Hot DC Housing Market Means Less Affordable Housing

Photo courtesy of Erik Mclean/ unsplash.com

It’s no secret that area housing prices have soared over the past few years. Numerous studies of the region’s real estate market document an increase in housing costs of roughly 25% in the last year. And anyone who has been apartment hunting lately will back up those figures. English basements (with or without mold) in Dupont Circle rent for $1,400 per month, studios on Massachusetts Avenue run around $1800, and most people looking to buy must search far into the suburbs to find relatively affordable homes. 

The Fannie Mae Foundation attempts to explain this jump in housing costs in a recent report entitled Housing in the Nation’s Capital, the third installment in an annual series. The report also outlines the possible downsides of the red-hot estate market and warns that current trends could spell trouble for area residents. 

On the upside, the report argues that the Washington region has maintained “the nation’s strongest regional economy” over the past few years. In 2003, in the wake of an economic downtown, the U.S. Census Bureau reported that the city boasted a 3.5% unemployment rate, a rate that is lower than that of any other major U.S. metropolis. That year the region also added 63,000 jobs, recorded strong gains in several private sector industries, and paid an hourly wage that was 23% higher than the national average. 

On the downside, the report notes that much of this growth has disproportionately benefited the highest wage earners. Poverty rates in the District run as high as 17% and the Bureau of Labor Statistics reports that the average wage for low-income earners (for example, a parking lot attendant who earns $8 per hour) has increased at one third the rate of increase for high-income earners (for example, A CEO who earns $66 per hour). As a result, average wages in the region have not kept pace with the price of housing. 

“It is almost impossible for school teachers and nurses, for firefighters and police officers to live in the communities they serve,” stated Stacey D. Stewart, president and CEO of the Fannie Mae Foundation, concerning rising housing prices in the region. 

The laws of supply and demand provide a simple explanation for the price increases. Although the region is producing 24% more housing per year than it did in the 1990s, and although the rate of housing production in the District is 400% greater than it was in the 1990s, demand continues to outpace supply. 

The region is producing roughly 42 units of new housing for every 100 new residents in the 1980s. Today, the total number of vacant housing units is 13,800 fewer than the number available more than a decade ago. 

Kathryn Pettit, one of the report’s authors, said that there is also less affordable housing because of the mindset of developers and residents. She explained that higher end housing is more profitable for builders and municipalities, and residents often believe lower income housing would have a negative effect on neighborhoods. “There is a need to educate people about what a high density and mixed income development looks like and address any hesitations people have about declining property values,” she said. 

However, low interest rates in the early 2000s have meant that many residents remain eager to purchase homes, putting more pressure on the housing supply. Competition among buyers has created a sellers’ market with the median sales price topping $300,000 in the first quarter of 2004. These high prices have forced many of the area’s low-income residents out of the home ownership market. And with housing rental rates in the District increasing by roughly 60% over the period 2001-2003, many low-wage earners have found themselves having to move out of the District entirely –farther away from their jobs in D.C. 

This consequence points to the secondary effects of the affordable housing shortage. Much of the region’s employment opportunities are in a few job-rich pockets. Competition for housing near these pockets is intense, and housing prices are high. As people who cannot afford to live in the District and near their jobs are pushed into the suburbs, their commuting time increases. The average D.C. commuter experiences 67 hours of traffic delays per year (as opposed to the 46-hour average for other metropolitan areas), time that could be spent with family or on leisure activities.  

According to a recent Washington Post article, experts are predicting that home prices will increase by 8-10% in 2005. “We’ll see double-digit appreciation gains in 2005 in the Washington area,” said Stephen Fuller, regional economist at Geroge Mason University. David Seiders, chief economist for the National Association of Home Builders, observed that “History has shown us that there are no price declines unless there’s a significant problem in the economy, like job losses and outmigration. That’s not going to happen here.” 

If the region does continue experiencing increases in housing prices, the hypothesis put forth in Housing in the Nation’s Capital is that resulting problems will only grow more complex. The report predicts that sprawl to the outer suburbs will intensify, commuting times and traffic delays will lengthen, and residents will experience more noise and air pollution. 

To address these problems, the report says the region should invest in three “smarter-growth strategies.” First, it calls for higher-density growth, especially near transit stops. Not only will denser growth allow more residents to live near where they work but is also will encourage economic development in the form of retail outlets and service centers that often sprout near transit-stop developments. 

Second, the report says planners should make preservation and production of affordable housing a regional priority. It recommends the use of inclusionary zoning, a tool that requires developers to set aside a pre-determined proportion of affordable housing units in new developments. For example, an inclusionary zoning ordinance in the District might require developers to reserve 7.5-15% of their new units for affordable housing, assuming that their development project comprises 10 or more units. 

Finally, the report calls for more balanced regional job growth. As noted, the majority of the region’s jobs are centralized in several areas in downtown D.C. and the western suburbs. By attracting employers to the eastern part of the region and encouraging a more balanced disbursement of jobs, the report argues that the region would avoid extremely high housing costs near the current job centers and would reduce the associated urban sprawl.   

For more information concerning Housing in the Nation’s Capital, please visit: www.fanniemaefoundation.org. 


Issues |Community|DC Budget|Development|Housing|Income Inequality


Region |Washington DC

information about New Signature, a Washington DC tech solutions and consulting firm

Advertisement

email updates

We believe ending homelessness begins with listening to the stories of those who have experienced it.

Subscribe

RELATED CONTENT