A bold agenda for D.C. housing

Build, baby, build

I live in Washington, D.C., a relatively small part of what the federal government charmingly terms the Washington–Baltimore–Arlington Combined Statistical Area.

The way metro naming conventions work, the area is de facto named for our city, even though we are home to only 7 percent of the region’s 10 million people and comprise an even smaller share of the land. If you compare D.C. to surrounding suburban counties, we’re not even close to being the biggest — Fairfax County, Montgomery County, Prince George’s County, and Baltimore County (which does not include Baltimore City) are all bigger. So if you really want to bore down on the question of housing affordability, you’re unlikely to find solutions in the policy tools available to the D.C. government.

Logistically speaking, creating genuine housing abundance in the D.C. area requires leadership from the state governments in Virginia and Maryland.

That said, one thing that makes pro-housing policy change in the suburbs difficult is that upzoning the suburbs involves a complicated set of tradeoffs and creates lots of different winners and losers in economic terms. By contrast, dramatic housing policy reform in the District of Columbia (and I think similar logic applies to other high-cost central city areas) is basically a pure win.

Unlocking the city’s buried treasure

What D.C. homeowners own, after all, is land. And though allowing the land to be more intensively developed should make housing units somewhat cheaper, it will make the land itself more expensive and valuable. Some of that comes from the direct economic value of the development. But a lot of it comes from the fact that even though dense city living is a minority taste in the United States, it’s also an undersupplied one. This is a topic that seems to throw a lot of people on the internet off-base. But the factual situation is pretty clear:

• (1) Dense, walkable neighborhoods feature very high home prices, indicating a large amount of unmet demand for high-density living.

• (2) Surveys show clearly that a majority of Americans prefer to live in auto-oriented suburbs and do not want to live in dense, walkable neighborhoods.

The way to resolve this apparent paradox is to note:

• (3) Currently only a tiny minority of Americans live in dense, walkable neighborhoods.

We just have a divergence between the average preference and the marginal preference, where in an unconstrained marketplace more people would live in dense, walkable neighborhoods but most people still wouldn't. Since D.C. is already a fairly dense place with fairly good walkability (and transit, biking, etc.), we have an opportunity that we can seize. If we dramatically alter land use policy, lots of people will want to take advantage of that.

The city’s homeowners are, collectively, like if a bunch of people jointly owned some land that had a bunch of gold or diamonds under it but were refusing to allow any mining. What the city needs is a really big, bold idea to unlock enormous quantities of new market-rate housing while addressing a couple of big, obvious objections that people have.

A property right to parking

If you live in the District you can, for a relatively small amount of money, get a residential parking permit that lets you park for free on most of the streets in the ward you live in. This is very valuable, and because the current system prioritizes fairness, new residents of a neighborhood are just as entitled to get a cheap RPP as someone who’s been there for decades.

Fairness is nice, but one downside of this system is it means every RPP holder worries, rationally, that any newcomers to the neighborhood will get their own RPPs.

That increases competition for street parking and devalues the existing RPPs. This anxiety about RPP devaluation drives political support for mandatory off-street parking. But even someone who has mandatory off-street parking (like me) is still eligible for an RPP (I have one), and they are so cheap to get they make sense to obtain even when you rarely use them (if a visitor comes, we let them park in our garage and park our car on the street), so the devaluation concern persists. Basically, RPPs plus fairness drive a specific kind of anti-housing policy (parking minimums) while also making it entirely rational for existing RPP owners to generally oppose new housing.

The standard urbanist proposal is we should stop underpricing RPPs. By charging what they are really worth, we can raise revenue and eliminate parking scarcity. It’s a nice idea in theory but politically unrealistic.

A better idea is to give all current holders a free lifetime RPP and halt all issuance of new RPPs. But actually, you could give people something better than a free lifetime RPP. If you die, your RPP can be inherited by your heirs. If you don’t want your RPP, you can sell it to someone else. Instead of being something you pay the city for biannually, your RPP becomes your private property — it’s an investment. An investment in the future of parking demand in the District of Columbia. Suddenly new housing isn’t a threat to the value of your RPP, it’s something that drives up the value of your asset. And your asset is going to become very valuable because the city is going to have a lot of new residents.

Then you come to my plan for zoning reform in the city, where the aspiration is pretty simple. If you own some land and you want to build a building on it, then that building should need to meet the bona fide safety requirements of a building code but should not otherwise be restricted by rules about height, parking, setback, floor area ratio, or number of units. I’m trying to be careful here and not just say “you should be able to build whatever,” because there are regulatory limits about making sure the building doesn’t burn or crumble that are incredibly important. But the idea is that a build you’d be allowed to build somewhere should be allowed anywhere in the District of Columbia.

Does that mean all the city’s row house and single-family home neighborhoods will be demolished and replaced by gigantic towers?

No. Again, I’m not saying we should use eminent domain powers or have a massive urban renewal program. Assembling multiple adjoining plots of land to undertake big construction projects is difficult and expensive, and we should expect it to mostly not happen in most neighborhoods most of the time. Developers, meanwhile, like to make money and customers aren’t idiots. Nobody is going to pay top dollar to live in a tall apartment with no parking that’s located really far from mass transit and job centers. My point isn’t that we should build buildings like that — it’s that we don’t need to make special rules against it. We can trust people to use their own judgment about tradeoffs.

And not only is prescriptive regulation here harmful, but my contention is that it is collectively contrary to the interests of the city’s homeowners. It is absolutely true that in my capacity as a resident of my block, I derive benefits from the right to block development nearby. But in my capacity as a resident of the District of Columbia, I would derive benefits from the addition of tons more market-rate housing around the city. Notably, we would have a much stronger tax base and could provide a much higher level of municipal services and a lower level of taxation. If I worked providing locally-focused services (which many people do), I would also greatly expand my customer base. So while people aren’t being crazy to have some NIMBY instincts, if we instead say Yes In Everybody’s Backyard (YIEBY!), we all end up collectively better off.

In the interests of slightly tempering this admittedly extreme agenda with pragmatism, I would make the following two concessions:

— The Advisory Neighborhood Commissions that have median household incomes in the bottom third of the distribution should be allowed to opt out of the upzoning for a period of five years, with the ability to vote to renew the opt-out as long as they maintain income eligibility.

— The ANCs that are too rich to opt out should be allowed to impose a modest Inclusionary Zoning requirement (5% of dwellings affordable at 60% of Area Median Income or 10% affordable at the 80% threshold) if they want.

The goal of these concessions is twofold. The first is that while I think low-income residents’ perception that they are harmed by nearby market-rate development is factually incorrect, it is a real perception that is held in good faith. The vast majority of the economic value of upzoning comes from upzoning rich neighborhoods, so the cost of making the concession is low. I also think that low-income neighborhoods that opt out will see with their own eyes that the neighborhoods that didn’t opt out are better off and will revisit their decision after one or two renewal rounds. So I think providing this exemption is usefully clarifying and can broaden the coalition.

The second concession is that housing opponents often play an affordable housing shell game where they oppose projects as not including enough affordable units unless a project comes around that includes too many affordable units, in which case suddenly Section 8 recipients become the undesirables who need to be excluded. I think wasting too much time playing mind games with people about this is pointless, but we should simply force local communities to make a choice. Either you want the new developments to be purely market rate or you want to require them to include a social housing component. It is entirely up to you which you pick, but you do need to make a definitive choice. And you can’t set an inclusionary zoning bar that’s so high that it simply precludes development. Just pick and let’s build.

This is obviously an extremely radical plan, but that is by design. The idea is to unlock large amounts of financial upside while addressing the major debate about gentrification, and then move the conversation to what to do with the upside.

New neighborhood improvement funds

Community groups often like to use their leverage over the development process to secure community benefits from developers.

This is rational behavior, but it is an extremely costly, value-destroying way to do rent extraction and it leads to dramatically less housing, economic growth, and community benefits than we could otherwise have. As an alternative, we should simply levy a modest citywide fee on new development. The proceeds from the fee would then be split 50-50: half would go directly to the local ANC as a slush fund to finance community benefits and the other half, for the sake of equity, would be shared across all ANCs citywide. ANCs could use the money to acquire land for new playgrounds or community gardens.

They can use it for block parties and festivals. They can use it to commission murals and public art. They can use it for rodent control.

They should be given very, very, very broad discretion in terms of how to use the money. In fact, the key issue in ANC races should be whether or not you think your member is making smart use of their community benefits slush fund. It really ought to amount to old-fashioned ward heeler politics. Maybe a member uses the money to do something that happens to be near and dear to a local minister’s heart, and in exchange he helps get out the vote. Maybe they violate all the strictures of good government and direct the funds to companies that are controlled by their college buddies. But if at the end of the day these college buddies threw a fun block party and neighbors had a good time, the member would get reelected; if everyone thinks the party sucked, they won’t.

The point is that while new construction necessarily involves some inconvenience, it also generates very large economic benefits and people should share directly in those benefits without raising a bunch of bad-faith objections or unnecessary delays.

If you don’t like the newer, denser version of the city, that is fine. The value of your parcel of land will be raised by the liberalized development rights and the value of your residential parking permit will also be raised by the scarcity of street parking. You can cash out at a considerable profit and go live in the suburbs. But if you do like the newer, denser version of the city, then you will also directly participate in the upside via the improved community amenities.

An abundant city

Of course, alongside the fiscal benefits, a dramatically upzoned city would require new expenditures to maintain existing levels of social services.

But here it’s worth emphasizing that the net benefits would be pretty large.

This is easiest to see with policing. With lots of new market-rate housing, the DC Police could maintain the same number of officers per capita without increasing taxes. But the “amount of policing” present on the streets is a mixed function of the number of cops per capita and the number of cops per square mile. With more construction, you get more police per square mile without increasing the financial burden on the city. That means faster response times, it means it’s easier to sit on hotspots, and it’s harder for runners to get away. I don’t think it’s a coincidence that New York is the safest major city in the country. Actual rural places enjoy a safety bonus from the lack of anonymity. But policing Manhattan is a much easier problem, logistically, than policing Phoenix.

The same is true for fire and EMS.

But it’s also true for the school system. Obviously if the city had a lot more residents, we would need to build more school buildings. But this is a very logistically tractable problem, and brand-new facilities would probably be nicer, as well as having better HVAC systems and other desirable properties. In terms of the more fundamental issues the city grapples with, over 40% of DCPS students are currently classified as “at-risk” because they are either homeless, in the child protective services system, or their parents are poor enough to qualify for SNAP or TANF.

New market-rate housing would not displace those students, but it would dilute their presence in the system. On a superficial level that would make the graduation rate and college enrollment numbers look better, but on a non-superficial level, it would genuinely make more resources available for those in need. That’s true in dollar and cents terms, but also in terms of teachers’ time and attention. It’s a lot easier to give extra help to one or two students than to 10 or 12.

The growth machine

To an extent, we ought to have a flywheel of urban growth.

More market-rate housing leads to a safer city with better neighborhood amenities and fewer social problems. That drives more demand for housing, but because of broad upzoning, demand no longer directly passes through to rents. Instead, housing prices drift downward toward convergence with actual construction costs. This doesn’t make the city more desirable for literally every single person — some people may just miss the low density — but homeowners who choose to exit will do so having made a tidy profit. New residents won’t share in the same investment windfall, but they will enjoy higher real wages and a lifestyle they appreciate.

This is not by any means the last word on local government. Lots of other stuff matters, most notably transportation. But creating a strong pro-growth backdrop would be a huge improvement on its own terms, along with making every other problem easier to grapple with. For ideas on that, though, you’ll have to wait for a later post.