When Real Estate Needs Change Faster Than Building Cycles

A while ago, some asshole with a blog observed that there is a mismatch between what is being built in D.C. and what is actually needed:

But what’s really ridiculous is that, even as the need for office space is declining, we’re building about the equivalent of 1,800 two-bedroom apartments worth of offices. In fairness, zoning laws often won’t let builders put up housing, but this is when one wishes libertarians would actually doing something useful, and get D.C.’s zoning regulations changed.

The Grey Lady finally noticed this (boldface mine):

In a 43-square-block portion of the booming central business district, there are just 23 residential units, condos in a row of four late-19th-century townhomes on Jefferson Place, just south of Dupont Circle. It’s a minuscule number compared with the 33 million square feet of office space in the same area.

With construction cranes for new office buildings dominating the skyline, owners of older buildings may face a choice: Upgrade to current standards to compete — an expensive proposition — or convert to residential use…

To encourage conversions in the nation’s capital, where the office vacancy rate is around 11.4 percent, the district’s Council members are considering legislation to provide a tax abatement of up to $20 per square feet for 10 years, capped at $5 million a year. The DowntownDC and Golden Triangle Business Improvement Districts, two adjoining associations of property owners that represent the area, back the legislation…

An estimated 89,000 people work in the so-called Golden Triangle, an area of prime real estate that extends from the White House to Dupont Circle. The hope is that conversions will give it more of a 24-hour neighborhood feel…

In the Golden Triangle, 77 percent of the office buildings were erected from 1960 to 1990. Ms. Agouridis suggested that owners must soon decide whether to demolish and rebuild or renovate them to the higher Class A or premium Trophy building standards.

One thing to note about the Golden Triangle: it used to be chock full of housing. For most of its history it was residential. Back to some asshole with a blog:

Historically, D.C., after the riots, destroyed a lot of housing and turned into office space (e.g., South of Dupont Circle). Cities often did this as they lost population, since office space can generate a lot of taxes, while having relatively few expenses (e.g., no kids to educate). That probably was the only way cities could survive after the flight of manufacturing in the 1960s, and the massive federal defunding starting in the late 1970s. But we’re paying for it now, as cities desperately need more housing.

Between 1950 and 1975, D.C. lost thirteen percent of its population (100,000 people). By 1997, D.C. had lost thirty percent of its 1950 population (over 215,000 people). No one thought for a very long time, that D.C.’s population would rebound (in the last ten years, the population has increased by 107,000 people). There is history that needs to be overcome here, as the zoning laws and governmental culture* are still catching up to the new reality. While one should always keep an eye on the D.C. Council and the mayor, it seems like the initiatives they’re pushing to convert offices to apartments might work (though the devil is in the details). This might work.

*One noticeable example is that D.C. government is still far too automobile focused. That was fine in the 1980s and 1990s when the city was comparatively empty. It doesn’t work very well in 2018.

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