Too Many Offices And Too Little Housing: The Market Is Responding Poorly

A while ago, some asshole with a blog noted this about the D.C. real estate market:

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 do something useful, and get D.C.’s zoning regulations changed.

And the historical cause:

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.

So it was good news when the D.C. Council started to work on legislation that would make it easier to convert office buildings into housing.

Now D.C. bidness owners are getting ancy (boldface mine):

The blockbuster sale might suggest that D.C.’s office market is thriving — but it was actually an anomaly. Beyond the glassy walls of 900 G St., more than 5 million square feet of office space sits empty in a large swath of downtown D.C. Fearing a damaging drop in property values, two groups are calling on lawmakers to do something about it.

Business improvement districts (BIDs) in Downtown D.C. and the Golden Triangle are renewing calls for the city to help turn old office spaces into housing. The 2017 State of Downtown report, released Friday by the DowntownDC BID, highlights a 2017 bill that would give tax breaks to property owners who convert downtown office buildings into apartments. Introduced last year, the bill is still awaiting markup…

It’s not easy to persuade developers to build apartments downtown, the report says, because they make far more money erecting luxurious new office buildings like 900 G St. (High-end offices are bait for law firms and other deep-pocketed tenants for whom appearances matter.) But putting up new offices downtown is only worsening the vacancy problem, which is one reason why the business improvement districts say it’s time for the city to step in.

And the problem is worse in the burbs:


That seems bad. For all I know, this is a D.C.-specific phenomenon, but if this is occurring nationally, then it’s certainly going to make a Minksy moment, if it happens, even worse. And if these buildings are overvalued fraudulently (i.e., if they’ve been collateralized), that’s the kind of thing that can act as a proximate mechanism to kick off a Minsky moment.

Free market signals are awesome. Or something.

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