The Economic Impact of the Wharf: Tourism and Income Inequality
The image of Washington DC has been redesigned with the redeveloping of The Wharf, a recent real estate project under the developer PN Hoffman. This project took advantage of a not-fully exploited 3 million ft2 area situated on the District of Columbia’s Southwest Waterfront near the Potomac River.
This $2 billion development is structured in two phases: Phase I and Phase II. In October of 2017, the completion of Phase I meant the opening of 3 hotels, 2 apartment buildings, a condo, and 3 music venues. Additionally, providing the public with a variety of restaurants, green areas, and an innovative water taxi service. Phase II is expected to break ground in early spring of 2019 and has an expected completion date in 2022. The second phase consists of expanding the number of apartment buildings, offices, retail shops, and restaurants.
In 2017, DC welcomed 22.8 million visitors. According to statistics prior to the grand opening, the Wharf expects to receive 12 to 15 million visitors annually. In other words, at least 52% of DC visitors would go to the waterfront. The number of visitors has increased by 13% since 2014, the starting year of Phase I. This has stimulated the economy as there has been a major influx of money into the business operating at the Wharf and other neighboring zones. Evidently, forecasts expect $44 million in new income tax revenue, $19 million in new sales tax revenue, and $33 million in new property tax revenue by 2023. Due to the opening of hotels, there would also be a 33% increase in hotel occupancy tax from 2018 to 2023. Hence, the Wharf project is expected to generate $113 million in annual tax revenue for DC by 2023.
Indeed, the Wharf has increased the number of visitors’ spending and has overall benefited the economy of DC. Nevertheless, the underlying cost of remodeling the Wharf derives from the continuous worsening of income inequality.
The government had an active role in financing the project as it provided $300 million in subsidies. As a key participant in the project, the government should have pushed for a high-road development instead of the low-road development that it currently practices. This choice directly affects non-union construction workers and indirectly harms the potential economic development of DC.
High-road development consists of “employers creating good-quality jobs and investing in their workers” (DC Fiscal Policy Institute). Thus, resulting in “skilled workers, low turnover and high-quality producers.” Even though hiring skilled workers would increase the cost of companies to pay the appropriate wages and benefits, there is a great economic return of doing so. For example, hiring skilled workers eliminates the risk of errors derived from the incompetence of unskilled workers. The quality of the goods and services available to consumers increases. At the same time, helping the business build a stronger reputation and standing in the market.
The issue with opting for low-road development is that workers do not get paid enough because they do not belong to a union. Being a member of a union ensures certain benefits and a higher salary to the workers. Unfortunately, many construction workers hired for the Wharf project came from nonunion construction sites and they were underpaid. According to a study conducted by the DC Fiscal Policy Institute, on average, a nonunion wage is $47,455 annually. In contrast, unionized workers earn an average of $58,512 annually. The additional earnings of a union worker could have stimulated the economy as they would spend more on leisure activities. Consequently, high-road development helps the economy more than low-road development by encouraging workers to spend.
So far, Phase I of the remodeling of the Wharf has helped Washington DC’s economy grow by encouraging tourism spending. Nevertheless, not all business projects are perfect. In this case, the downturn of the project was the practice of low-road development, which contributed to income inequality as the workers were underpaid. Consequently, the Wharf must be seen as an example to learn from. Future firms, deals, and projects can adopt the good characteristics of the Wharf and avoid its malpractices.
Edited by Julie Park
References:
http://www.pnhoffman.com/my-product/the-wharf/
https://www.dcfpi.org/wp-content/uploads/2017/10/Lessons-from-the-Waterfront-formatted.pdf
https://dc.curbed.com/2017/10/23/16525160/wharf-dc-phase-two
