Market Solutions to Land Use Problems
The revitalization of Michigan's urban areas is a key component of Smart Growth, as is the protection of rural areas. Both will require innovative market-based tools.
Research and outreach in this area focus on finding and communicating ways to sustainably develop Michigan's land resources from a market perspective. The goal of the program is to better connect urban design, public preference, fiscal responsibility, and profitability in the development process.
Equity Insurance and Equity Mortgage
Michigan is losing farmland at a rapid rate. From 1997 to 2000, an average of 60,000 acres per year was converted to uses other than agriculture.
This realization, along with the understanding that the most valuable farmland acres are also the most vulnerable to development pressure, led the Michigan Land Use Leadership Council to recommend that Michigan enhance its current farmland preservation program to protect more acreage.
Michigan's current Purchase of Development Rights (PDR) program is a market solution in that it provides compensation to farmers for providing public amenities, such as a fresh local food source, environmental protection, and aesthetic scenery.
The average cost of preserving farmland in Michigan is around $2,142 per acre, while in some parts of the state, the cost is over $5,000 per acre. These rising costs prompted Dr. Soji Adelaja, MSU's John A. Hannah Professor in Land Policy and the Director of the Land Policy Institute (LPI) to develop two new potential cost-saving tools for farmland preservation: equity insurance and equity mortgage.
An equity insurance program would consist of the preserving agency providing a 20 percent down payment to the farmer and purchasing an insurance policy for the remaining 80 percent in that farmer's name (paid by the preserving agency through annual premiums).
An equity mortgage program would consist of the preserving agency again providing a 20 percent down payment to the farmer, with the remaining 80 percent being handled through a mortgage in which the preserving agency makes annual payments.
Both programs have the potential to save the preserving agency a substantial amount by protecting land in the present and spreading payments out over time. The 41 percent savings from equity insurance and the 47 percent savings from an equity mortgage are reflected in the accompanying estimated cost projections table.
Further research and a pilot study are needed to determine the full benefits and disadvantages of these programs. However, this cost savings indicates that they could be viable options for Michigan's farmland preservation program. More information about this project is available in the LPI report entitled Equity Insurance and Equity Mortgage: Evaluating Two Potential Cost-Saving Farmland Preservation Tools for Michigan.
High Priority Topics (Ongoing*)
LPI has given the highest priority to research and outreach on the following topics within the area of Market Solutions to Land Use Problems:
- Understanding public preferences for density.*
- Design elements desired by different market segments.
- Access to brownfields and abandoned building titles.*
- Framework for land banking options.*
- Inclusionary zoning and affordable housing availability.
- Education on the relationship between urban, suburban, and rural relationships.
- Understanding private sector motivations.
- Consistency in public sector planning.
Market Solutions Initiatives
Projects funded by or spurred by the Land Policy Institute in the area of Market Solutions to Land Use Problems include:
- The Use of Tax Increment Financing for Neighborhood Revitalization. Gary Sands, Geography, WSU.
- The Impact of the BEA Process on Redevelopment. Richard Hula, Political Science, MSU.
- Improving Land and Property Market Intelligence to Assist Inner-Suburban Revitalization: Development Opportunities Database. Robin Boyle, College of Urban, Labor, and Metropolitan Affairs, WSU.
- Non-Market Values and Demand for Market-Mechanisms for Great Lakes Coastal Wetland Preservation and Restoration. Michael Kaplowitz, CARRS, MSU.
- Raising the Cost-Effectiveness of Land Conservancy Acquisitions. John Kerr, CARRS, MSU.
- Carbon Sequestration and Land Policy in Michigan. John Kerr, CARRS, MSU.
- Changing the Paradigm: Business Proposal for Competitive Communities. Bob Thomas,
Michigan Chamber of Commerce.
- Transfer of Development Rights in the Huron Watershed. Kris Olsson, Huron River Watershed Council and Patricia Machemer, MSU.
- Impact of Genesee Land Banking on Local Property Values, Property Tax Revenues, and Redevelopment Opportunities. Patricia Norris, Agricultural Economics, MSU.
Select Community Impacts
- Research on the returns to land bank investments in Genesee County is shaping land acquisition policy in the City of Flint and revitalizing degraded neighborhoods.
- Information from LPI reports led to a policy recommendation from the Michigan Food Policy Council to preserve one million acres of Michigan farmland.
- Michigan State University joined the Chicago Climate Exchange in November 2006, a market-based solution to dangerously high levels of carbon dioxide in the upper atmosphere.