My thought experiment has proven to be an abysmal failure, since most people responded to it as if I were proposing an actual policy change. I was not. I was asking readers to, you know, engage in a thought experiment. That is, given the policy regime I imagined, what floor-tax rates would you accept? Providing an answer does not mean you support the floor tax; it just means that you’ve thought about the question.
Why ask this question? I had two goals. One, as I mentioned, was to try and understand what kind of value height-limit supporters place on the height limit. The other, which I didn’t mention, was to illustrate that we may not be able to say with certainty what the optimal height policy in Washington is, but we can almost certainly say that the current limit isn’t it.
Take an extremely simple example. Construction costs are very nearly the same in Rosslyn as they are in downtown Washington. (Some Rosslyn buildings may be more expensive per floor than Washington buildings, but that’s because they’re taller; matching like-to-like costs are basically the same.) Commercial office rents in downtown Washington tend to be about $10-$20 higher per square foot than they are in Rosslyn. Say you’ve got a plot of land on which you can build a structure with about 5,000 square feet of office space per floor. That means that the owner of the building can make between $50,000 and $100,000 more per floor per year if that building is in downtown Washington rather than in Rosslyn, to a first approximation. The rent gap between the two locations may change over time, but you add up an annual premium year-over-year and you’re talking about real money.
Let’s imagine that construction of new space in Rosslyn faces no restrictions and unit prices are equal to the cost of construction. In fact, prices are higher, because there are restrictions on Rosslyn development. But I’m implicitly addressing the “why not just let them build in Rosslyn” argument, and this will be easier to address if we make that assumption. If there were no restrictions on building in Washington, developers would build up and up until the premium on space in Washington disappeared. But local residents say they value building heights that are less than the market would deliver. How much do they value shortness?
One person might say that they value it a great deal. If we imagine that the lifetime premium from building a floor of space in Washington rather than Rosslyn is $1 million, then that person could say that they’d set the tax at $1.1 million. In that case, no new floors would be added and total floor tax revenues would be $0. (If you want to prevent vanity construction at a loss, you could set the tax at a gazillion dollars and then you definitely get no new floors and no revenue.)
The question is: is this the preference most people have? What if we cut the tax to $900,000? In that case, you wouldn’t get much new height each year, but you would get some — say, 10 floors’ worth. Residents probably wouldn’t even notice that level of new height — certainly not if it were spread around, perhaps not even if it were concentrated in one building. But the city would have an additional $9 million in revenue, in addition to the normal revenue to be expected from additional development and employment. That $9 million is a lot of money. It could be used to boost the city’s 5-year streetcar budget by 10%. Or to boost teacher pay. Or to fund job retraining programs. My guess is that practically all Washington residents would accept $9 million for an almost invisible addition to the heights of a few buildings.
What if we cut the tax to $100,000? In that case, you’d get a lot more building — say, 200 floors’ worth. But it would also mean more money, in this example $20 million. Now, 200 new floors of space is a big addition, and I wouldn’t be surprised if most Washingtonians didn’t take that deal. But the point is that there is almost certainly some point between $1 million and $0 that most residents could get behind — a level at which new construction was sufficiently inoffensive and new revenue sufficiently useful that the deal is worth making.
This is my point. You, Washingtonians, value the height limit. Fine. How much do you value it? How much in real economic benefit are you willing to give up to keep it? If I offered to give the city $100 billion to build 20 feet above the current limit, would you take it? If not, you’re insane. If so, how far can we push this before you’re comfortable saying no to additional money?
It’s pretty clear to me that freer building in Washington is a good in its own right. Obviously, not everyone agrees. But those who do not nonetheless value other things: quality policing, good schools, good transport, well-maintained parks, lower tax burdens — something. There’s some deal to be made in which everyone is made better off, and stubborn refusal to reconsider the height limit is just leaving this potential gain unrealized.