Rebuilding Place in the Urban Space

"A community’s physical form, rather than its land uses, is its most intrinsic and enduring characteristic." [Katz, EPA] This blog focuses on place and placemaking and all that makes it work--historic preservation, urban design, transportation, asset-based community development, arts & cultural development, commercial district revitalization, tourism & destination development, and quality of life advocacy--along with doses of civic engagement and good governance watchdogging.

Wednesday, June 04, 2014

Government and improving lives: DC edition

DC government policy and investment is dis-coordinated.  In a comment I made on a GGW post on "the streetcars" I made the point that DC Government "investments" in transportation, economic development (and other areas) are dis-coordinated, a series of one-offs, so that the whole of the various investments doesn't result in "the whole being greater than the sum of the parts," and in fact, likely there is a great deal of value destruction.

... in 2002, I submitted testimony on the DC Dept. of Housing and Community Development's priorities--remember that back then DC was still "poor," not that long out of the period of the Financial Control Board having control over the city's budget and the urban success that we take for granted today was not seen as something that was possible or imaginable and improvements in places like H Street came with a great deal of struffgle--where I made two points:

1.  Every dollar that DC Government spends on economic revitalization needs to accomplish multiple objectives, not just one, to maximize the value of the spending.

2.  Our competitors in the region--Alexandria, Arlington County, Fairfax County, Montgomery County especially--are moving forward simultaneously, so that to stay the same is to fall behind--which is another reason to accomplish multiple objectives with each dollar of spending.

Cranes downtownRight now, commercial real estate trends in DC are unfavorable.  The biggest element of DC's local economy is the commercial real estate market, centered around the city's Central Business District (Downtown).

Last night I had a long conversation with a colleague and we were talking about all the various issues impacting the real estate markets--commercial and residential--in DC and Suburban Maryland:

- Republican control of Congress and its fervent expression of anti-government, anti-regulation positions has put a serious damper on federal government expansion especially in terms of the impact on the commercial real estate market (this is something I've written about for a few years and which has come to the notice of Post columnist Robert McCartney only now--"Apparent demise of big D.C. building project shows region can't rely on federal spending"--and clearly the president of the Greater Washington Board of Trade still doesn't get it).

- this has impacted renovation and expansion of federally-related property ("New Year's Post #3: an illustration of the decline of the federal role in DC's real estate market (at least right now)"), including the Department of Homeland Security ("Planned Homeland Security headquarters, long delayed and over budget," Post), but that's been a problem since the Republicans took control of the House of Representatives with the 2010 mid-term election--four years ago--and makes it difficult for GSA to pay more than the standard lease rate because they aren't confident that Congress will approve such leases (called "prospectus leases") so they don't even ask.  This is why the National Science Foundation is leaving Arlington, which will damage the "open air" research park-innovation cluster that has developed there between Virginia Square and Ballston Metro Stations.

- the expansion of the catchment area of Northern Virginia with access to subway service because of the Silver Line makes that area competitive for federal agency leasing because they can offer lower prices--this impacts DC, Arlington, and Montgomery County

- general reduction in the amount of space/employee by businesses through "hoteling," teleworking, and other strategies reduces the amount of office space that organizations need

- serious economic problems in the legal profession, resulting in mergers and closures, impacts the market for legal firm office space in DC, which traditionally has been one of the strongest segments of the city's commercial real estate market.

- but increased availability of space at a somewhat lower cost puts pressure on the suburban jurisdictions because some of their office space can displace to DC.

- plus the inability to build taller buildings in DC raises lease rates and helps the suburbs be more competitive.  If the height limit were raised, while it would take a few decades to see real impact on pricing (but that's the nature of real estate development, it takes years to bring projects forward), DC would begin to capture more commercial real estate activity vis-a-vis the suburbs, especially for tenants seeking lower prices.

- if the city decides to impose a congestion charge in the Central Business District (GGW post "MoveDC plan proposes more cycletracks, transit, and tolls. Will it become a reality?," I haven't had a chance to read the planning document yet) I fear that the suburban jurisdictions will attempt to recruit commercial tenants based in DC, with the point that in their jurisdictions the firm's employees wouldn't be subjected to such a fee.  Even Arlington's economic development agency isn't beyond making such entreaties, even though the County is a leader in the promotion of sustainable transportation.

- and the fact that the DC commercial real estate market is dominated by national and international firms--some seeking to invest in DC because it is safer than investing in their own markets--raises prices for buildings and then lease rates to levels that wouldn't be reached if the capital in the market was more local.

Too often residents don't see the value of government investments in economic development and other activities.  I was looking at the London Government website, because they are about to embark on an infrastructure plan to be in the place to manage the city's growth, plus their "Smart London" project.

The Smart London webpage has this graphic, and I really like it, because it puts benefits to residents of London at the center of the process.

I think that helping people understand how they benefit from changes to a community happens too infrequently within planning processes.  Instead people think that planning "is being done to them," to benefit others, especially developers.

(Of course local policy is designed to bolster the real estate market.  Real estate taxes provide the bulk of local government revenues.  See the article "The City as a Growth Machine: Toward a Political Economy of Place." )

The argument for an increase in DC building heights.  That was definitely the case with the height limit discussion--that the benefits for residents weren't articulated.  Me, while I am a fervent preservationist, I see the value in taller buildings for a couple reasons, one incredibly obvious, the other more subtle.

1.  The reason commercial and residential space costs more is because of the limited supply.  With regard to commercial space, this argument is right out of Jane Jacobs.  The height limit restricts supply and ensures that space will be continued to be modernized and built out to its maximum, raising prices.  Plus, newer uses and less high value activities will be outbid by tenants like law firms and trade associations that value the proximity to the federal government.

2.  There is no way that DC can find the money to expand heavy rail transit--the subway--within the city without a significant increase in the value of commercial property at the core of the Central Business District.

A height limit will raise the value of the property, increase commercial property tax revenues, and increase the amount of bond indebtedness that the city can withstand.  This money could be invested in transit expansion.  (Note that New York City merged with the other boroughs in the 1890s mostly to be large enough to be able to finance the construction of the subways.)

There is no way that residents wouldn't benefit from expansion of subway service, in the core of the city and outside of it, and we won't get it any other way.

Residents also benefit from more density, which affords a greater variety of choices and businesses (again, see the arguments of Jane Jacobs), provides more revenue to the city, etc.

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8 Comments:

At 9:05 AM, Anonymous charlie said...

I've say you are making one assumption which underlies your argument -- that cre is the "heart of the economy."

CRE is wealth, not income.

Now where it gets tricky, and this is where I agree with the rest of your analysis, is that CRE drives development. A stagnant or shrinking CRE sector kills everything around it. Cleveland is a great case.

I dont' understand the mechanism, but basically high value tenants want new space every ten years.

And without an increase in a height limit -- or an expansion of the CBD area -- the economies of tearing down 1980s office building and replacing them just doesn't work.

And an expansion of the CPD might involve such transit investments that DC and/or WMATA can't finance it.


 
At 9:20 AM, Blogger Richard Layman said...

The chief economist of AvalonBay wrote a book a few years ago. I didn't read it but heard him speak at a ULI conference. (I was late and missed most of his talk...)

His big point is that buildings are boxes (he used another term) within which exchange occurs.

I don't think he used the term "exchange" either. Frankly, I like the way David Engwicht talks about cities as being primarily about enabling exchange.

Buildings are the means of facilitating exchange.

So yes, in and of themselves, buildings are wealth, but they are the key enablers or catalysts of exchange, and therefore pretty key.

E.g., I have one more article to write for the EU series, based on a conf. they had Fri. and Sat. It was located in a MICA building in Baltimore in the Station North arts district.

That district has been incredible in its incremental improvement year by year to the point where now there is a lot of very visible critical mass.

It's been enabled by the existence of lots of very big (compared to DC) buildings that had been abandoned-vacant for many years, and scooped up by artists, design uses, etc.

 
At 9:51 AM, Anonymous charlie said...

well, that is the classic jacobs model that a downgraded CRE sector can meet needs at different price points.

It is a observation but not necessarily a model.

I'm not sure why CRE is so critical, and the "exchange" model doesn't really work for me. As I said you can see tenants downtown constantly changing (unless they own the building)

And perhaps it is the valuation, since valuing a stagnant sector is harder.

And highly disingenuous of height limit antis to talk about the need for 500K more residents when the height limit is always about the CRE sector.

 
At 11:11 AM, Anonymous h st ll said...

DC could fund new construction subway out of its standard budget. 10/11 billion a year and you can't find 250 million a year? Use that for 10 to 15 years and you have a new 4 or 5 mile subway downtown.

And it creates a virtuous cycle where, as you mention, land values and taxes increae, in essence it's self funding.

Hell we just cut taxes by that much.

 
At 11:13 AM, Blogger Unknown said...

Cue rg point about councilmembers driving everywhere and not taking public transit so the leadership/understanding is not there

 
At 11:22 AM, Anonymous Anonymous said...

Disrupt, I say!

https://www.youtube.com/watch?v=bUy9bogmaQk

And, for God's sake, read some Hazel Henderson.

http://www.forbes.com/sites/terrywaghorn/2013/03/11/hazel-henderson-there-is-21st-century-abundance-hiding-in-19th-century-scarcity-politics/

-EE

 
At 12:55 PM, Anonymous charlie said...

@H St LL; what is left unsaid is DC overspends on social service and underspends on infrastructure.

 
At 3:27 PM, Anonymous Anonymous said...

Charlie

the commercial and residential sectors are not unlinked - for example in Navy Yard, with a weak CRE market and a tight residential market, some parcels earlier envisioned for office are switching to residential, same thing happening in North Arlington. Whether thats a good idea or not depends on your goals.

H street - I dont know if its politically feasible for DC to spend so much on a metro rail line that will largely be utilized
by suburbanites without a robust value capture mechanism.

 

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