There is an invisible force that determines when and where companies move and build buildings: government incentives. So force can create or destroy many real estate projects, however there is no single source of truth about which government agencies even offer incentives. Technology has done little to improve the transparency of the incentive market. Technology is unlikely to help when what developers and bargainers want to see is offline. The clear picture of incentives remains elusive, leaving billions of dollars on the table, while the impact of the $ 100 billion in incentives handed out each year is difficult to understand.
Real estate incentives include property tax cuts, zoning bonuses, rebates, grants, perks, and more. Collectively, they can create an almost infinite number of options and combinations of incentives available for real estate projects. Fueling real estate, whether residential, commercial or industrial, is one of the best ways a government should stimulate economic activity. This is why every level of government is trying to do it. The big problem is that local, state and federal programs have created a multi-layered and complex system that is impossible to understand. This problem is not new, some platforms like CoStar, Reonomy, Property Shark and others have created powerful tools to help users and customers understand a variety of incentives. This approach goes against much of the traditional world of real estate and government services. Technology, as powerful as it is, is trying to revolutionize the real estate industry because the challenges the industry faces are not as simple as most of the tech world thinks. Technology is trying to solve the problem of fuzzy information about government incentives, where both hyperlocal experience and scale are needed.
“The reality is that so many people at PropTech are not real estate professionals, they are outsiders who think, hope, or imagine they can revolutionize our industry, which is America’s largest, in one fell swoop,” Atif Qadir said the general director of Redist. “There is an approach to this that seems simplistic, a little simplistic.”
Kadir is a former architect and later developer who has worked as a designated government official in Hoboken, New Jersey, giving him unique opportunities from both the private and the public side of development. He saw firsthand how convoluted incentives were during his own attempts to sign deals.
Powerful technical tools are linked by the information they can get. Platforms such as CoStar, Reonomy, and PropertyShark have difficulty controlling input. They have limited control over what data is put on their platforms, relying mainly on user-generated data or automated cleaning techniques, collecting known datasets and adding them to the database at any scale. Cleaning, often known as harvesting, relies on information available online, either listed on a website or in a publicly available download. Scraping is a valuable technique, but it lacks nuance.
Unconventional datasets are what matters most when it comes to hyperlocal information about government incentives. In small and medium-sized cities, not everything is listed on the Internet or placed in pdf, sometimes the information is not even in electronic form. Often the best way to get information about local zoning, incentives, and permits is to go to the municipal planning department and speak with someone in person. This may seem obvious to many, but in today’s digital age, personal presence to gather information is not even considered.
“This is not intentional, it’s just a sign that the industry is in dire need of innovation,” Kadir explained. “I spoke with the economic development coordinator in Connecticut, his information was not available anywhere on the Internet, I had to go to collect it. I told him that the new generation might not be too keen on driving to pick it up. He said, “Really?” I think we are on the cusp of a generational change. ”
In the next three decades, incentives will only become more important. Ambitious climate targets are forcing local, state and federal authorities to launch a new wave of incentives for energy efficiency and electrification. In several states, they have already begun. Government agencies are not just gingerbread, they are sticks. In a few years, New York will start levying fines on buildings that don’t take carbon emissions and energy efficiency seriously. Similar frameworks are being developed throughout the country. Moving the existing stock of buildings into a more sustainable energy future will require owners and managers to use every possible incentive to modernize.
Local governments don’t make it easy. The fragmented and sluggish nature of municipal governments is holding them back from implementing much of the technology we use in the business world. The lack of standardization means it’s hard to know what to expect, some small towns have excellent recorders with fully digitized settings, while working with other major cities seems like a cry into the void. Kadir jokes with clients that tracking down economic development officials, planning departments and all local characters with relevant knowledge can feel like grazing wild cats. This is a painstaking task even for the most experienced shepherds.
Companies with sufficient attraction have found a way to flip the script and groom themselves rather than courting themselves. It is notorious that Amazon made a year-long move between America’s largest cities to narrow down the potential sites for a second headquarters. The company was able to get millions, maybe billions, in rewards without doing most of the work on its own. The company pitted governments against each other in an attempt to lure this high-paying and high-profile employment center into the territory.
Finding out what your city or state offered Amazon is strictly a secret, even the best journalists haven’t gotten to the bottom of it. We may never know how many million taxpayer dollars were offered to the world’s largest company on a silver platter. Smaller businesses are less fortunate than Amazon. Companies that really need incentives are too often left in the dark about what’s really on the table. Taxpayers too. Amazon dominated the headlines as local leaders criticized what many saw as corporate nepotism, eventually forcing Amazon to abandon its “HQ2” plans in New York. The response to unexplained incentives that the majority of the population does not understand is real.
We know that Redist estimates that American taxpayers give $ 100 billion annually to corporations in benefits. There is much more we do not know. What do they get for this? What do they promise? How do we measure the impact of incentives? Not all agencies report totals, and agencies do not coordinate with each other. There are several types of incentives that are not limited. A $ 100 billion estimate is the best guess. Renowned think tank Brookings has been trying to solve this case for many years, doing a tremendous job of analyzing case studies, but a clear national picture remains elusive. At the present time, this simply cannot be calculated. This is a big problem.
“The metrics that Economic Development Organizations (EDOs) produce may be accurate … but accuracy is not the same as accuracy. And most EDOs rarely, if ever, invest in measurements that allow them to accurately assess performance. ” Brookings wrote.
EDOs do not account for selection bias; there is no control group. They claim to recognize positive results, ignore negative ones, and make no distinction between work created by the program and the work that would have been done anyway. EDOs regularly apply for loans when new jobs are announced, but never materialize. What a little analysis is done is focusing on gross results rather than return on investment.
We have created a system that is not working properly. Developers and bargainers who need information cannot find it, municipal departments that want information to be communicated do not share it, and there is no accountability anywhere. We can only guess what the point is and how everyone got so confused. Using government tax dollars to fund private economic activities that provide a public welfare is a unique American concept, especially given how pervasive the practice has become. Is this a sensible concept? It is impossible to say. Without additional data, more accurate data, and no form of responsibility, we are throwing millions of coins down the well, wanting more economic activity.
Owners and developers will keep reading the tea leaves while EDO takes charge of the sunrise. Bad practices threaten to trigger a political reaction that could threaten the entire system. The unexplained incentives that generate public funds for mega-corporations large enough to overcome the staggering hurdles of understanding fragmented incentives are not in the best interest of business. Both parties receiving measurable ROI calculated using better data exchange methods and research tools will lead to better results to justify continued practice. If this is not possible, then there should be no incentives.