For the math-o-phobes, the short version is YES -- large multifamily residential complexes in Chapel Hill were, even way back in 2009, gold mines for the town budget.
This post details how we came to that conclusion.
Earlier this week, we asked a simple question — has recent large scale multi-family development in Chapel Hill improved the extent to which residential development as a whole pays for itself in terms of taxes paid versus public services consumed?
We wrote that this question was based in part on a town-funded cost of services study in 2012 that found, based on data from 2009, residential development came close to breaking even:
That’s a useful finding, but it doesn’t get at the question that is on many people’s minds: Do apartment buildings generate enough tax revenue to pay for the services they receive from the town?
We can answer that question using the same data collected for the 2012 study. It will (to the horror of several of my co-bloggers) require a little bit of math.
For the math-o-phobes, the short version is YES — large multifamily residential complexes in Chapel Hill were, even way back in 2009, gold mines for the town budget.
We’re lucky (for a certain geeky form of luck) that the consultant who prepared the 2012 report had to work with two different definitions of what counted as “residential.” The Orange County definition of residential was different than what the Town of Chapel Hill categorized as residential:
“County figures for this “default” breakdown of assessed property valuation for 2009 are 74.3% residential, 25.7% commercial. However, Town officials believe – and county officials agree [TBB emphasis] – that the county figures inappropriately counted multifamily residences (e.g. apartment complexes) as commercial land uses rather than residential land uses….As a result, I present parallel results based on the County and Town property tax numbers.”The Cost of Community Services in Chapel Hill (2012)
Under both methods of counting, a single family home on a half acre lot overlooking Eastwood Lake counts as residential. The county counted the then brand new Chapel Hill North apartment and condo complex as commercial property but the town counted it as a residential property. The total valuation of the two methods is the same. The differences between the two methods allow us to estimate the incremental revenue and costs of the 7% of the valuation that switched from commercial for the county estimate to residential for the town’s preferred method.
From here, we can calculate the large multi-family complexes specific revenue to expense (R/E) ratio. We will use Table 1 from the consultant report for all the data.
Let’s look at the revenue first. We’ll have both the county method and the town method and then subtract the county method from the town method to estimate the amount of revenue that switches categories.
We can estimate a $2,392,221 revenue swing between the commercial and residential tax revenue depending on how we attribute large complexes. The town method of counting estimates about a $2.4 million dollar increase in revenue from all large complexes and multifamily housing.
Now we should take a look at expenditures (also from Table 1).
I made two increments because the numbers should balance but don’t. The first column “Increment” shows that the large complexes have an additional $619,761 in consumed services. I don’t think this is right as the increment should be zero sum between residential and commercial, so the “Conservative estimate” attributes all of the difference of $872,469 to residential expenditures.
Guess what — in either case, $619,761 and $872,469 are substantially smaller sums than $2,392,221. The conservative case has a R/E ratio of 2.74:1 ($2,392,221 / $872,469) while the first case has an R/E ration of 3.85:1. Either way, for every two dollars in expenses attributed to large multi-family residential complexes, the town was getting somewhere between $5.50 and $7.70 back in revenue.
That is, in highly technical terms, a goddamn gold mine!
And intuitively we should not be surprised. The county method had a R/E for residential of 0.93 while the town method had an aggregated residential R/E of 0.98. That 0.05 difference had to come from the small sliver of land that the town counted as residential but the county does not. We know that the sliver that had to do all of the heavy lifting to move the R/E average is pretty small, that incremental R/E had to be pretty big and well over 1.0 to make the math work.
So what does this mean?
Even a decade ago, large scale multi-family residential complexes were net revenue producers for the town. Since then, large multi-family developments have become more common. These complexes tend to have much higher taxable values per acre and contract out services like trash collection that the town and county provides for single-detached homes so expenditures are lower. It would be hard to imagine that these apartment buildings have become net money sinks for the town in the past ten years. Instead, they are still likely a critical source of net revenue which allows for either enhanced public services or cross-subsidization of services to households who live in single-detached homes.
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