by Anthony Flint
Vast acres of approved but empty or incomplete subdivisions have become a blight on the landscape across the Intermountain West, compromising quality of life, diminishing fiscal health, and distorting real estate markets, according to new research published by the Lincoln Institute of Land Policy.
“Zombie subdivisions” – the living dead of the real estate market – can be reconfigured for more open space or turned over to other uses, but the far better policy is to prevent the phenomenon in the first place, say Jim Holway, FAICP, Don Elliott, FAICP, and Anna Trentadue, authors of Arrested Developments: Combating Zombie Subdivisions and Other Excess Entitlements, a Policy Focus Report published in January by the Lincoln Institute.
The suburban equivalent of blight seen in such cities as Detroit, the incomplete subdivisions, in some cases all but abandoned following the 2007-2008 real estate bust, have left a landscape of roads to nowhere slicing through farmland, lonely lampposts and street signs, and “spec” houses standing alone amid marketing billboards and land cleared for nonexistent golf courses.
The researchers, analyzing eight states – Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, and Wyoming – identified millions of “entitled” empty lots in subdivisions, where 15 percent to two-thirds of the developments were vacant. By region, they found that:
- An estimated 1.3 million approved lots in the Phoenix-to-Tucson Sun Corridor remained unbuilt during the height of the bust.
- In five Colorado counties as of 2012, nearly 30,000 subdivision lots are vacant, with an average of 20 percent of the approved land undeveloped.
- In Teton County, Idaho, three out of every four lots entitled for development were vacant.
The incomplete developments—also known as “excess entitlements” that were granted by local governments, and some of which exist only on paper —are a burden on natural resources, hurt property values, and impose fiscal strains, requiring road maintenance, infrastructure, and obligatory emergency services coverage – all without contributing to the local tax base, the authors concluded.
Very recently, regional rebounds in the housing markets have begun to chip away at what is clearly an oversupply, but demand is returning for areas closer to urban centers, rather than far-flung exurban areas. In many cases, it would take years for the planned developments to be built out, if ever.
Economic forces shape the regional markets for land development and drive the boom and bust cycles. But local planning and development controls greatly influence how these market forces will play out in any particular community.
The Lincoln Institute of Land Policy and the Sonoran Institute initiated the study to provide information and tools to help cities and counties struggling with distressed subdivisions. Drawing on case studies, lessons shared by experts during several workshops, survey results, and data analysis, the report identifies the challenges communities typically face when they attempt to address excess development entitlements – ranging from property rights to fragmented ownership.
The authors recommend several mechanisms to avoid future zombie subdivisions. Communities likely to face significant growth pressures would be well served by growth management policies that help to align new development entitlements and infrastructure investments with evolving market demands. For communities already facing problems stemming from distressed subdivisions, a willingness to reconsider past approvals and projects and to acknowledge problems is an essential ingredient for success.
At the state level, the researchers recommend the adoption of new state enabling authority to ensure local governments have the tools and guidance they need. At the local level, they recommend that governments prepare and revise community comprehensive plans and entitlement strategies; adopt enhanced procedures for development approvals and ensure policies are up to date and consistently applied; rationalize development assurances to ensure they are practical, affordable, and enforceable; and establish mechanisms to ensure development pays its share of costs.
In addition, local governments should serve as a facilitator and pursue public-private partnerships to forge creative and sustainable solutions, build community capacity and maintain political will to sustain policy action, and establish systems for tracking development data to enable effective solutions, subdivision by subdivision, the report says.
In an article published in the Lincoln Institute quarterly journal, Land Lines, the authors provide further background on the way that subdivision development outpaced the demand in the region, and the complexity of revising entitlements. In the Intermountain West, where undeveloped land is abundant, and rapid growth is common, it is not unusual for local governments to grant development entitlements well in advance of market demand for housing. Boom and bust cycles aren’t rare in the region either. The magnitude of the Great Recession, however, amplified the frequency of excess entitlements and exacerbated their harmfulness to surrounding communities.
The challenge, today, is to identify whether the market will correct the surplus of development rights, and how developers might be encouraged to redesign those projects that do not reflect current market demand. Subdivisions are designed to be near-permanent divisions of land. Although many areas throughout the Intermountain West are rebounding robustly, many subdivisions remain distressed and with expired development assurances, few, if any residents, fragmented ownership, partially completed or deteriorating infrastructure improvements, and weak or nonexistent mechanisms to maintain new services. Uncorrected, these arrested developments will continue to debilitate the fiscal health and quality of life in affected areas, the authors say.
Excess entitlements are easiest to address when they are purely paper subdivisions—with one owner, no improvements, no lots sold, and no houses built. As the status of a subdivision progresses from a paper plat to a partially built development—and more than a few landowners are involved, or the subdivider has begun to install improvements, or more than a few owners have built homes—the challenges grow more complex, and the options for resolving them become more constrained.
The sale of even one lot to an individual landowner makes entitlement issues in the subdivision harder to resolve for three major legal reasons: (1) the need to protect the property rights of lot owners, (2) the need to preserve access to sold lots, and (3) pressure for equal treatment between current and potential future homeowners. Some of these issues can give rise to lawsuits, creating potential liability for the town or county. The revision or revocation of a plat with sold lots will require the agreement of multiple owners—each of whom may decide to file a lawsuit on one or more of these grounds.
Once the developer makes significant investments for infrastructure and other improvements, complications escalate. Although the purchase of land does not in itself create a “vested right” to complete the development, once an owner invests in improvements to serve anticipated houses, it is difficult to stop construction of those homes without reimbursing the developer for the cost of infrastructure.
Completed homes—particularly if a number of them are already occupied—further compound the complexity of resolving distressed subdivisions. Access roads will need to be retained and maintained, even if the homes are widely scattered in inefficient patterns. If the developer committed to building a golf course, park, or other community facilities, individual lot owners could claim a right to those amenities—whether or not they have been built, and whether or not the associations slated to upkeep them exist or have enough members to perform the maintenance. Even if the developer was clearly responsible for constructing the amenities, the local government could become liable for them if it has prevented the developer from building the amenities by vacating parts of the plat where those amenities were to be built.
The authors then looked at three communities which had successfully redesigned excess entitlements in Colorado, Arizona, and Idaho.
Mesa County, Colorado
Over the last 15 years, Mesa County has worked to “clean up” excess entitlements, working with financial institutions. River Canyon, for example, was planned as a 38-lot subdivision on 192 acres. When the real estate bubble burst in 2008, the entire site had been lightly graded with roads cut, but no other improvements were complete, and no parcels had been sold. Realizing the lots would not be viable in the near-term, the developer worked with the county to replat the subdivision into one parent lot until the owner is ready to apply for subdivision review again.
Lenders in Mesa County often encourage the consolidation of platted lots, because many banks will not lend money or extend the time on construction loans without a certain percentage of presales validating the asset as a solid investment. The landowner generally complies as well, to avoid paying taxes on vacant residential property, which carries the second highest tax rate in Colorado. If market demand picks up, property owners may submit the same subdivision plans to the county for review, to ensure compliance with current regulations. If the plans still comply, the developer can proceed from that point in the subdivision process. Mesa County consolidated parcels this way a total of seven times from 2008 to 2012, to eliminate lots where no residential construction is anticipated in the near future.
At the height of the boom, the small city—37 miles from downtown Phoenix and 20 miles from the urbanizing edge of the Phoenix metro area—was issuing roughly 600 residential building permits per month. When the Great Recession hit and the housing bust occurred, supply overran demand for residential lots, and many became distressed. Maricopa faced this challenge and seized the opportunity to reexamine its growth patterns and address the multiple distressed subdivisions plaguing the community. The city chose to partner with the private sector—including developers, banks, bonding agencies, and other government agencies—to address the problem.
The first test of this new approach began when a Catholic congregation was looking for a church site in an urban location with existing sewage, water, and other necessary infrastructure. The city served as a facilitator to connect the church with the developers of Glennwilde, a partially built, distressed development. The church chose a site in a late phase of the subdivision—at that point still a paper plat. The city vacated the plat for that site and returned it to one large parcel, which the Glennwilde developer then sold to the church.
Teton County, Idaho
Rural, unincorporated Teton County, Idaho—with an estimated year-round population of 10,170—has a total of 9,031 platted lots, and 6,778 are vacant. Even if the county’s annual growth rate returned to 6 percent, where it hovered between 2000 and 2008, this inventory of lots reflects a stockpile adequate to accommodate growth for approximately the next 70 years. This extreme surplus of entitlements —with three vacant entitled lots for every developed lot in the county—stems from poor decisions the Board of Commissioners made from 2003 to 2005.
After the 2008 market crash, some owners of incomplete developments began looking for ways to restructure their distressed subdivisions. The Teton County Valley Advocates for Responsible Development (VARD) stepped in and petitioned the county to create a process to encourage the redesign of distressed subdivisions and facilitate replatting.
In November 2010, the Board of County Commissioners unanimously adopted a replatting ordinance that would allow the inexpensive and quick replatting of subdivisions, PUDs, and recorded development agreements. The first success story was the replatting of Canyon Creek Ranch Planned Unit Development, finalized in June 2013. More than 23 miles from city services, Canyon Creek Ranch was originally approved in 2009 as a 350-lot ranch-style resort on roughly 2,700 acres including approximately 25 commercial lots, a horse arena, and a lodge. After extensive negotiations between the Canyon Creek development team and the Teton County Planning Commission staff, the developer proposed a replat that dramatically scaled back the footprint and impact of this project to include only 21 lots over the 2,700 acre property. For the developer, this new design reduces the price tag for infrastructure by 97 percent, from $24 million to roughly $800,000, enabling the property to remain in the conservation reserve program and creating a source of revenue on it while reducing the property tax liability. The reduced scale and impact of this new design will help preserve this critical habitat and maintain the rural landscape, which is a public benefit to the general community.
Anthony Flint is a fellow and director of public affairs at the Lincoln Institute of Land Policy, a think tank based in Cambridge, MA. Visit www.lincolninst.edu for more information.
- This article was adapted in part from Combating Zombie Subdivisions: How Three Communities Redressed Excess Development Entitlements, appearing in the January issue of Land Lines http://www.lincolninst.edu/pubs/2342_Combating-Zombie-Subdivisions–How-Three-Communities-Redressed-Excess-Development-Entitlements
- About the report authors: Jim Holway, FAICP, is the director of Western Lands and Communities, the Lincoln Institute’s joint program with the Sonoran Institute in Phoenix, Arizona. Don Elliott, FAICP, is a land use lawyer, city planner, and a director at Clarion Associates in Denver, Colorado. Anna Trentadue is the staff attorney for Valley Advocates for Responsible Development in Driggs, Idaho.
Published in the April/May 2014 Issue