Part 2: The Economics of Speculation, Demolition and Displacement- A Worsening of Washington DC’s Affordable Housing Crisis

For decades local DC officials have designed their housing policies around a broader economic development policy rooted in the belief that the government’s primary responsibility is to help developers inject capital (money) into neighborhoods. The way the government aides in this capital injection is by subsidizing large scale development projects as part of broader “community revitalization” schemes. The idea is that flooding the private market with public assets and government subsidies will result in an avalanche of capital investment. This capital investment will theoretically produce enough corporate largess to have a trickle-down effect on the housing market. The theory continues that this trickle down will create enough affordable housing to meet the demand of low- and moderate-income renters. Obviously this has not happened; instead, these policies have led to the demolition of affordable housing across the District and widespread displacement of working-class and low-income residents.

An in depth investigation by WAMU found that between 2003 and 2013 the District gave away a staggering $1.7 billion in subsidies to private developers. In return for these massive giveaways, both politicians and developers promised affordable housing and jobs for District residents- promises which, in many instances, never came to fruition. The policy decision to transfer billions of dollars of public money and resources to private developers- in the midst of an affordable housing crisis- has essentially had the effect of pouring gasoline on the already burning hot housing market. According to a study conducted by the DC Fiscal Policy Institute (DCFPI), over the same timeframe that DC enriched developers with the $1.7 billion, the number of low-cost rental units in Washington DC fell from about 58,000 in 2002 to around 33,000 by 2013, a loss of about half of its deeply affordable housing stock. Conversely, during the same time period, the District saw its high-cost housing stock nearly triple in size, growing from 28,000 units to 73,000 units. As the DCFPI study points out, these numbers suggest the low-cost units were eliminated and then replaced with high-end units. The result? Surging housing costs and the ensuing housing instability for tens of thousands of District residents.

The magnitude of this affordable housing loss cannot be overstated. According to the District, between 2015 and September of 2022, a total of 9,063 units of affordable housing were produced. At this level of affordable housing production, it would take roughly 20 years just to replace the affordable units lost between 2002 and 2013. To understand the human toll of these revitalization schemes, it was roughly during this same time frame (2000 to 2013) that more than 20,000 black residents were displaced from Washington DC. These numbers are staggering, and yet there is no evidence to suggest there is any relief in sight. In fact, rents increased on average 9% over the last year and the District continues to lose huge swaths of affordable housing as we speak.

Navy Yard/Waterfront- A Case Study in Failed Policy, Government Waste, and Displacement.

The Navy Yard/Waterfront provide a case-study of how local economic development policy helps to drive the affordable housing crisis in the District. One of the neighborhoods that has undergone some of the most significant changes within the last 20 years has been DC’s Waterfront. The DC Government played a pivotal role in attracting private capital by delivering much needed infrastructure and amenities to this area in the form of bridges, roads, government offices and two sports stadiums. Along with the infrastructure and amenities, the DC government planned and executed the demolition of existing public housing in the neighborhood and made clear its plan for more public housing demolitions in the future. Finally, while the District spent public resources to demolish affordable housing, it simultaneously invested hundreds of millions of dollars of public subsidies into the creation of luxury redevelopment projects.

The most notorious of these projects is the WHARF. The WHARF is a redevelopment project put forward by a group of politically connected developers to “revitalize” the Southwest waterfront. To jumpstart the project, the DC government gave away $95 million worth of public land to said development group for $1. Aside from this massive land giveaway, the development group received additional subsidies in the form of a PILOT (Payment in Lieu of Taxes) and TIFF (tax increment financing). In total, the WHARF received a whopping $294,593,588 in public subsidies.

The developers behind the WHARF were able to parlay these public giveaways into an $847 million loan from Goldman Sachs, the largest loan ever issued for a development project in DC at the time. The end result at the WHARF was the public financing of a private development project that ultimately delivered penthouse condos advertised for twelve million dollars per unit. The District Government then affirmatively relieved the developers of their obligation to deliver the extraordinarily modest amount of affordable housing these developers had promised to produce in return for the massive government subsidies they received .

Furthermore, the influx of international capital that financed the WHARF has been one of the factors that caused the land values near the Waterfront and throughout Southwest DC to skyrocket. These increased land values made it difficult for developers to propose new projects in this neighborhood unless they had access to large quantities of capital that only large-scale institutional investors can deliver. The largest investors were only looking to invest in high-end projects that could maximize their profits by charging premium rents and mortgages. The relationship between investor preference for luxury redevelopment, government money subsidizing these projects, and the increased land values led to huge rent spikes in this once affordable neighborhood. This outcome would not have been possible without the District fueling this specific type of growth.

Current Policy Incentivizes Private Profit over the Public Good

In the midst of a crushing affordable housing crisis, the Government decision to use public land and money to subsidize twelve-million-dollar penthouse condos is absurd and should make any civically minded person outraged. However, outcomes like this are the natural by-product of economic development polices based in neoliberal theories of deregulation, privatization, and trickle-down economics. Despite the surging inequality and social anxieties these policies create, the District views this type of economic development as positive because it attracts money into DC both from the aforementioned institutional investors and also through the increased tax base that comes with more affluent people moving into the new “showcase luxury” buildings. As such, the District’s affordable housing crisis is a by-product of its broader economic development policy of revitalization through land speculation, demolition, and displacement.

Currently, communities that have seen no real investment for multiple decades are now being given a false choice between continued disinvestment or the type of hyper-investment that results in the demolition and displacement described above. Residents should reject both of these options and instead demand an alternative approach that injects resources into their communities through equitable development that promotes investment in housing, schools, infrastructure and jobs for existing residents while promoting both economic and racial desegregation. The next installment in this series will argue that social housing is indeed an alternative economic model that can deliver these positive outcomes by expanding affordable housing production across the District while pumping resources and investment into underserved communities.