Streetcar impact on residential development demand.

Will DC’s streetcar system be worth its $1.5 billion expense? A recent study indicates that the answer is a resounding yes.

One of the key differences between buses and streetcars is that streetcars induce land development. That benefits the city from a Smart Growth and urbanist perspective. It also turns out to be a big win for the city’s coffers.

The DC Office of Planning’s Streetcar Land Use Study was commissioned to determine the impact that the city’s planned streetcar network will have on development, and on city tax revenue.

The findings are, to put it mildly, extremely positive.

Positive impacts

According to the study, the great benefit of streetcars will be that they tremendously expand the number of households and business properties that are within walking distance of a rail station. With streetcars, the share of DC residents within a quarter mile of a rail stop will increase from today’s 16% up to 50%.

That will correspond to an increase in the value of properties along streetcar lines by $5-7 billion. Another $5-8 billion in new development can be expected, resulting in a total property value increase of $10-15 billion due to streetcars.

That would result in $238-291 million in new tax revenue for the city each year, after completion of the 37 mile streetcar network. At that rate it would take only 6 years for the city to recuperate the full $1.5 billion cost. After 6 years, the tax revenues would be pure profit.

Tax revenue isn’t the only benefit, of course. The demographic impacts are significant. Compared to a no-streetcars baseline scenario, over a 10 year period the streetcar network is anticipated to induce 6, 300-7, 700 new jobs in the District, up to 12, 000 new households, and up to 1.3 million square feet of new retail development.

That is a big deal.

The study goes on to conclude that these sort of dramatic results are only practical with streetcars.

Bus Rapid Transit (BRT) is often mentioned as a less expensive alternative to streetcars. However, according to the study BRT would require exclusive rights-of-way in order to begin to achieve some of the same benefits as mixed-traffic streetcars. The property acquisitions necessary to provide exclusive bus lanes would more than negate any cost savings achieved by using buses, and the impacts on development would still be less. At the end of the day, BRT would be neither cheaper nor as effective.

Meanwhile, the expense of Metrorail and light rail would make them cost prohibitive to use for such an extensive network. If the District wants 37 miles of new transit, they are not options.

Negative impacts

There are of course some negative impacts. The largest of which is the effect such a tremendous increase in development demand would have on affordable housing.

The study recommends that in order to mitigate that impact, a range of policy prescriptions will be necessary. Recommendations include upzoning certain areas so that supply can keep up with demand, mandating inclusionary zoning in new developments, and greater code flexibility to allow accessory dwelling units such as alley houses.

Another negative impact is that streetcars running on a curbside alignment preclude the possibility of converting parking lanes to travel lanes during the peak period. With curbside streetcars, parking lanes must be either permanent, or absent.

The report also mentions the complications inherent to bicycle-streetcar coexistence. It notes that quality bike infrastructure will be necessary along streetcar corridors in order to minimize conflict.

Funding mechanisms

Although federal funding may become available at some time, any realistic scenario for the funding of this network must include a substantial local contribution.

In addition to DDOT’s normal funding mechanisms, the study identifies potential other sources of streetcar construction funds. Developer contributions and Tax Increment Financing (TIF) appear to be the most promising.

Developer contributions may be possible where very large developments would benefit from streetcar services, such as at Walter Reed or the Southwest Waterfront. The city could negotiate for a contribution of a few million dollars, knowing that the value of the development will increase by a greater amount with the presence of a streetcar.

Tax Increment Financing has even greater potential to fund a very large percentage of the program. TIF is a process in which the city uses bonds to build the initial capital investment, then repays the bonds using the increase in property tax revenue.

The report estimates that using the TIF process, the District could realistically support $600-900 million in bonds. That would approximate to between 40-60% of the total $1.5 billion cost.

These funding strategies will have to be explored in greater detail, and the negatives associated with streetcars will have to be addressed. But if this study proves correct, streetcars are going to be a big, big win. A decade after the system is built the city will be a better and more livable place, construction debt will be repaid, and the tax revenue will be rolling in.

 Cross-posted at Greater Greater Washington.