Let the market decide how to redevelop public land
Residents and community leaders are unhappy with the District's chosen developer for a city-owned property at 965 Florida Avenue NW in Shaw. Instead of choosing a development scheme behind closed doors, could DC just auction it off and let the market decide what's best for it?
The winning proposal. Image from MRP.
Last week, the Deputy Mayor's Office of Planning and Development (DMPED) selected a proposal from MRP Realty, Ellis Development Group and Fundrise to build apartments and a market over one from the JBG Companies, Gragg & Associates, and Moddie Turay Company to build housing, offices, a hotel and a Harris Teeter supermarket.
Advisory Neighborhood Commission 1B, of which I am a member, voted for JBG, which many residents preferred. But we did so without knowing an important piece of information: the price that each development team offered DC taxpayers. Neither bid has been made public, but DMPED's spokesperson said that MRP's was higher. By ignoring how much the bids are, politics, not the best use, decides how DC allocates public land.
In 2008, the city appraised the 1.45-acre parcel at over $17 million, and land values in this neighborhood have climbed considerably since then. Despite the high demand for space in the area, the price that either developer bid did not factor into the public discussion about a taxpayer asset. Instead, during the process each developer presents a development proposal, and the price is only revealed in closed-door discussions with DMPED.
DC law says that the ANC, a neighborhood-level governing body that makes recommendations on local land use and licensing issues, is entitled to "great weight" in determining which developer purchases city land. This means that if DMPED chooses to award the site to Ellis Development Group, it must explain why it went against the ANC's recommendation.
Rather than soliciting proposals for city-owned land disposition, DMPED should simply auction off government land to the highest bidder. The current process has two primary flaws. First, it invites lobbying from developers in an attempt to win land deals for their firm. Earlier this month, WAMU did a series on the city's land disposition practices, revealing that it has sold $200 million of land for near-zero prices in the past five years.
In many cases, city-owned land sells for a price well below market value based on the assumption that the projects will provide affordable housing and jobs for DC residents. But as the series points out, sometimes these promises fail to materialize, and some of the developers who have purchased valuable city-owned land for a song have also made large contributions to mayoral and council campaigns.
Once the city awards a parcel to a developer, the price that the winning firm pays will become public record, but the price offered by the competing firm will not. Closed-door conversations between DMPED and developers create an opportunity for corruption in which politically-favored firms win land deals over firms who would provide the development that residents are most willing to pay for.
Second, removing the price system from land use decisions prevents residents from getting the type of development that they want. Land prices indicate where customers want to live and work and which areas have the greatest demand for new buildings.
By removing the price system from city-owned land, DMPED also removes the signals that show developers what kinds of residential, office, and retail space their consumers are willing to support. And selling land at below-market rates dampens the profit and loss signals which tell entrepreneurs whether or not they are correctly interpreting this demand, limiting the ability of the city to evolve to meet residents' needs.
Land disposition presents an appealing tool for policymakers to provide benefits to their constituents without using general fund revenues. But selling city-owned land for below market rates turns the request for proposal process into a beauty contest. Developers compete to make their projects look like opportunities to achieve policymakers' goals instead of on the price they are willing to pay for a taxpayer asset.
Rather than issuing a request for proposals, the District should simply auction surplus land to the highest bidder, permitting land to go to the highest value use as determined by the market process. Public policy goals should be carried out through direct subsidies that are more transparent and preserve price signals in the market for land.
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