By Nico Calavita
Introduction
When governments approve land-use plans/upzonings or invest in improved public facilities and infrastructure, they increase the value of land for the landowner, sometimes substantially. Such increases are not the result of the landowner’s actions, but public decisions. It is only fair, then, that at least a portion of those increases be returned to the public in the form of community benefits such as affordable housing or parkland. This approach is called Land Value Capture (LVC). LVC has been implemented for quite some time in many countries around the world and is now being utilized in the United States. But it is not easy. In the US, with its long tradition of property rights protections, it is difficult to pass legislation that limits property owners’ profits.
The following article examines the case of San Diego’s 2006 Downtown Community Plan to illuminate a concrete case study of how public plans for facilitating redevelopment spur on land value increases and how to recapture those increases. The case study draws attention to the role of individuals and citizen advocacy groups in holding the City—and the public-purpose redevelopment agency overseeing redevelopment—accountable and in pointing to the kinds of land value capture needed to promote more public benefits. Most prominent among the advocates was a group called C-3, a 60-year old organization dedicated to preserving and improving San Diego’s built and natural environments. Being a member of C-3 and sharing its goal of improving the built environment in downtown, it was only natural that I, with a background in LVC, would contribute to C-3’s positions on the plan. The case provides an overview of the proposed 2006 plan, C-3’s responses and the lessons for the potential and challenges associated with land value capture as a planning tool oriented to generate public benefits.
Historic Context
In the 1950s and 1960s, downtown San Diego had deteriorated badly as freeway construction had led to the decentralization of commercial activities. Downtown landowners and businessmen fought back by forming San Diegans Inc., an organization dedicated to revitalizing the city center. Their efforts led to the creation of the Center City Development Corporation (CCDC) in 1975, a public-purpose corporation established to manage downtown redevelopment for the San Diego Redevelopment Agency, a body directed by the city council.
Under state redevelopment law to ameliorate blight, the CCDC was able to use the power of eminent domain to buy private property, tear down dilapidated structures, facilitate new infrastructure, assemble parcels, and sell or lease land to private developers at a discount for new development. CCDC was very successful in attracting private investment downtown, initially with office buildings, and then the Horton Plaza Shopping Center in 1985, the revitalization of the adjacent Gaslamp Quarter and hotels (made possible by a new convention center on the San Diego Bay), Petco Park, and residential development in various sub-districts.
Residential development was more difficult initially, requiring large subsidies and suburban-style townhomes to attract buyers. At the turn of the century, however, the synergetic power of all these new developments, plus a burgeoning return-to-the-center movement, led to increasing demand for housing downtown and the first unsubsidized luxury condo tower, the Meridian. Redevelopment had been wildly successful, but the CCDC was slow in changing its role from subsidizing development to requiring it to pay for the public facilities and infrastructure needs it generated.
The Downtown Community Plan and Real Estate Speculation
The update to the Downtown Community Plan was the most egregious example of CCDC’s failure to charge development for the impacts it generated. A draft was released in June 2005 before finally being adopted in February 2006. The Downtown Community Plan proposed tripling the existing population and housing units and more than doubling its non-residential space.
Many organizations and individuals objected to the proposed densities and questioned the feasibility of the proposed implementation mechanisms, most notably, C-3. C-3 pointed out that it was not against densification of downtown, but that all impacts should be measured and necessary mitigation measures identified.
In a September letter, C-3 regretted that the Environmental Impact Report (EIR) had not addressed the impact of the proposed plan on real estate values. At issue here was floor area ratios (FARs), which measure the intensity of development on a lot. An FAR of 10 would allow a 10-story building that covers the entire lot area or a 20-story building that covers half of the lot area. The C-3 letter pointed out that “the proposed increases of base maximum and minimum FARs in the redevelopment project area has caused massive real estate speculation, causing land prices to jump from $300 per sq. ft. in 2004 to over $500 per sq. ft. in 2005.” Such an increase was based on the expectation that the proposed increase of two FARs over the previous plan would be approved.
The letter points out something that planners in the US have paid relatively little attention to in the past: public actions—such as plan changes—can increase the value of land, sometimes considerably, as happened downtown. The downtown landowners had done nothing to increase the value of that land. The increase was the result not only of the expectation that the proposed plan would be approved with huge density increases, but also of the public investments and subsidies provided by the CCDC. It would be only fair, then, to recapture some of those increases in land value created by the public for community benefits, such as more affordable housing or parkland. This approach—known as land value capture (LVC)—is widely used in other parts of the world but has been utilized in the US only recently. While certain public actions increase the value of land, other land use planning actions can decrease land values, namely imposing requirements such as development impact fees, inclusionary housing, and commercial linkage fees. By making development more expensive for the developer, these requirements, also known as exactions, will generally lead to lower land prices. Given my expertise in comparative planning and research on LVC, I was uniquely positioned to weigh in on the issue of how densification and incentives would affect the feasibility of the plan and the provision of public facilities and to call for capturing at least a portion of the increases in land values for public benefit.
Problems with the Incentives and Transfer of Development Rights Programs
The Downtown Plan proposed minimum, base maximum, and maximum FAR limits that varied depending on location. The minimum was an FAR of 2 at the fringes of downtown, and a maximum of 12 at its core. A project could earn additional FARs beyond the base maximum through a variety of bonus programs, e.g., if the developer provided affordable housing, urban open space, three-bedroom units, eco-roofs, green building, employment uses, and public parking. The bonus FAR varied from 1 to 5 depending on location. In addition, a “transfer of development rights” (TDR) program was established to facilitate the creation of new public parks or open space. With TDR, development rights on a “sending” area—a parcel that should not be subject to development (e.g., a parcel with an historic structure)—are sent to a “receiving” area, where density increases are desirable and permissible. Both the incentive and TDR programs assumed that developers would need additional FARs to make their development work. Only then would developers pay for additional development rights from the owners of eligible “sending” sites or incur additional costs to provide green roofs or affordable housing. The city proposing to provide—for free—two FARs seemed to be counterintuitive, counterproductive and unexplainable.
In a letter to the Planning Commission dated October 27, 2005, C-3 pointed out that “the proposed increase of base maximum FARs in the plan area has caused massive real estate speculation” and that landowners were pushing “to see this plan approved as soon as possible so that they can enjoy this added value—value created by government action without a quid pro quo!” The letter continued: “Although we support high density downtown, we do not support giving away value that rightly belongs to the community. High FARs are no longer needed as a development incentive. We believe that FARs in the current (1992) Plan should remain intact with Bonus FARs granted in return for needed community amenities, affordable housing and transfers of density from other sites for historic preservation…”
In my personal letter to the Planning Commission dated November 22, I expanded on those themes:
The plan proposes a system of TDRs and FAR incentives to provide parks, preserve historic sites and have developers build inclusionary units on site…But the incentive for builders to buy development rights is directly related to how much they can build by right. If their Base Maximum FAR is high, there would not be as much incentive to buy development rights or to utilize bonus FARs as there would be if development rights were left at the (lower) levels of the 1992 Centre Community Plan. CCDC, presumably to help meet population targets, has proposed higher levels of base maximum FARs, for free…If the plan is adopted as proposed, it would entitle property owners to huge windfalls in property values, and we the taxpayers would get nothing in return.
C-3 continued to send letters to the city through the end of 2005 about those issues and the inadequacies of the EIR and objecting to the push to approve the plan quickly.
CCDC Executive Director’s Talk to Developers and Landowners (Land Value Capture Explained)
By January 2006, criticisms of the plan and the EIR were receiving increasing attention from city officials, council members and the press. Especially troublesome was the problem of land prices skyrocketing because of the proposed density increases. High land prices would make acquisition of land for affordable housing, parks and other public facilities problematic and the FAR and incentive programs more difficult to implement.
These criticisms led CCDC to reconsider the proposed FAR increases. At a January 2006 meeting with downtown landowners and developers, Nancy Graham, the Executive Director of CCDC, gave them the bad news:
There were some increases in the FAR proposed…but nobody had a right to them, they were just proposed, they weren’t passed, they were just proposed, and you all know that until anything is passed it doesn’t mean anything. So what the issue is now that out there, at the city level, the city… some folk at the city are of the opinion that we shouldn’t give anything away for free. OK, they don’t want to take away…[unintelligible] they want to have the same numbers, so they are not talking about reducing the amount of the intensity…they are just saying, wait a minute…these numbers down there, should be put in the bonus pool of the TDR, so you shouldn’t give it away for free…it should be part of…[unintelligible]. They are not trying to say shorter buildings, not as much development, they are saying: put into the pool and let everybody get it that way.
If we do add the FAR automatically upfront, most of the time the ones who benefit from it the most, are the landowners who are selling the land, because the buyers…the developers buy based on the FAR that they are allowed to develop, to the extent that you add some, developers aren’t getting it for free, they are paying the landowners for it, so the landowners are the ones who are pocketing most of the money on that transaction. We can find a way to make it work for the developer and if they are buying through the bonus, if they are getting it through the bonus, they should be getting it cheaper than it is for what they are paying for the FARs. The city is worried about the standards issue…most of the time…some of you are landowners or who represent them I apologize; they are the ones making most of the money off it.
What Nancy Graham laid bare was the connection between the granting of higher densities and land price increases and that those who benefit are the landowners rather than the developers. On the contrary, she pointed out, developers will suffer, because they will have to pay more for the land. This is a connection that urban planners in the US usually pay little attention to, let alone exploit.
Approval of the Downtown Community Plan
The San Diego City Council approved the Downtown Community Plan after a seven-hour hearing on February 28, with several compromises in the Centre City Development Corporation’s proposal.
Most importantly, Kevin Faulconer, the city council member representing downtown, announced that the idea of giving developers density rights for free had been scrapped and that a program—the FAR Incentive and Bonus Payment Program—that would sell FARs would be established to fund parks and open space.
With this program, builders wishing to build above and beyond the levels allowed in the 1992 plan could do so at a cost of $15 per square foot. The CCDC approved this FAR bonus program in May 2007. The report included a statement that “Over time, the benefit could include up to 4 million square feet of development generating up to about $97,000,000 for parks and public facilities contained in the downtown plan”.
By 2016 the $15 fee had increased to $17.50/sq. ft. based on the increases in the Consumer Price Index for San Diego. By that same year, the amount collected—approximately $10 million—was being utilized to finance a number of park and open space projects in downtown San Diego.
Conclusions
It is in downtown that the intensity and potential influence of development is at its highest in the region, making landowners and developers particularly politically motivated actors. The intensity of the development proposed in downtown San Diego and insufficient implementation mechanisms can be attributed, at least in part, to the power of the downtown development industry at the time.
I had been, and continue to be, interested in the ways public benefits can be gained through the planning system, with LVC being the most progressive. Being a member of C-3 and sharing its goal of improving the built environment in downtown, it was only natural that I would contribute to C-3’s positions on the plan. C-3’s most important contribution was to show that the CCDC’s density bonuses and TDRs—their approach to get public benefits from development—would not work if FARs were granted for free. It was the existing and projected park deficit that especially worried C-3, and the city. Development Impact Fees (DIFs) for parks were not raised, but the city came up with the FAR Incentive and Bonus Payment Program solution. Such an approach was fair, in that it was likely to affect landowners, not developers, because the price of land would decline over a period of a few years, to reflect the cost of $15 per square foot—as the CCDC Director hinted at in her comments.
In addition, eliminating the free FARs had made the bonus programs more likely to be used by developers. According to a 2012 Civic San Diego document, the bonus programs “Have been attractive to developers and have been successful in increasing densities and have resulted in the provision of public amenities and benefits”. It is doubtful that the FAR Incentive and Bonus Payment Program would have happened, and that the bonus program would have become successful, without the well-reasoned, fair, technically sound, insistent, and consistent contribution and advocacy of C-3. This case study therefore underscores the potential of LVC—a potential that is needed now more than ever, when the housing crisis has led to continuous calls to densify and land values continue to skyrocket in urban areas. To capture public benefits, such densification programs should be implemented with LVC.
This article draws from “The 2006 Downtown Community Plan, C-3 and Land Value Capture: A Participant’s Perspective” published in 2025 in the Journal of San Diego History.
Nico Calavita is professor emeritus in the Graduate Program in City Planning at San Diego State University. Calavita’s areas of interest include affordable housing and community development, equity planning, the politics of growth, land value capture, inclusionary housing and comparative planning. Much of his research and publications are based on his work with community-based organization to establish programs and policies focused on equity planning principles. He was recipient of the 2016 Marylin Gittel Activist-Scholar Award by the Urban Affairs Association.