Tag Archives: regulation

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.

D.C. cab strike wasn’t designed to win over customers

D.C. cabbies don’t have a great reputation when it comes friendliness, courteous driving, or car maintenance. Hailing a cab sometimes means riding in a beat-up, dirty car driven by a rude person on a circuitous, fare-maximizing route. Customers have taken notice, and have flocked to upstarts Uber and Lyft as soon as they were given a chance for exit. 

Drivers don’t like competition from car services with better booking options, newer cars, nicer drives, and better regulations, and they want our local politicians to know. So the cabbies did what they thought would best serve their interests: massively disrupt downtown traffic for hours as part of a “strike.”

The disruption didn’t go over well the public,  and generated lots of bad press on Twitter.

A similar cabbie strike in London–just two weeks ago–completely backfired, and increased Uber membership in the city by 850%.

Why would cabbies expect to fare better here in the states?

They probably didn’t. D.C. cabbies and cab companies aren’t trying to win over customers at this point. Instead of improving their business model to better compete with the new ride-sharing services, they want politicians to use regulations so that you can’t choose something better than a D.C cab.

You might be an Ubertarian

Over at Housing Complex, Aaron Wiener pokes fun at what he calls “Ubertarians.”

These are people who “support government regulation—except when it inconveniences them,”  “love public transit, especially the not-so-public kind,” “hate meddlesome neighbors, but will eagerly meddle themselves when riled up,” “vote Democratic, but they kind of love Pat Mara,” and “hate the Height Act.”

I don’t closely follow electoral politics, so I won’t comment on the Pat Mara part aside from the obvious point that nearly everyone in D.C. votes Democratic.

Since Aaron asked readers to add traits to the Ubertarian archetype, here’s my list:

1. They can distinguish pecuniary externalities from real externalities. 

A real externality is a cost that falls on a third party from a transaction, such as pollution from a factory or the effects of second-hand cigarette smoke. That is, the externality is real in the sense that it usually involves some kind of physical or non-price resource like air, pollutants, noise, light, or damage to property.  When costs are borne by third parties–rather than those involved in the transaction itself–the economy as a whole is less efficient, and life is less fair. Standard economics teaches us that the government should intervene with a tax, fee, or other regulation to address the problem.

A pecuniary externality, on the other hand, operates through the price system and doesn’t cause a loss of efficiency. It also doesn’t result in an unfair situation. For example, if your neighbors discover that Vietnamese food is delicious and purchase it more often, the price of phở can increase. This increase in price converts consumer surplus to producer surplus. It could be argued that consumers are worse off after the change, but that loss is offset by a bonus to the producer, who receives a benefit for providing a product that consumers like.  Most people would say this kind of externality is fair, and standard economics teaches us that the government shouldn’t intervene to correct it.

Another example of a pecuniary externality could be loss of income for taxi drivers caused by the market entrance of a new company that provides a better service and doesn’t do bad things like refuse to pick up black or disabled customers.

2. They can distinguish between consumer protection and rent-seeking.

Ubertarians probably appreciate that it’s illegal to drive passengers in an unsafe car, or hire someone who doesn’t know how to drive. But that’s already illegal because driving itself is a highly-regulated activity. Ubertarians realize that some regulations, like the D.C. Taxicab Commission’s attacks on UberX, are really about protecting cabbies from competition.

3. They probably aren’t libertarians.

Most District residents who like Uber, who opposed the silly proposed liquor license moratorium, and who want to abolish the height limit are progressives. But that doesn’t mean that they are gullible enough to think that every ban or regulation that comes through the pipe is a good idea. Nor should it.

In the end, Ubertarians might not actually exist. But, if anything, Aaron Wiener sounds a bit like an Ubertarian himself!