Posts in category Smart Growth

Very few people will keep a bike that long. The purpose of bike sharing is for short point to point trips, not long rentals. But a lot of folks initially placed the system into their mental box of "bike rentals," and evaluated it accordingly. That'll pass, if it hasn't already, once people actually get to try using it.

Last night, at a public meeting in Brooklyn Heights, a few residents argued against bikeshare stations on their streets. Bikeshare supporter Mike Epstein (who's also a personal friend) tweeted some of the objections from the meeting:

Has a single station in DC turned into a "place for people to hang out"? Not that I'm aware. But some people worried about that here, too.

A BID employee from Montague Street, in Brooklyn Heights, wanted to keep 5 parking spaces instead of add 39 bikeshare docks, while a MetroTech BID representative was pleased there aren't stations in their area.

DC residents know what will happen:

The system will open, and residents will realize that bike sharing is nothing like their worst fears. Neighbors will clamor for stations. Actually, many already are. Residents in Park Slope, which isn't getting Citibike yet, are eager for expansion.

Meanwhile, pass the popcorn.

Being in downtown Silver Spring less than a mile from the Metro, the 2½ acres the police station sits on are very valuable. Perhaps a better use for this site would be a mix of studio space and artist housing, not unlike Renaissance Square and the Mount Rainier Artist Lofts, two apartment buildings in the Gateway Arts District, or the Brookland Artspace Lofts, a building in Northeast Washington. All three buildings rent apartments and live-work units at subsidized rates to people who earn their living making art.

These buildings, which are each 100% occupied, offer artists who often have low incomes a quality place to live. According to the Census, the median rent in below-the-Beltway Silver Spring is $1206 a month, but actual apartment listings suggest that's only enough for a one-bedroom apartment. Meanwhile, a one-bedroom in the Brookland Artspace Lofts with studio space rents for $970, while a two-bedroom is just $1,205.

We could turn the police station into an arts center as proposed, but also build low-rise artist housing around it. A smaller community garden could be built, or it could instead be located in any of the 46 other parks in below-the-Beltway Silver Spring and Takoma Park. The lawn in front of the police station could still become a small public space for the neighborhood.

This proposal would cost more to build and may require public money. The Brookland Artspace Lofts in the District, developed by the same company that built the apartments in Mount Rainier, received $11 million in construction funding and tax credits from the DC Department of Housing and Community Development. If a funding source is found, however, artist housing could provide more customers for local businesses while developing a more substantial and diverse arts scene.

When I suggested this to Karen Roper and Steve Knight, two of the residents leading the push for the Station Arts Center, they were skeptical. "It's a little more unstructured and bohemian," Knight says. "I know one of the artists we talked to, she's married and has a house and a family." He wants to know "how strong of a need" there is for artist housing in Silver Spring.

"My neighbors ... bought their houses cheap" decades ago, says Roper. "They're looking for studio space." She notes that "two, possibly three" buildings with subsidized apartments will be built on Fenton Street in coming years, while a developer wants to renovate the Eagle Bank building at Sligo Avenue and Fenton Street into "microlofts," or small apartments geared at single adults.

One of the reasons the county may support the current Station Arts Center proposal is because of their experience with the new police station in White Oak. Plans to sell extra land around the station to build a mix of affordable and market-rate housing in 2009 were met with intense community opposition before they eventually backed down. Whether the county uses the old police station property to meet its affordable housing goals or make money by selling it to a private developer, dealing with angry neighbors will be inevitable.

That's why Roper and her neighbors are trying to start the conversation about development. "We wanted to get out there and make our pitch before somebody came in and did the same old, same old," she says. "I would like to see some imagination in this county. It's not about how much you develop, it's about how you develop."

Roper wants the Station Arts Center to distinguish Fenton Village from the rest of Silver Spring, calling it the "only thing that represents us and who we are."

As I've written before, having spaces for making art makes our community stronger. Even if I don't agree with every part of the Station Arts Center concept, I'm glad that neighbors are being proactive about what they'd like to see in their community.

That said, Karen Roper might be okay with a few more apartments if they allowed the neighborhood to keep its artistic flair. "I'd rather live in a dense, crowded place with artists and musicians," she says. "When you take that character away, you just have a bunch of crap next to each other."

Members of Pro-DC don't need to agree with every element of the zoning update. I don't. But we also believe that DC will grow and change regardless of public policy, and that our zoning should shape that growth in a positive way that improves the quality of life, increases amenities, and strengthens affordability for all residents.

In coming months, there will be some major battles over the zoning update that cut to the heart of how people see DC's future. These positive changes won't become reality unless decision makers hear from residents who share the vision. I hope you will join the email list, and ask your friends to do the same.

Systemic forces like white flight, black flight, redlining, blockbusting, wage stagnation created this problem, and numerous challenges impede reinvestment in neighborhoods like this one.

There are 2,232 addresses on the Department of Consumer and Regulatory Affairs' (DCRA) vacant and blighted properties list, the principal data source for the maps above. The list includes 4022 South Capitol Street as well as the two apartment buildings immediately adjacent to it.

These are not normal short term vacancies, simply between leases. They are the buildings that are unleasable in their current state of disrepair. Some are bank owned, some are city owned. Some have absentee owners, some have local owners who live in poverty and have no means with which to fix up their assets.

In some cases, the owner listed on the title is deceased and there are multiple heirs to the property. Many require a significant investment of time and money before they can again be occupied.

The purpose of DCRA's list is to identify targets for the District's first line of defense against dilapidated buildings: taxation. By threatening to raise property taxes to 5% for vacant properties and 10% for blighted properties, the city encourages the owner to either bring the property up to code or sell it to someone who will, probably at a price less than what the owner would otherwise be willing to accept.

Ultimately, if the owner neither takes action nor pays the elevated taxes, the property goes to tax sale and is awarded to the highest bidder. If no one bids, ownership rights go to the city, but that doesn't mean that a fresh title magically appears in the name of the District of Columbia. The District, like any other winning bidder, must first go through foreclosure proceedings, sorting through existing liens on the property and attempting to resolve any other title issues that exist.

In other words, no one, least of all the District government, wants it to get to that point. This approach is a relatively new, boutique initiative that seems to have promise, as Lydia DePillis has thoroughly described.

In the grander scheme of things, there are really three variables that affect the rehabilitation or redevelopment of nuisance properties:

1. Acquisition cost: the cost of purchasing the property, which may include substantial legal fees, and interest or investor payments on borrowed money.
   
2. Redevelopment cost: site preparation (potentially including demolition), design and construction costs, interim maintenance and taxes, debt payments.
   
3. Income from the redeveloped property: the income that the property generates once it is redeveloped and operational, whether in the form of net operating income if the owner chooses to lease it out, or income from the sale of the property minus any costs associated with the sale.

For redevelopment to make sense, the sum of the first two variables must be less than the third, and when it doesn't, the free market won't mitigate vacant properties and blight.

The first two solutions presented require a taxpayer subsidy. Is it justified?

It is easier to quantify the costs associated with rehabilitating blighted properties than it is to quantify the benefits. The broken windows theory suggests that blight can encourage and support illegal activities, but it is difficult to measure to what extent that is the case.

Blight may lower surrounding property values and deter new investment. It can also contribute to the stigmatization of a neighborhood if dilapidated properties are seen as representative of the entire community. Across the country, the consensus seems to be that investing public funds in individual nuisance properties in order to battle the negative effects of disinvestment is a worthy cause.

The Gray administration, like previous administrations, uses a combination of the three strategies discussed in the previous graphic to combat long-term vacancy and blight, though there seems to be an intentional focus on Solution #3. Dedicating a greater share of energy and resources to large-scale economic development projects, which in Ward 8 tend to revolve around St. Elizabeths, is certainly a more glamorous approach and it probably will have a greater impact on the District's bottom line in the long run.

However, it is interesting that there has not been a more coordinated, ambitious, or heavily-funded government proposal for dealing directly with vacant and blighted properties where they are most concentrated. After all, this is the topic that Ward 8 residents ranked as their top development-related priority at the Ward 8 Community Summit, and unfortunately it is an issue that will forever be intertwined with the tragic events that occurred two years ago at 4022 South Capitol St SE.

To most, the bellwether of neighborhood change in the city is and always will be, rightfully or wrongfully, ethnicity. Through my eyes, however, it's graffiti. I read the winds of demographic change by literally reading the writing on the walls that align the Metro's Red Line, or lack thereof.

Earlier this year, the long-standing "BORF" tag was buffed from the Takoma Metro station by the proprietor of Visions Lighting, Inc. Little as ten years ago graffiti dominated downtown buildings. No longer.

Reached by email, Roger Gastman, a former frequent of the Rhode Island Avenue warehouse rooftops and author of Free Agents: A History of Washington, DC Graffiti, wrote, "I don't really have much to say—it's just part of what happens to all graffiti spots!"

With the mixed-use development of adjacent Rhode Island Row a new day is dawning for the neighborhood. For many decade-long riders of the Red Line adjusting to the new sights will take some getting used to.

And that's a good thing no matter how you look at it.

First wave of subsidies reap healthy return

Most pre-recession subsidies were made through tax increment financing (TIFs), in which future gains in sales and/or property taxes from a development are used to repay bonds that finance a developer subsidy.

Each of these TIFs are repaying to the city well ahead of schedule, providing needed funds for schools, social services and other cash-strapped priorities in DC.

Many of these projects were harshly criticized at the time as corporate giveaways. So the speedy repayment of these subsidies lends credibility to the arguments of their proponents, such as Councilmember Jack Evans and former Mayor Williams, and to TIFs in general.

Project	Year	Subsidy	Performance
Spy Museum	2001	$6,900,000	Paid in 2007 instead of 2014
Gallery Place	2002	$73,650,000	Returned $15,175,861 to city above debt payments
Mandarin Oriental Hotel	2002	$46,000,000
Embassy Suites	2003	$11,000,000	Paid in 2011 instead of 2016
DC USA	2004	$40,000,000	Estimated to be paid in 2015 instead of 2026
Capitol Hill Towers	2006	$11,500,000	$2.4 remaining, matures in 2029

These TIFs were successful because they were designed in accordance with two principles of effective corporate subsidies. As will be seen below, present-day corporate subsidies haven't always followed one or the other of these two principles.

1) Focus on knock-on benefits: Advocates for corporate subsidies often appeal to the tax revenue that would be lost if a developer doesn't build a building or a company chooses not to locate in one's city. Successful subsidies, however, are more focused on knock-on benefits that are strategically important to a city's finances.

Granting subsidies so that a company's activities—developing a property, locating in one's city—will yield tax revenue only encourages rent seeking by all companies who develop a property or choose to locate in the city.

When the desired activity is to locate in one's city, a "race to the bottom" ensues between states which only hurts their collective ability to pay for education and social services.

That's why effective subsidies are designed to yield knock-on benefits that support a city's strategic goals, like developing a particular sector or a particular part of the city.

The first wave of TIFs were intended to steer the development of downtown away from office buildings and towards multi-use. As Councilmember Evans explained it, "The highest [revenue] use is an office building but then you end up with a Crystal City complex which I can't stand."

The knock-on activities—more downtown residents and more downtown shoppers—the downtown TIFs triggered are not only strengthening those investments, but also producing tax revenue from downtown in many other forms. That's what happens when knock-on benefits are the goal, not the direct tax revenues of an investment.

2) Narrowly target subsidy to yield knock-on benefits: There are always risks with corporate subsidies. The company could pick up and leave without it, or maybe they would have completed the project even without the subsidy.

That's why it's critical to limit a city's exposure. Subsidies are investments, and investments have risks. The DC CFO narrowly targeted the first wave of TIFs to be only as much as is needed to stimulate the intended knock-on benefits for the city.

For each TIF application, the CFO conducted a gap analysis. This analysis compares the amount of private financing that should be available for a development to the costs of the project. The CFO would only certify TIFs at that subsidy amount. The head of economic development finance for the DC CFO, John Ross, explained the process this way:

CFO had to do a certification, and that certification had to include a list of issues. One of them was whether the TIF would cover the debt service payments. One was whether the project would move forward without government support. One was the level of benefits of the TIF that would go to the community. Without that, the TIF could not even go to the Council.

While time-consuming, such a process ensures that subsidies are narrowly targeted to yield the benefits intended.

Present-day subsidies often veer from principles of early TIFs

If the District's first corporate subsidies have reaped such healthy returns, several present-day subsidies veer from the principles behind the successful subsidies.

Some recent large TIFs, like Southwest Waterfront and O Street Market, as well as the proposed LivingSocial tax break, don't follow these principles.

There has been no financial gap analysis for more recent TIFs. Without ensuring that any financing gap actually exists, DC doesn't know if development projects would have happened anyway and it risks overpaying.

The first wave of TIFs were granted under the TIF Authorization Act of 1998 which required a thorough financial analysis and certification by the CFO.

Though no longer empowered to certify TIFs, the CFO still provides financial assessments of TIF applications to the Council and Mayor. These assessments raised particular concerns about 2 TIFs: City Market at O Street and the Southwest Waterfront.

Project	Year	Subsidy
City Market at O Street	2008	$46,500,000
Southwest Waterfront	2014	$198,000,000

The CFO, in his assessment, complained that both the O Street and Southwest Waterfront TIFs were being granted with less information about the project than would be required to issue a complete financial evaluation. There were no final plans or cost estimates for either project.

In fact, neither application included a specific financial commitment from the private developer, making impossible any analysis of the necessary size of the subsidy. The O Street application said that the developer for the hotel hadn't even been identified yet, even though the hotel was supposed to provide 44% of the incremental tax revenues to repay the bond.

While the CFO's office was included in negotiations with the developers after raising concerns in their analyses, the process for granting these TIFs was clearly intended to increase speed at the expense of financial scrutiny.

More recently, the proposed LivingSocial subsidy of up to $32 million to remain and consolidate their operations in the District also veers from proven principles of corporate subsidies.

Proponents of this subsidy often appeal to the tax revenues from LivingSocial that will far exceed this subsidy. Paying for tax revenue, however, only rewards companies who threaten to leave while encouraging a race to the bottom between states competing for companies.

The LivingSocial proposed subsidy is intended to be targeted. The subsidy doesn't begin until 2015 and scales based on the number of DC residents employed, which must be at least half of LivingSocial employees.

But are these jobs that we should be paying for? They aren't strategically aligned with the needs of the city's unemployed, and most of the jobs won't contribute to building a tech sector.

According to a source, only 15% of LivingSocial jobs are in technology, IT, and product development. A subsidy that was targeted to generate knock-on benefits that are strategically important would thus focus on retaining that 15% of LivingSocial positions.

The debate around corporate subsidies is too often dominated by loud voices at the extremes. But experience shows that corporate subsidies can work, and they can also be a waste of precious dollars.

The next time you read of a proposed corporate subsidy, avoid these hyperbolic extremes and ask if the subsidy adheres to these two proven lessons for effective subsidies. If it does, defend the administration that proposes the subsidy, If it doesn't, as recent subsidies have not, then ask questions.

I asked the author of the report, Jenny Reed, whether she'd thought about the land use aspect of affordable housing. She said that she's interested in it—mentioning New York City's consideration of changing its zoning to allow for micro-apartments, which would be useful in D.C. as well—but hasn't done much research. It's time to do the research. You can't pretend to have a holistic housing strategy without addressing one of the biggest reasons why we don't have more of it.

DePillis wonders if this partly stems from a cultural divide; affordable housing advocates may not want to stand on the same side as developers. I suspect there's another cultural divide as well: folks in the affordable housing movement don't seem to be as comfortable talking in economic-speak.

Just subsidizing housing doesn't solve the problem

On the one side, we have a group of people, like Matt Yglesias and Ryan Avent, explaining rising housing prices based on economics. In DC, zoning and federal laws limit the supply of housing. Demand has risen, and therefore prices are going up.

If you give one group of people money to afford that housing, it only means that the recipients can now outbid someone else, but you've just substituted one group of residents for another. A city could simply redistribute housing from the rich to the poor (at considerable expense), these folks say, or it could grow the pool of housing so that both sets of aspiring residents can live here.

Affordable housing groups have not engaged with this argument on the economic plane. They make compelling emotional arguments about people who can't afford to stay in their neighborhoods, and there's a strong case to make that completely segregating society into rich places and poor places doesn't make for very healthy communities. But none of these arguments fundamentally address the supply-and-demand argument.

Just building housing doesn't solve it either

Avent, Yglesias, Ed Glaeser and others recommend that cities relax restrictions so that property owners can build more housing. The principle of supply and demand would suggest that the prices of housing would then decline.

We absolutely should add more housing. It's the right thing to do, and it's good for DC economically; more residents means a stronger tax base, more patrons for local businesses, and more.

But just as government programs on their own won't fix the affordability crisis, neither will just building more housing.

The housing market isn't quite the simple supply-demand graph of basic economics. For one thing, housing is not all the same. It's a continuum of products and demand at different price levels.

The problem with "just build more" is that there is unmet demand at most levels of the spectrum today, including at the top end. Understandably, most property owners want to build the most lucrative housing they can, which means that new construction generally satisfies the top end of the market first.

If one could wave a magic wand and create massive new housing instantly, the entire market might get saturated and everyone could find housing. But that's not realistic. We're not going to abolish zoning tomorrow, and shouldn't. Building takes time, and developers need to find financing, which is very limited, Yglesias notes.

Also, it costs money to build housing. At some price point, it's not worth it to build an extra unit. The taller buildings get, the higher that point. In cities with lots of empty land, this is what "affordable housing" program are: subsidies to build a building in a place where the market would not build any housing on its own.

DC has some of that land east of the river, but residents there understandably feel that they've already accommodated more than their share of lower-income housing. If one goal of affordable housing policy is to create multi-income communities, then putting more affordable housing in the poorest parts of the city doesn't help.

Where can both sides agree?

This is why inclusionary zoning was, and is, a great policy. It raised the cap on housing construction in places with significant demand and high housing prices, but forced at least that small increment to satisfy some demand at various points on the price curve. In practice, though, inclusionary zoning can make at most a very small dent in the overall problem.

DePillis concludes, "[Building more housing] should be a place where the two sides make common cause with one another." We do need economists and affordable housing advocates make common cause. Just saying, as some commenters have, that everyone outside the top earners should just move to Bowie is not a housing policy. It'll lead to greater segregation and ultimately greater conflict between rich and poor. It creates terrible transportation and land use problems, as the people least able to afford it have to drive the farthest and commute the longest. It's simply unfair.

"We just need to crank up the government subsidies" isn't the answer. "Just eliminate all restrictions on building and let the market sort it out" isn't, either. It's not clear what the right answer is, but we need affordable housing groups thinking about economics and economists thinking about human factors to figure it out.

How does HPAP work? HPAP is the District's homegrown downpayment assistance program which provides up to $44,000 for first-time, low- and moderate-income home buyers. HPAP acts as a second mortgage. Recipients begin paying their loan down starting in year five of owning their home and make monthly payments over a 40-year period instead of the traditional 30-year period, making the payments more affordable. As HPAP recipients repay their loans, the city recoups the cost, which currently generates $2 million in repayment every year.

Although beloved by politicians and residents alike, HPAP has dwindled since 2008. The program in FY13 is slated to be only a third of its size only five years ago. As a result, the number of people who can use the program has fallen. And this year, the decrease will impact about 100 families. According the DHCD, last year the program served 246 families, next year it will serve around 150.

The city has used federal funding to maintain the HPAP program, relying heavily in recent years on stimulus dollars, but this year, federal funds are not available to fill the gap. The federal Department of Housing and Urban Development's grant programs that have also funded HPAP also dwindled; its HOME program shrank 37% in 2012, and its Community Development Block Grants (CDBG) dwindled by 12%.

Also, the 2010 Census made DC is eligible for less CDBG funding, since the city has fewer high poverty areas than in previous years. All of these combined losses have left few funds available for housing programs like HPAP.

In April, more than a dozen HPAP recipients attended the DHCD budget oversight hearing to advocate for the program that has helped them become District homeowners. Attendees highlighted the diversity of residents impacted by the program.

Elizabeth Palmberg purchased her home with an HPAP loan, only to be diagnosed with lymphoma soon after. She has been able to afford her mortgage despite her health struggles; "the HPAP program helped me to be able to still buy my condo, and now every month as I write my mortgage check, I am grateful to be building equity which will give me stability against shocks that life might send my way in the future."

Bernice Joseph was able to purchase her home in Logan Circle in 2002 and has no plans of leaving the neighborhood. She loves the convenience, and believes that HPAP has had a huge impact on her family and her educational opportunities. "Without this program I do not know where I would be. But I do know I would not be in my neighborhood, the one that is so dear to my heart, the one where I have put down roots, and the one where I have lived for the past 21 years. I have raised all four of my kids in DC. Without the stable price of my mortgage, I would not be able to afford to go back to school. I definitely could not afford my classes if I had to pay market-rate rent."

The value of homeownership of course extends beyond the individual. Homeowners pay property tax back to the city and provide an anchor for communities. Homeownership is an indicator of success for families and kids across the country and one of the most important wealth-building tools in our country, especially in communities of color and low-income communities. A 2003 study found that housing wealth accounted for 77% of all low income household's wealth.

HPAP has supported District residents and communities by encouraging homeownership, neighborhood stability, and equity building. This year, the program will become even weaker after years of reductions. The DC government should encourage residents to become homeowners, to invest in their communities and themselves by supporting the HPAP program with local funds.

Sarah Scruggs contributed to this blogpost, which can also be found at www.housingforallblog.org.