Demand can’t explain why D.C. is so expensive

The Urban Institute released a great study about how the District has changed over the last thirteen years. It has a lot of information in convenient graphs that summarize difficult-to-understand Census data, and its publication has spurred lots of commentary from the D.C. land-use commentariat.

Emily Badger focused on the quick growth of expensive apartments since 2005. Aaron Wiener noted that, contrary to the dominant narrative, inexpensive family-friendly rental units have not disappeared. Rather, cheap one bedroom and studio apartments have largely disappeared. Lark Turner explained that Millennials played a large role in the District’s demographic shift and subsequent housing changes.

All three authors are correct, but they’re mostly focusing on demand-side explanations for why DC is so much more expensive than it was 13 years ago.

It’s easy to see why some neighborhoods were much cheaper in 2002: a lot of today’s hip neighborhoods weren’t great places to live back then. Places like Columbia Heights, U Street, and NE were filled with disamenties that made rent cheap. For example, before Target and the other DCUSA tenants came to Columbia Heights, 14th and Irving looked like this:

ht New Columbia Heights

Replacing vacant lots and debris with stores, restaurants, and other things people like should lead to higher rents.

With the elimination of disamenities and the addition of amenities comes increased demand in the form of new residents. More people bidding on the same number of units pushes prices higher. Then, so it seems, rich people move into poor people’s homes and we have the city we currently live in. Right? Not exactly.

These changes are easy to spot, and account for some of the price changes. But demand only accounts for half the story, and it doesn’t explain how our current situation could be different. Under a more relaxed regulatory regime we might not have experienced the same spike in rental prices, home values, and  displacement the District has undergone during the last fifteen years.

As Matt Yglesias wrote in response to the study, the supply of rental units hasn’t expanded very much because it’s often illegal to increase density where it is demanded most. This factor–legal restraints on building more places for people to live–is primarily to blame for D.C’s sky-high rents and real estate prices.

Even in neighborhoods with skyrocketing demand and new projects, our local regulations often make it illegal to respond by maximizing the number of units that can fit on a given plot of land. As I wrote earlier this year,

Columbia Heights is a case study of what happens to a newly-popular neighborhood under a restrictive land-use regime that doesn’t fully allow the processes described above. In 2000, there were 27,129 people living in the neighborhood… After a decade of construction (mostly renovation), new residents, and change, the total population only increased by 1,087 people.

According to the Urban Institute study, we’ve added 33,918 expensive rental units since 2005 while the total number units of rental housing only increased by 12,500. During the same time period our population increased by more than 50,000 people.

When land becomes expensive, developers usually respond by building apartments instead of single family homes. This, of course, makes them more money, but it also makes housing more affordable than it otherwise would be. It also prevents your cheap basement unit from being converted into a wealthy person’s wine cellar.

Major cities in general have seen a surge in demand over the last few years as more people want to live in urban areas, but the price response in the District is uncommon. Not only have local housing prices spiked more than most other cities, we’ve even outpaced the NIMBY Mecca–San Francisco.

 

 

There’s not much for policymakers to do about a surge in demand aside from making D.C. a worse place to live, but there’s plenty of room to improve on the supply side. For starters, the District Council could limit NIMBYs’ ability to block projects, eliminate parking minimums, and loosen zoning restrictions that limit population density.

Otherwise, expect more of the same.

Don’t preserve neighborhood character, or, Why pop-ups are great

The debate surrounding “pop-ups” is back, thanks to a new proposal to downzone parts of the District. Pop-ups are single-family rowhouses that are remodeled to increase floor space and, usually, converted into multi-unit structures that can house a much larger number of people. Pop-up housing in Lanier Heights--located directly to the north of rowdy Adams Morgan–is “changing the look and character of the neighborhood, reducing homes for families, invading privacy, and crowding neighboring yards and houses.” Prompted largely by a small group of residents, the Office of Planning is considering downzoning the neighborhood and banning people from turning townhouses into multi-unit structures.

Avert your eyes!

Preserving a neighborhood’s “character” in D.C. comes at a very high cost. Allowing more people to live in a single building creates more opportunities for families to find housing. Preserving neighborhood character really means preserving views for those rich enough to own expensive houses at the expense of affordable housing, diversity, and the poor.

In Lanier Heights, buying a typical rowhouse requires a million or so dollars. The pop-ups there aren’t particularly affordable, but buying a unit in one cost about half as much as buying a rowhouse on the same block, and allowing their construction means three to four times the amount of people can live in the same plot of land.

What the NIMBYs who want to downzone the neighborhood don’t mention is that these denser developments are critical to creating affordable housing in the District. Rather than eroding family housing, the pop-ups create more opportunities for families to live here. Approximately 57% of D.C. households consist of a solitary person occupying a unit or home. However, our current housing stock doesn’t reflect our demographics. This is one reason so many young people live together in single family homes, even though many would prefer to live in their own apartment if it were an affordable option. When individuals or couples move into pop-up unit, they’re freeing up their former place of residence for someone else.

This process, where people with higher incomes move into newer housing, and someone with slightly lower income moves into their old digs, is called filtering. A single unit of new housing can cause a long chain of several moves, where people with lower and lower incomes move into units formerly occupied by someone with more income. Filtering, and the older buildings people move into, is the way that most affordable housing is created.

This process is good for homeowners and renters alike. Converting a rowhouse into a taller condo building can more than double the value of the real estate, while lowering per unit housing prices. For example, a developer can purchase a rowhouse for $1 million, add two stories, increase the value to $2.5 million, and sell four condo units for an average of $625,000 each.

As Malpezzi and Green put it in their 1996 paper,  “A necessary condition for filtering to work is that new units, which are mostly at or near the top of the quality level of the stock, do not simply displace low-quality units, at the same price per unit of housing services.” The lesson for D.C. is that it isn’t enough to maintain our current housing stock. If we allow greater density through processes like pop-ups and new apartment buildings we can create affordable housing when those with higher incomes move into new, dense units, freeing up their old homes for others to rent or purchase. The alternative is to ban new development and have the rich to move into neighborhoods like Lanier Heights and turn run-of-the-mill rowhouses into million-dollar residences.

How can some people in Lanier Heights oppose pop-ups when they are  so good for the District? Why not just convert their own houses to pop-ups and take the $1 million in profit?

Some neighbors are happy with their neighborhood the way it is, and would rather just sit on the equity. But they also don’t want to look at pop-ups or deal with the new neighbors they bring. They also complain that taller buildings provide shade for their yards, and that the wrong types of people will move in.

Because of the way Lanier Heights is zoned, property owners have always had the legal right to expand their homes, build taller additions, and convert them to multi-unit structures. Without any right to veto construction, Lanier Heights NIMBYs would have to negotiate with their neighbors to prevent construction and likely have to pay each person wanting to build a pop-up handsomely.

But a much cheaper option is to lobby the Office of Planning to revoke their neighbors’ development rights at the expense of everyone else.

Downzoning Lanier Heights because rich residents don’t want new neighbors is a bad policy. It breaks the chain of filtering that provides for affordable housing in the future, it makes it harder for people to live in popular neighborhoods, but it is also deeply unfair. It preserves neighborhood character to meet the preferences of the relatively wealthy at the expense of everyone else.

To create affordable housing, the Office of Planning shouldn’t downzone Lanier Heights or any other part of the District.

If you agree, you should consider attending ANC 1c’s Planning, Zoning, and Transportation Committee meeting tomorrow, Wednesday, September 17, at 7:00 PM to voice your opposition to the Lanier Heights downzoning, and your support for dense development.

The Olympic Games are great, but only suckers host them

USA! USA!
Typical Olympic aftermath

The Twitterz are abuzz with talks of hosting the Olympic Games in Washington. A group of local businessmen, politicians, and sports industry types called DC 2024 are lobbying to bring the games here, and for good reason.

Greater Great Washington has a nice roundup of arguments for and against the games. One of the commentators weighing in, Dan Molouff, accuses the naysayers of NIMBYism:

“Hosting the Olympics in DC would be expensive, and a huge hassle, and probably wouldn’t result in much lasting benefit to the city, specifically.

But all the hate still breaks my heart. It’s the civic equivalent of when a school board cuts art & music programs and redirects their funding to standardized mathematics testing. On paper it’s the right decision, but it’s wrong if you want your students to grow up with anything to dream about using math to create.

Art, music, and Olympics are all luxuries, it’s true. But they’re luxuries that are good for the soul. They’re luxuries that make our civilization more than the sum of its parts. They’re things worth doing if we value love.

I love the Olympics, and notably, so do many of the haters, who are happy to watch them on TV when they’re hosted in someone else’s backyard. Don’t we have a term for that?”

As regular readers might have guessed, I’m against NIMBYism. I think it’s bad, and it holds cities back.

Like Dan, I also like to watch the games, and I plan on attending them in person sometime soon. My favorite summer sports are modern pentathlon and track cycling. For winter, I think biathlon is great.

But Dan is wrong, and his response makes it seem like he doesn’t understand how the Olympics work. You aren’t a NIMBY just because you don’t think it’s a good idea to host the Olympics in D.C.

NIMBYism is a form of special pleading where someone would normally endorse a project based on their own moral and/or economic beliefs but, simply because the project is in physical proximity to the person in question, he says, “This is different! Don’t build it near me!”

But D.C. residents–and people anywhere else!–shouldn’t host the Olympics because doing so means corporate welfare, eminent domain, kicking out poor people, increasing corruption, and creating useless, sports-centered dead zones.

Why are so many businessmen and politicians working to bring the games here? Because doing so allows them to use tax dollars to build a lot of ill-conceived projects with your money. We put up the cash, and they keep the profit.

David Alpert sums it up well:

DC could put together a sensible, solid plan for an Olympic bid that has real, definite advantages and avoids overspending. It could submit that bid, confident that if it won, it would get a good deal, but also knowing that some city that’s less pragmatic would probably win out. But it’s unlikely to work this way. [They are]spending taxpayer money. The people on the board of the Olympic bid committee aren’t bidding to pay for the Olympics and make profit; they’re trying to convince politicians to spend taxpayer money.

How about the business executives who are pushing for the Olympics get some skin in the game? How about, if the benefits to the region do not exceed the costs, ThinkFoodGroup, District Photo, Venturehouse Group, Carsquare, the Mystics, Kiswe, the Nats, Lerner Enterprise, Under Armour, Akin Gump, rand*, the Informer, and EY have to make up the difference by issuing debt or equity in their companies to pay back the taxpayers? Then we can be sure that, being sensible business people, they will take care to not overbid. I’d be all for an Olympic bid in that case.”

Like David, I’d be happy if the people at DC2024 could bring the Olympics here on their own, but they aren’t proposing to do that. They’re really just asking the government to give them our money.

There’s nothing NIMBY about opposing eminent domain, political corruption, bribery, corporate welfare, or corruption, even if you think sports are great.