Does Austin Need A Market For Air Rights?

Does Austin Need A Market For Air Rights?

I’m not talking fresh air.  I’m talking about the  municipal zoning  God given right to build to the heavens.

The recent plan for 3rd & Colorado – a residential tower that I’m excited to see more of, if not disappointed that it isn’t taller – reminded me of a policy discussion that lost steam a few years back focused on preservation of the Warehouse District.  Back in 2009 influencers with a preservationist slant vocalized concern that the charm of the Warehouse District would eventually lead to its demise unless measures were taken to limit height and density in the district.

Proposed Warehouse District (2009)

Proposed Warehouse District (2009)


Back then, one of the recommended approaches to preservation was facilitating the Transference of Development Rights (TDR), aka. “air rights.”  That seemed like a smart way to handle preservation of low-rise historic-ish buildings sitting on highly desired CBD building sites.  Creating a market for air rights in Austin would, in theory, enable property owners to capture the value of their dirt, without having to build on the site, thus able to preserve historic buildings.

Transferring Development Rights (aka "Air Rights") to facilitate preservation and density.

Transferring Development Rights (aka “Air Rights”) to facilitate preservation and density.  Image via nyc.gov


The topic was dropped in 2011 when the Downtown Austin Plan (DAP) was formally adopted featuring a “density bonus” program.   Recently, I’ve been participating in the DAA’s CodeNEXT task force, and we’re discussing policies that would encourage building tall on small CBD sites, notably sites that are mid-block.  With CodeNext happening, this seems like a good time to rekindle the discussion.

Why would a builder want to buy air rights?

  1. additional density
  2. protect views

Why would a property owner want to sell air rights?

  1. property is too small, oddly shaped, or mid-block thus more difficult to develop
  2. capture value without having to redevelop

Why would a city want to permit air rights to be transferred?

  1. additional density
  2. encourage more development on smaller lots
  3. historic preservation

That last question is the one I can’t reconcile completely.  The City of Austin uses the Density Bonus program to subsidize affordable housing.

Would an air rights market, in its simplest form, circumvent those fees-in-lieu [of building affordable housing] from being collected?  

Need more buildable area? That'll be $10 per foot. Make checks payable to "City of Austin"

Need more buildable area in downtown?  That’ll be $10 per foot.  Make checks payable to “City of Austin”


A TDR system seems to stand at odds with the current “density bonus” system of gaining valuable density in the form of FAR.  Currently, developers literally write a check to the city for more square footage.  The City’s political interests aren’t likely to support a TDR system, which might cut them out of the transaction.

“TDR must be carefully administered so that the exact status of development rights on all parcels in sending and receiving districts is known at all times.  If a development rights bank is used, the status of rights in the bank and the proceeds from their sale must be kept track of.” ~ James A. Coon, New York Local Government Series

Back in 2009, ROMA seemed to think TDR and Density Bonus could coexist.

“Density bonuses can be structured to produce desired on-site amenities or features (e.g., plazas, affordable housing units, underground parking, etc.) and/or to generate revenues for specific community programs (e.g., affordable housing, parks and streetscapes, etc.). Density bonuses have also been used as part of a Transfer of Development Rights (TDR) program, where developers are incentivized to purchase unused development rights from historic building sites or districts that have important community value (e.g., theaters). ” (ROMA – Density Bonus Program)

Other smart city planners disagree that a market for TDR is the best approach.  Lee Einsweiler from Code-Studio shared with me:

“I’m not a fan of the system. Just allocate rights and allow them to be built. Pushing rights around the downtown for “community benefit” such as historic preservation purposes suggests [the] government is not willing to step up to resolve the issue (by purchasing the rights themselves, for example).” ~Lee Einsweiler from Code-Studio

When the Downtown Austin Plan was drafted, the call to impose a 45-foot height limit in the Warehouse District became a battle ground.  With established rights in law about how a site may be developed, imparting new development limits would constitute a substantial “taking.”  Property rights advocates pushed back.  Rightly so.

Ultimately, Austin City Council approved the DAP without restricting the height limit.  They also pushed forth with their Density Bonus Program, which ironically exacerbates the preservation problem as the only way to extract value is actually to build.  This further highlights how TDR can serve two masters: developers and preservationists.

Why downtown Austin could benefit?

I’m not suggesting downtown Austin is anything like NYC, but there are encumbrances to density in downtown Austin that may not be obvious to the lay person, notably:

  1. Capitol View Corridors
  2. Capitol Dominance District
  3. Waterfront Overlay
  4. NW quadrant of downtown is basically zoned for low-rise.
  5. National Register of Historic Districts
Capitol View Corridors (pink) limit height, and thus density, within downtown Austin

Capitol View Corridors (pink) limit height, and thus density, within downtown Austin


Perhaps the Downtown Density Bonus program could continue to exist along with an air rights market that was well defined.  For example, here are additional considerations:

  1. The Downtown Density Bonus program could remain in place as the “broad market” for density
    1. the City still gets its money
    2. can be applied anywhere in downtown
  2. Air rights may be purchased for additional density beyond the Density Bonus threshold
    1. These air rights may only be traded within same block or district, for example:
      1. Warehouse District
      2. E 6th Street Entertainment District
      3. Rainey Street District, etc

Conclusion

The more I study the topic, the more it seems unlikely that a market for air rights in Austin would be worthwhile, right now.  Simply because the Downtown Density Bonus Program pegs the cost of additional buildable area at $10 per square foot.  I can’t imagine downtown property owners would sell their development rights for $10 per buildable foot, or less.

I’m not an expert on this.  The learning curve is pretty steep, and I would be interested to hear from some smart attorneys on the topic.  Below are a few posts on the topic for anyone that wants to help deep dive this.

~Jude

It’s Up In the Air: Air Rights in Modern Development
Martin A. Schwartz
http://www.americanbar.org/content/dam/aba/publishing/rpte_ereport/2015/3-May/its_up_in_the_air.authcheckdam.pdf

Downtown Density Bonus Program
ROMA Design Group (DRAFT July 6, 2009)
http://www.austintexas.gov/edims/document.cfm?id=133871

Transfer of Development Rights
James A. Coon – New York Local Government Technical Series
https://www.dos.ny.gov/lg/publications/Transfer_of_Development_Rights.pdf

Can This District Be Saved?
Katherine Gregor
http://www.austinchronicle.com/news/2009-09-11/841905/

A Survey of Transferable Development Rights Mechanisms in New York City
https://www.scribd.com/document/327216286/A-Survey-of-Transferable-Development-Rights-Mechanisms-in-New-York-City-Research#from_embed

Downtown Density Bonus Program
Downtown Commission Update (May 21, 2014)
http://www.austintexas.gov/edims/document.cfm?id=210333

Featured image credit
https://commons.wikimedia.org/wiki/File:Air_rights_318_Third_Ave.jpg

About Jude Galligan

Jude Galligan, REALTOR, Principal of TOWERS Realty and publisher of Downtown Austin Blog (aka. "DAB"), spends his time matching remarkable people with remarkable properties in Austin’s urban core. A resident owner in downtown Austin, Jude has served on the Board of the Downtown Austin Alliance (DAA) and the City of Austin Downtown Commission. Contact Jude.

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