when we look at the traditional metric for comparison -- how many miles-per-gallon each vehicle gets -- the value statement changes. The Lariat achieves a mere 13 miles- per-gallon while the Prius cruises along at 51 MPG. And, since you spend less to fill up the Prius, at today's gas prices it covers 15,000 miles/year at $3,000 less the annual cost ($4,038/$1,029 respectively). We rank the value of our cars this way because we all know the price of a gallon of fuel. Why wouldn't we do the same with our land? Shouldn't we value the consumption of our land the way we value a gallon of gas? After all, an acre of land is far more expensive than a gallon of gas.


The flaw of our current property tax system is that when it comes to assessing how much a property owner owes, we place very little value on the land beneath a building as compared to the building itself. Compounding that issue is the fact that if you construct a building without innovative architecture or sustainable materials, you actually benefit by lower tax value. The combination of these two factors creates a disincentive for good architecture. The result is that the community loses, both in terms of the property tax it collects and the long-term legacy of cheap single-use buildings. In basic terms, we've created tax breaks to construct disposable buildings, and there's nothing smart about that kind of growth.

What can we do about it? Moses did not come down from the mountaintop to deliver our current property tax policy on stone tablets. It's just another rule we impose upon ourselves. And if we recognize that this policy is harming us in some way, it makes sense to change it. We simply cannot afford how the current system creates incentives for suburban sprawl – which is unsustainable both environmentally and -- as I hope I have shown -- financially. Communities across the United States are going broke, and we can rightly look to our municipal finance systems and our failure to fully appreciate the payoff for density as a big part of the cause. Let's all do the math so we can make some positive changes in the system because, in the end, downtown pays.

Joseph Minizozzi, AICP is principal of Urban3, LLC and formerly the New Projects Director for Public Interest Projects, Inc (PIP). He is a member of the American Institute of Architects, the International Association of Assessing Officials, and the American Institute of Certified Planners. For more examples of his studies, please visit



data from Urban3


Excellent piece. Is there anyway to see the report or analysis from where the charts included in this blog? I guess is the report publicly available from Urban3?


Smart Math and Land Use Modelling

Hi Joe, I've been waiting for some time for someone to add more incite into this topic. I have a question with regard to land use. I recently posted a
question to Rob Goodspeed via MIT Department of Urban Studies and Planning that you might be able answer. I was wondering if you know of any "optimal" land use scenerios, models (GIS) or patterns where you can manipulate density, residential, commercial development and infrastructure costs that would support a financial break-even outcome for city governments at a neighbourhood scale (section or quarter section of land). Basically, what optimal pattern or mix of land uses would a neighbourhhood need to to have in place to be financially sustainable. Could I dare say even make a profit? I'm guessing the residential density would be pretty high.


I've seen some of the models that Peter Calthorpe and Fregonese use that gets to that. Of course, those are all based on existing tax policy. The other way that I suggest above, is to question the policy. Its a chicken/egg debate, but if policy is our skeleton and you had the will to change the skeleton, could you build a different body on a new skeleton? Your chances might be better, as we've seen that using our current skeleton has not yielded equitable results.

But check into Calthorpe and Fregonese for the manipulation models. I'm sure there are others, these are the two that I am most familiar with that go that route.

Joe Minicozzi, AICP
Urban3, LLC

Downtown Pays

Nice argument Joe,

I am reminded of John Alschuler's (HR&A) comment that he would prefer to be reincarnated as a surface parking lot: No investment and maximum return! Unfortunately, the viewpoint of most land owners or developers is primarily driven by questions of risk and return. Strip development is low risk, low investment and high return. Investing in downtowns and mixed-use buildings is riskier, and requires more up-front investment.

Asheville, and your argument, benefits greatly from a building such as the J.C. Penney Building in your example. Here is a legacy building that has largely been written down and the cost of rehabilitation, while high, is considerable less than rebuilding such a substantial structure. Most cities only see new construction after nearly all the older structures have been renovated by smart investors and builders who took advantage of existing buildings. Sadly, many small cities may never see any more J.C. Penney buildings. Nor is the rehab option available in your suburban example. So builders shy away from big upfront investments and revert to your Walmart model.

I agree that cities benefit from denser downtown development, but the economies of development and risk exert powerful and complex mathematic formulas that are not really so simple.

Alan Mountjoy, AIA
Principal, Chan Krieger NBBJ

Downtown Pays

I agree with you, but my thinking is 'shouldn't we question those things that drive up the risk?' To quote Friedman, "if you want to move the mouse, you have to move the cheese", and right now, our tax system rewards huge lot consumption and cheap buildings, or another way of putting it, its a disincentive to do the Penney's building. If we really want to be efficient with city-making, our financial systems need to provide a reward for doing that, and right now, the rewards go to the low-risk, high public cost development. There isn't a problem with the developers building that, but there is a problem that our municipal finance system rewards it. And I'm not talking the financial markets of private finance, I'm only focusing on the tax system. Heck, it can even be seen as a tax penalty when you stack it against the true costs on the municipal system (PS: The costing side will be a follow-up article).

In a way, we're planning in a vacuum when we don't consider the assessment system and the rewards provided by its "standards". We should view these no different than "2 parking spaces per residential unit" used to be a "standard" in Planning or "all curb radii is 60' min." is a standards for DOT. Cities are not one size fits all, and the main reason why development patterns of the last 50 years looks the way it does is because of the accretion of policies that drive the shape of our cities. As planners, we need to understand these things to be effective... and know that we can change policy.

Joe Minicozzi, AICP
Urban3, LLC

Smart math needs smart demand.

I do think this is a good line of thinking, but I'd like to know if market demand is there to justify to the pols that foregoing cheap WalMart tax $ for a while to wait for higher dollars in the future is really going to fly. Its nice to think about, though.



Downtown Pays

I sort of agree with you, the only issue is the "cost" of waiting. When coupled with the infrastructure expansion of suburban expansion, our numbers show that spread out patterns of development take decades to pay off their infrastructure under their current tax structures while urban forms achieve payout in less than a decade. The only reason why this isn't obvious, is that governments generally don't 'district' out the expense side of municipal service. So at the end of budget season, the more efficient systems that have covered their expense lose their revenue overage out to more spread out areas (in simple terms, downtowns subsidize suburban areas) or the extra costs of suburban areas are hidden in times of high growth by permit fees. But permit fees are a one-time hit, and in a recession, when permits stop, that loss of revenue is exposed and we realize we cannot afford simple municipal service. So back to your comment. To take the easy, quick hit is a fast food equivalent of running a multi-billion dollar corporation. In the end, its not sustainable financially.

Also, there are great reports on this going back to the Nixon Administration. Google "Cost of Sprawl". The Rutgers University update of the Nixon document is a great report.

Joe Minicozzi, AICP
Urban3, LLC

Who pays for downtown?

So back to your comment. To take the easy, quick hit is a fast food equivalent of running a multi-billion dollar corporation. In the end, its not sustainable financially.

Also, there are great reports on this going back to the Nixon Administration. Google "Cost of Sprawl". The Rutgers University update of the Nixon document is a great report.

Joe, I'm with you and I have that report on my shelf.

The real issue here is that the cost of sprawl is not borne by the developer, but the cost of waiting ("sustainable" ** development, what we're trying to achieve) is borne by the developer, who must carry the paper. Therefore it is much less likely to get done unless some miracle happens and banks unclench and make a new type of loan.

I'm all for figuring out how to finance these things, and keep up the good work.



** (not scare quotes, but an ecologist's quotes)

A couple tax policy variations worth considering

It seems to me that the there at least two, and like many other variations on the formulation of property tax that could address the issue of chronic under-utilization of property given public burden/carrying costs.

The first is that any given property be assessed at least in part, based on it's proximity to and ability to access/utilize key elements of public infrastructure. In this case, the more frontage that a single family home requires of publicly paved road the more it would pay in support of the very real costs of said, locally-applicable infrastructure.

Another variation worth consideration would be to reformulate the calculation of property value to once again factor in of all things, location. That is specifically, any given parcel's location and the various characteristics of infrastructure to which it is served. Property tax in most locales is comprised of the land/parcel value and the value of any given improvements. In most places around the world it is the former that drives the maximization of the latter. That is your property taxes to a significant degree reflect the location of your property, not the extent to which you utilize or under-utilize that property.

This doesn't mean that we would no longer have a need for suburban development, we very likely would, but that development would not be at the cost of undermining existing areas, would very likely be at a much a higher density necessary to carry the level of infrastructure by which it is served.

communicate with electeds and public

All true, to one degree or another, depending upon your locality. At the end of the day, a great deal of the current financial crisis is the result of poor fiscal decisions, resulting in heavy reliance on subsidies for infrastructure from the federal government or sales tax.

But HOW can this message reach a broader audience? A full-scale emergency is under way, this is no time for incrementalism.

Land Value Tax

Great article! In my mind, this discussion raises the point that smart growth advocates, planners, and the like need to examine the way property taxes influence development and look at alternatives to promote smart growth. Particular, basing property tax solely on the size and value of land, not on improvements. This form of taxation is being considered by many in the UK, and has fans on both sides of the aisle politically. Isn't it completely silly that we essentially promote sprawl "big box" development through lower relative tax rates and slap denser mixed-use development that makes better use of the land with higher relative rates? It is even sillier when you think about promoting neighborhood redevelopment efforts. What happens when an investor or homeowner buys a derelict property and makes improvements that benefit the neighborhood. We say thank you in the form a higher tax bill? On the flip side, we reward someone who lets their property fail into disrepair with a lower tax bill. Silly!

Land Value Tax and Open Space

It is an interesting idea, but what does it do to open space on the edge of the city? If we tax farm land at the edge of the city based on the value of the land for suburban development, it becomes impossible to continue using it for farmland.

Charles Siegel

Taxing Open Space.

Exactly Charles. This will eat up farmland faster than we do now. I'm sure as soon as these 'proponents on both sides of the aisle' - as long as they aren't developers or landowners who can't develop and instead are farmers - have the ramifications explained to them, they'll cease considering.



Taxing open space

D - I don't agree that it will consume farm land. Particularly if you go into with the notion of farmland preservation. That answer is simple, one would simply classify the farmland as "agricultural" the same way we do it today. There are plenty of places that do this and hold the line on agricultural classification. Though you are correct in citing the political issues wherein people want the subsidy to hold the land in ag, then they want the bonus of being able to 'cash out' and sell to a developer. The issue of political will can't be solved in my op-ed, with a 700 word limit. ;-)
Joe Minicozzi, AICP
Urban3, LLC

Taxes and Open Space

Farmland is an example. The larger issue is whether we preserve, or hasten the development of, all the open space at the urban fringe.

I think your answer is correct. This will not hasten development of open space **if** we zone all undeveloped land on the urban fringe as agricultural or as some other category that preserves it as open space.

That is a very big if.

Charles Siegel

Taxes and Open Space

I agree with Charles. Dano, do re-read the Jackson quote that I started the article with. I don't know if a perfect system is out there, but I do know that the current system has massive inequities slanted toward land consumption, infrastructure imbalances, and cheap architecture (which then doesn't cover the payment of the infrastructure adjacent to that very building).
Joe Minicozzi, AICP
Urban3, LLC

Land conversion and human nature.

I agree with Charles. Dano, do re-read the Jackson quote that I started the article with

I'm agreeing with Charles in a different way, Joe, providing a typical, common example to reiterate what he wrote. Sure there are some areas that will go along with zoning land according to his comment, but not many. I also agree that land conversion is a huge problem, but that problem is based on human nature. I don't know how to tax human nature either. Our built environment is both a feature and a bug of our type of society and the sheer number of humans crawling over the earth.



Working the land is taxing.

That answer is simple, one would simply classify the farmland as "agricultural" the same way we do it today. There are plenty of places that do this and hold the line on agricultural classification. Though you are correct in citing the political issues wherein people want the subsidy to hold the land in ag, then they want the bonus of being able to 'cash out' and sell to a developer.

What are you going to do about the people who already have made plans for their retirement? What do they do then?

Until we make farming profitable and not such a huge risk, we can't continue to take these people for granted. And with man-made climate change looming to make farming still more risky, taking away land conversion as an option is a non-starter. This is not to say I don't want farmland and open space.



why not tax impervious cover?

either per square foot or as a % of site area? Would that not encourage vertical development and density? Here is the overall issue I'm struggling with. Let's say Asheville or any other city has demand for x amount of residences, y amount of office space, z amount of retail space, etc. If you pack the same amount of that into a much smaller space, don't you still get to the same aggregate value? Or, is the implication that there is a higher per sf value of the same amount of built space organized differently? I think that is probably true, however, the chart makes it look like you could have the really high value stuff on all parcels implying you could really increase revenues a lot. Problem can't. Production of one major mixed use will cannibalize, to a large extent, development of other sites and the taxes that would come with them. So, are you really getting that much more money or is it just a mind trick (unintentional of course)? Or, is the goal just to get a more dense city?


I'm all for taxing impervious/incentivizing green roofs, and

If you pack the same amount of that into a much smaller space, don't you still get to the same aggregate value?

You appear to be presuming all space demand is the same, and everyone will demand density. This is untrue.



You are missing the math.

You are missing the math. One should question the 'demand'. I would argue that the demand is only there because of the incentive. If big box structures were paying the opportunity cost of all that infrastructure they consumed on a linear foot of frontage, their lots wouldn't be nearly as large. I wonder why we don't follow a tax system that is based on "consumption of service" rather than "value of architecture". What does the value of my building have to do with my cost of government? That's like a grocer charging you for your groceries not by what you have in your cart, but by what kind of car you can afford. It doesn't make sense. So if I were to develop a large parking lot building and carry my true cost in service, I'd pass that cost on to the renter or through the goods/services on the property. And that cost would ultimately be reflected in the product or I'd have to charge for parking to cover the cost of the "free parking" that is out there today. I'm not presuming anything in my article other than how our world works, and what I am 'questioning' is what is the market reality. My understanding of how our system works is that there are subsidies built into the system that create the 'demand' in the market. If we remove the subsidies and allow the system to function on efficiency, the world would be shaped differently. Its not about packing anyone anyplace, but affording choice based upon efficiency.

Joe Minicozzi, AICP
Urban3, LLC

Fractions are math too.

You are missing the math. One should question the 'demand'.

People have questioned it. So they studied it. They found not everyone wants to live in density. The general rule of thumb is 1/3 1/3 1/3: 1/3 want it, 1/3 will put up with it if there are enough amenities nearby, 1/3 say no how no way. If people have the ability to choose, not everyone will move to a city. That is how the world works.

This is not to say in a future of energy descent and shrinking resources that cities won't become even more popular as opportunities decline. This is to say that given a choice, not everyone chooses to live in a dense place. That is how the world works. I realize not everyone likes to hear this, but our policies should be reality-based. If you build it, not everyone will come.



in full agreement on

"consumption of service" fee model, but that's not what my take on the article is. Subsidies (direct and indirect) inherent in the current property tax system don't necessarily create demand, but they do distort it and the real estate products that result. They change the nature (style, density) of what is produced.

In regards to the point about missing the math. I don't think so. You are extrapolating higher per site area revenues across an entire city, but those denser land uses built across the city necessiatate a much higher population base and associated retail, office, and other uses. So, to assume that, you have to assume you are proportionately increasing the Asheville population with this proposal. Even if you did, presumably the population would come from somewhere else and Asheville would be deducting from their tax base. Property taxes collect money from owners of space. In the aggregate, if you are not increasing the number of owners, you are simply increasing the rate, correct? Again, as I said before, you could make a $/per square foot argument that would help, but really in the aggregate, it would not change that much.

Actually, I wasn't

Actually, I wasn't extrapolating the numbers across the total City. I was merely breaking down existing properties on a per acre analysis to see the revenue side on a per acre basis. Its cash flow, not suggesting a lifestyle choice. And you are right, if you made a sq/ft argument, you 'd end up in the same place as the /acre. Its a you say tomato, I say tomato argument(wait, that doesn't work in type!). Anyhow, I agree with you.
Joe Minicozzi, AICP
Urban3, LLC

Mind trick

Its really not a mind trick. What you see in the model above is what it is. In most cases that I have seen, you don't pay different rates of taxes per different 'uses' per say, though they adjust the 'value' side, so in the end, when applied to a standard tax rate, what is adjusted is the value. Not the tax. More often than not, residential is 'valued' less than commercial, but on a square foot basis, commercial buildings are a whole lot cheaper to build, and therefore end up being lower overall value when aggregated out. Anyhow. This first op-ed is a series that I will write and get further into it. It will be a layered approach and I will get into valuation and the built side of it. Not to mention going through the "Cost" side of things and showing the cost against the revenue (which is the focus of this piece).

As far as this article goes, its real simple. You stack stories, you get revenue stacked in return.

Joe Minicozzi, AICP
Urban3, LLC

Mason Gaffney, 1964

Mason Gaffney analysed this very aspect in 1964:

He points out that buildings contain "vertical infrastructure", which is taxed, while "horizontal infrastructure" is not.

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