What people don't get about the DC housing market: supply is much less than demand, so prices keep rising (a/k/a basic economics)

The Washington City Paper's daily e-letter calls our attention to the Mark Lee column in the Washington Blade, "Is D.C. destined to be the domain of the well-to-do?"

The answer is "Yes."

Apparently, last fall I wrote a similar "blog entry in response to an article in The Atlantic, titled "Will D.C.’s Housing Ever Be Affordable Again?" My answer was no, but with a more detailed analysis than the one below.  The fact that so many people write similar articles is an indicator of the need to move from lament to solutions.

Also see "Canada's Housing Crisis: Twenty-Two Solutions" from The Practical Utopian blog.
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1.  For historical reasons, when legacy cities like Boston, Chicago, New York, Philadelphia, and Washington were built out during the primary period of growth, pre-1920 especially, in comparison, DC had much less population therefore much smaller buildings were constructed.  This has major consequences more than a century later.

A tenement building in Manhattan can house multiple families, while the same amount of space for two tenements in Manhattan would cover three small two-story rowhouses in DC.

2.  For a long time that wasn't a big deal, because demand was commensurate with the inventory--even less than the available inventory.

3.  But finally around 2000-2005, the trends favoring urban living finally hit critical mass, and urban living became appealing to many more segments of the housing market.

Now having three story apartment buildings from the 1920s instead of six-story tenements, small rowhouses instead of big rowhouses split up into apartments, building most rowhouses without English basement apartments, medium sized apartment buildings (four to six stories) instead of larger, elimination of alley dwellings and restrictions on constructing carriage houses on the back of properties, etc., means that the available inventory of rental and owner-occupied housing is significantly smaller than the demand.

These DC rowhouses are larger than the typical two-story rowhouse constructed before 1914 because they were built with basement apartments. (Google photo).

That's why prices keep rising.

4.  Because of DC's limited housing stock, even small marginal increases in demand, led and lead to significant price appreciation.

5.  And each new addition to supply isn't enough to meet the latent demand, so housing prices continue to rise regardless (plus the fact that new housing, constructed at current prices, is always priced at the top of the market).

6.  Because of DC's limited housing stock, people wanting to live in the city were driven to consider neighborhoods (H Street, Trinidad, Petworth, Shaw) that they weren't originally willing to consider, because they were priced out of more popular neighborhoods such as Capitol Hill, Dupont Circle, and Georgetown, extending price appreciation and demand outward.

This grouping of mixed commercial and residentially-used buildings on East Ohio Street in Pittsburgh are far larger than the buildings typically constructed in DC's commercial corridors outside of Downtown, Georgetown, and Dupont Circle.  It's rare for there to be a 3- or 4-story building in a DC neighborhood commercial district constructed before 1940.

This leads to housing appreciation in neighborhoods that may have remained "affordable," had there been more housing options available in those neighborhoods more highly preferenced.

I wrote a few years ago in "Exogenous market forces impact DC's housing market," about how because more neighborhoods in DC have been integrated into the residential housing market "at the metropolitan scale," people shouldn't be considering solely within DC criteria and characteristics shaping neighborhood and housing attractiveness and pricing.

That's still the case.

I haven't seriously delved into the list of housing priorities created by a group of business and housing advocacy interests, touted in posts in Greater Greater Washington ("Diverse groups agree: DC needs more housing and more affordable housing now" and "Meet the housing demand: A priority for DC housing").

My initial reaction is that of course housing prices are going to continue to escalate and people of lesser means are going to be pushed out of the city, because regardless of good intentions, most residents seem to oppose the kinds of development measures that would take the edge off (but not eliminate) the ongoing upward repricing of DC's housing stock in most neighborhoods west of the Anacostia River, and increasingly in neighborhoods east of the Anacostia River.

In short, in capitalism, people with more money bid up and acquire scarce resources ("Low income, high income, the market and the right to the city").

In DC, high quality housing and neighborhoods ("The eight components of housing value") are scarce resources. So people with less money are not equipped to compete for attractive housing, even with extranormal assistance.

But there are ways to take the edge off. This is what I wrote (edited and somewhat expanded) on the first GGW post:

I have been calling for a real housing plan for at least 10 years. My biggest lesson from the past 16 years of change in the city is that not being armed with good plans and vision at the outset of change/growth opportunities puts you seriously behind the market, and without the ability to shape change the way you want it.

We had no idea on what kind of change and the velocity of change that was unleashed by Anthony Williams becoming mayor, coincident with a reaching of critical mass interest in urban living.

Not having robust proactive plans in place such as a good Comprehensive Land Use Plan, a good housing plan, a plan for WMATA, etc. put and continues to keep us really really behind. As a result, it's almost impossible to change the trajectory as it relates to housing affordability.

WRT the group and the support it has by developers, it should be no surprise that the Growth Machine favors affordable housing. It's still growth. (And I don't have a problem with it.)

One, many companies don't want to get involved, but are happy others are. Some build affordable housing as a regular part of the portfolio, e.g., Related Companies, and make a lot of money doing so. Other companies focus on it, e.g., WC Smith, and do a great job.

But the biggest problem is that residents (supported too often by elected and appointed officials) want to do everything in their power to restrict housing supply, which is counter to the stated objectives of keeping the city affordable. The reality of economics and markets is that they are not confoundable:

- Any report on housing policy needs to explain how economics works and that serious restrictions on supply increase prices

- that additions to inventory shape pricing only over very long periods of time--multiple decades, 30 to 50 year periods

- that new additions to inventory are always priced at the top of the market

- that neighborhoods with a greater variety of housing types and options tend to be more affordable and more resilient

- that subsidies, including density bonuses, can lower cost of new additions but only so much

- that every floor you knock off on a project to placate stated resident opposition to density has long term consequences and opportunity costs in terms of inventory, housing access, pricing and business income, personal income, sales, and property tax revenue streams for the city

- not enough do people discuss the benefits of growth, one is that adding density supports amenities development and provision which makes neighborhoods more attractive and convenient to live in, e.g., H St., Columbia Heights, Petworth, and Capitol Riverfront/Barracks Row are the best examples in the city, maybe on a different scale, Takoma, where the addition of small amounts of multiunit housing at the core have led to a significant strengthening of the retail offer, mostly restaurants sure, but also the addition of a hardware store, etc.

- plus more residents supports the provision of more robust and frequent transit

- which means that there should be density bonuses awarded to buildings in areas proximate to high capacity transit, especially Metrorail station catchment areas (one-quarter to one-half mile radius especially)

- land tenure issues in mixed use communities, specifically adding owner occupied housing to mixed use districts, specifically condominiums, may have unintended long term consequences in terms of quality of design and willingness of future owners to pay special assessments for upgrades -- get it right the first time or problems can result.

- condominiums can be a problematic ownership structure for smaller properties, or in lower income areas, as the properties age, and if there are problems on the part of owners paying assessments, and the increasing cost of maintenance leading to assessment increases, making it difficult to stabilize the properties.

- need for programs to assist funding improvements to small multiunit properties ("Tower renewal: The Watergate and Southwest DC, and Toronto" and "Deeper thinking/programming on weak residential housing markets is required: DC example, Anacostia")

- that a housing priority plan needs to consider different types of housing segments such as SROs, types of housing (co-housing, cooperatives), and mixed age multiunit housing as households age, etc. ("More on mixing multiple housing types within multi-unit buildings")

- that innovative programs to support housing inventory expansion through English basements and accessory dwelling units need to be created (Edmonton and other cities have grant programs to facilitate the construction of accessory dwelling units)

- the need to "encourage" developers building to the maximum density where allowable, rather than at lower densities that are matter of right, because they don't want to go through the community approval process, which takes more time

- encouraging properties to build add housing to commercial properties where feasible (think of the wasted space above the Safeway on Wisconsin Avenue NW in Upper Georgetown or the Walmart on Georgia Avenue NW)

etc.

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Below is the list of what DC's housing priorities should be according to the statement.  My reaction is still more, "yeah, yeah, whatever."

For example, in order to "meet the housing demand" and "equitably distribute housing" and "utilize areas near transit" you need to take practical steps as identified above.  Now, it's all nice language with little practical import.


● Meet the housing demand.​ Through the Comprehensive Plan, the District should forecast, plan for, and encourage the creation and preservation of a supply of housing (market-rate and subsidized affordable) to meet the demand at all income levels. The supply of housing should be sufficient to slow rising costs of rental and for-sale housing.

● Equitably distribute housing. T​hrough the Comprehensive Plan, the District should fight against segregation, foster equitable access to opportunity, and comply with Affirmatively Furthering Fair Housing (AFFH) priorities. The District should require that every part of the city participate in adding housing to meet the need for all income levels, with an emphasis on transit and commercial corridors.

● Best utilize areas near transit.​ When redevelopment occurs on blocks surrounding Metrorail stations and priority transit corridors, the District should, through the Comprehensive Plan, permit and encourage mixed-use developments of medium to high density. To the extent feasible, redevelopments involving increased zoning should include affordable housing in excess of what is required by inclusionary zoning

● Include families.​ The District should be a city that houses people of all income levels and of all household sizes, including families. Through the Comprehensive Plan, the District should promote the creation and preservation of 3+ bedroom units along with other housing types.

● Prioritize affordable housing as a community benefit.​ When rezoning or granting significant zoning relief, the District should affirm through the Comprehensive Plan that affordable housing (in addition to any underlying requirement) is the highest priority benefit and that other community benefits should be long-lasting.

● Preserve existing affordable housing.​ When redevelopment occurs on properties with housing made affordable through subsidy, covenant, or rent control, the District, Zoning Commission, and neighborhoods should work with landowners to create redevelopment plans that preserve such units or replace any lost ones with similar units either on-site or nearby. These entities should provide the necessary density and/or potential funding to ensure it is financially feasible to reinvest in the property with no net loss of affordable units.

● Protect tenants.​ Through the Comprehensive Plan, the District should ensure that when affordable housing is undergoing redevelopment, tenants have a relocation plan, are allowed to continue their tenancy with minimal disruption, and will have the right to return to their units or an equivalent replacement. Whenever feasible, redevelopment should observe build-first principles.

● Support neighborhood commercial corridors.​ Through the Comprehensive Plan, the District should encourage the success of neighborhood commercial corridors and locally owned businesses, especially in disadvantaged communities. This includes increased housing density that supports businesses and providing equitable opportunities for locally owned businesses in mixed-use and commercial developments.

● Clarify zoning authority​. Through the Comprehensive Plan, the District should affirm that the Zoning Commission has the purview to allow increased density for Planned Unit Developments that supersedes the levels in the Comprehensive Plan’s maps in exchange for community benefits.

● Improve data collection and transparency. T​ he District should provide the highest quality public data. It should standardize housing-related data collection across agencies, and release all data and forecast analyses to the public, to facilitate transparency and regular reporting on the status and progress of housing-related programs. Data should include a comprehensive housing database and demand-based forecasts alongside existing supply-based (pipeline) forecasts.