This post on the housing market is in continuation to posts here and here. Emily Hamilton has an article in the latest Works in Progress that examines the success of Washington DC in increasing housing supply by promoting buildings around transit corridors. The post illustrates how urban planning decisions, while apparently not seeming to have much effect in the short-term, can have decisive long-term consequences.
San Francisco captures the housing market problems
In a particularly important case, the San Francisco Bay Area, house prices grew 932 percent in the past 40 years while overall consumer prices increased by 329 percent... Four US metropolitan areas in particular – Los Angeles, San Francisco, New York, and Boston – have become increasingly expensive, thereby pushing out low- and middle-income families as higher-income in-migrants outbid them for a stagnant supply of housing.
The consequences of DC's decision to deviate from the trend and strike out on its own and ease zoning regulations more than half a century back are being felt today.
DC’s relative success can be traced to a few decisions made decades ago. In the 1970s, policymakers in Arlington County made a decision to adopt what’s known as ‘transit-oriented development planning’ ahead of the opening of DC’s Metro Orange Line, which runs between Arlington and Prince George County, Maryland (via DC). Arlington policymakers identified that zoning for apartment construction in commercial areas could bring in property taxes and help balance the budget without the level of controversy of changing zoning in existing residential areas... Like most suburban localities, Arlington’s first 1930 zoning ordinance restricted development on the majority of its land to single-family development with lot-size requirements of 5,000 square feet or more. However, beginning in the 1960s, Arlington deviated from other suburbs of coastal cities and began creating new opportunities for apartment construction... Planners engaged residents and developed a ‘bull’s eye’ plan for permitting dense development around... the existing commercial centers in the Rosslyn, Court House, Clarendon, Virginia Square and Ballston neighborhoods...
The quarter mile of land closest to the stations was intended for the most density. Today, several buildings stretching over 20 stories stand within these narrow radiuses... Today, much of Orange Line Arlington is surrounded with high-rise residential and office towers, but this transformation took time to emerge... In 1980, a Washington Post article bemoaned the difficulty of redevelopment in Clarendon, ‘a patchwork quilt’ of small parcels, many of them with long commercial leases. By the end of that decade, a large office building would flank the south side of the Metro station. Then, finally, in 2010, the entire block east of the Metro would be redeveloped with an award-winning Art Deco-influenced office, residential, and retail project... Like every locality, some of Arlington’s commercial developments became decrepit over time or are no longer the best use of their land. But the county’s zoning makes it possible to replace buildings in decline with more productive ones. For example, Arlington had a dead mall that has received an extreme makeover. It was the country’s first to have a multistory parking deck, but was suffering from high vacancy when a renovation plan was approved in 2015. The new mall includes many food- and experience-focused vendors – things customers can’t buy online – as well as 300 apartments...
By planning for apartments in some of the commercial areas where it’s politically easiest to allow it, the Washington, DC, Metropolitan Statistical Area has facilitated more housing construction than most other ‘superstar’ regions in the US. It has seen more than twice the growth in its housing stock over the past 20 years of the Bay Area. In economics terms, the DC region has more elastic housing supply compared to most of its peers...
Among superstar metros, only Seattle has achieved a housing supply elasticity greater than DC’s, and then only slightly. Like DC, Seattle has pursued a transit-oriented development strategy with its Urban Villages plan, which has zoned for large apartment buildings in about two dozen neighborhoods throughout the city. Some of Seattle’s suburbs, including Bellevue, have also, like Arlington, been more open to apartment construction relative to the suburban jurisdictions surrounding other superstar principal cities.
In 1957, the County Office of Planning identified a fiscal imbalance, following a period of rapid population growth. The county was not collecting enough tax revenue from its single-family housing to cover rising public expenditures. The report found that households living in apartments contributed 25 percent of the county’s revenues and required 21 percent of its expenditures, while people living in single-family housing contributed 48 percent of county revenues and required 68 percent of expenditures, with commercial development making up the balance of each.
Housing market suffers from several failures. The biggest problem is that supply is constrained by the fixed supply of land available to build, and allocation is distorted by the demand for the higher income group and for housing as investment. In the circumstances, the only way to meaningfully expand supply is to build upwards.
Simultaneously, there should be efforts to tax the negative externalities. Accordingly, building permission fees and property taxes should be higher for individual housing units (say, beyond a threshold unit size), and they should decline progressively for more vertical developments.
It's important to break-out of the immediacy trap of short-term fixes and adopt urban planning policies that seek to change behaviours and shape trends, so as to improve the future of urbanisation. Wicked problems like housing affordability have no immediate or single solutions. Instead they require a combination of different solutions and hunkered implementation over a long time.
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