Market Urbanism

Liberalizing cities | From the bottom up

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DC Office of Planning releases an underwhelming study of proposed new streetcar network

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Last week the DC Department of Transportation DC Office of Planning released a Streetcar Land Use Study describing the impacts that the proposed DC streetcar network will have for the city. Greater Greater Washington accepts the study as proof that the streetcar will be great for DC. The report is full of the feel-good economics that really bothers me about Smart Growth in general, and I think that this sort of treatment of the trade offs of public policy hurts the urban agenda in the long run.

The study finds that the streetcar will pay for itself by raising the property tax base. From a Smart Growth perspective, though, this is a problem because it will make housing less affordable. The study suggests that inclusionary zoning will provide the necessary affordable housing after the streetcar raises property values. Current zoning laws require new multifamily buildings with 10 or more units to comply with inclusionary zoning requirements for low-income housing. As Stephen has pointed out before, inclusionary zoning is just a more complicated policy that ultimately has many of the same unintended consequences as rent control or subsidized housing. Subsidizing the cost of housing for a select group necessarily makes it more expensive for those of all income levels who are not lucky enough to secure this subsidy. Forcing developers to provide this subsidy does not change its economic impact on those who are left paying market rate.

DDOT  The Office of Planning predicts that by far the greatest gains in real estate value will accrue to property owners within one quarter of a mile of the stops along K Street (see graph on page 24 of the study). It’s important to note that the vast majority of these gains will be realized in higher per-square-foot prices rather than new square footage since that area is just about built up to what the Height Act will allow. Are K Street building owners really a group that we DC taxpayers want to be subsidizing? If in fact this project would create over $3 billion in value for these property owners by raising the value of existing buildings and spurring new development, the Downtown DC BID should be clamoring for the opportunity to build it. This should present an opportunity for the city to lease the rights to the BID to construct and operate a streetcar that would be profitable, benefit downtown transit users, and raise the property tax base as a result. The study does allude to potential opportunities to seek financing help from developers, but it’s shy on specifics. Additionally, private funding for a public project carries the risk that the project will take on the “monstrous hybrid” characteristics of a public private partnership that Jane Jacobs warns against in Dark Age Ahead, benefiting private interests at public expense.

In lower-income areas where private funding will not likely be available, this public investment amounts to picking winners and losers among neighborhoods; what makes H Street more deserving of the first line over other transit-starved neighborhoods? By allowing private streetcars to determine the placement of lines, we can be sure that better incentives are in place to determine where these lines will be most useful, and the profit and loss mechanism will provide feedback along the way.

The study emphasizes DC’s history with streetcars that operated from the 1800s through 1962 but downplays that these lines were operated by private companies that were gradually regulated out of existence. A new publicly operated system represents a significant break from this history. Privately operated streetcars internalize the risk and reward of this investment, whereas a publicly funded project disperses the risk among DC taxpayers.

Conspicuously missing from the study is any evaluation of DDOT’s performance in building and running streetcars thus far. The H Street line is currently way behind schedule, and the project’s Buy America requirement is complicating even the procurement of the cars. The years long construction project was welcomed by many along the H Street corridor as it has resulted in private investment pouring into the neighborhood; however, if streetcar construction experiences such extreme delays on K Street or M Street in Georgetown, two of the most congested streets in the city, public opinion could easily turn completely against the project.

I certainly think that the District can support improved transit options, especially in light of growing frustration with WMATA. However, I’m not convinced that DDOT is a more competent bureaucracy based on the H Street results. If the study’s predictions of the economic impacts that a streetcar could have are correct, this project represents an opportunity for DC to really turn back to its transit roots in the form of private streetcar companies operating profitably.

  • AubreyO

    Hmmm, this was NOT a DDOT study, but an Office of Planning study on the land use impacts of the proposed new Streetcar network. There are many other issues to raise with your comments, but let’s start with the most conspicuous error.

  • Emily Washington

    Aubrey, thanks for pointing out that blatant error — corrected above.

  • Boris

    Are there any of these old private lines that would have been profitable by themselves using modern accounting techniques? Every former private streetcar line in the US from that time period that I’m aware of either A. used the line as a loss leader to make money on real estate development and B. did not account for depreciation – so the lines were “profitable” only until the original capital infrastructure wore out. It’s similar to saying that pension funds for worked fine for X private firm right up until they had to be bailed out and taken over by the PBGC. There was nothing working fine in either case – they simply didn’t account for all costs, yet this wasn’t clear until a generation later.

  • Emily Washington

    That’s a good question to which I do not know the answer. I would agree that in your Case B, the streetcars clearly cannot be considered profitable. However in Case A, it seems to me that in some cases it could make sense to vertically integrate transit and real estate development. In this situation, it could be possible for the streetcars themselves to make losses but to be profitable for the firms owning them if they sufficiently increase property values. 

  • Boris

    Oh, absolutely, it would make sense to do some vertical integration, a la Hong Kong. However, that’s not what ever happened in the US (as far as I’m aware). It was more analogous to a modern HOA situation, where the real estate development company builds transit out to an area where it is *selling* all properties, then spins off the line as a separate entity. There isn’t any thing wrong with that, per se, but in practice what happened was that the fares for the transit were *always* priced below the true break even point (when you include depreciation, etc), and it was impossible for that new entity to then raise prices high enough to fill the piggy bank for when stuff started to break.

    If we’re talking about vertical integration with transit and rental apartments or offices or similar, then yes, that could potentially work. That said, that’s not really a whole lot different from the property tax districts set up to fund the Seattle or Portland streetcars in practice.

  • Boris

    Sorry – should have said “spins off the line as a separate entity after all properties are sold.”

  • Emily Washington

    That’s interesting, I would like to learn more about the history of US streetcars. Is there reading that you would recommend on that? 

    Is there a reason that the buyers didn’t realize the lines wouldn’t be profitable in the long run other than entrepreneurial error? 

    As I see it the problem with the property tax districts is that they introduce bureaucratic inefficiency and political interests into providing streetcars. But, as I understand the Portland and Seattle financing they might have some advantages over the DC proposal since they rely on local improvement districts, so the streetcars’ costs are aligned more closely with the property owners who will receive their benefits. I believe though, that the local improvement districts have provided a relatively small share of the funding, right?

  • Eric

     “The study finds that the streetcar will pay for itself by raising the
    property tax base. From a Smart Growth perspective, though, this is a
    problem because it will make housing less affordable.”

    That’s not necessarily correct. A higher tax base means that more money will be paid overall for rent or house purchase. However, if the streetcar leads to denser building, then housing expenses will be spread across more people, and the amount paid by each person will not necessarily be higher.

  • Emily Washington

    That’s a good point, Eric. The study suggests (and I agree) that it would be a combination of the two effects

  • Emily Washington

    That is, in locations along proposed lines where current zoning allows for increased density it would be a combination of the two effects. Where increased density is not permitted and no upzoning passes, the entirety of increased taxes would come from higher per-square-foot rates. 

  • Claude

    It was difficult to operate a streetcar on a profitable basis for a number of reasons. Mostly involving government.
    One was the intensive involvement cities had under the streetcar’s charter. The city council had a lot of authority over labor conditions in the transit company, making it difficult to control labor costs. The city council also had to approve fare increases or changes in service, and more voters rode the streetcars than owned them, making fare adjustments very difficult.
    And in many cities the streetcars were required to maintain their right of way at their own expense, frequently from curb to curb. Not only were they providing the infrastructure to run their own streetcars, but also the roads used by the jitneys and other competitors.
    In the modern world a for profit streetcar would face direct competition from government mandated, constructed and financed roads, paying not only income but also property taxes while the roads are exempt from such costs.
    And while the streetcar is paid at point of contact, the automobile is paid for separately from operation, so the perceived costs of driving are much lower than actual costs.
    It would be very difficult to compete against so many advantages when even defining what an even playing field might look like would be nearly impossible.

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