February 6, 2017

By Lisa A. Sturtevant, PhD

In the aftermath of the recession and housing market downturn, residential construction activity has been increasingly fairly steadily. However, the pace of new housing construction remains below long-term levels and the types and prices/rents of new housing being produced does not sufficiently meet demand. As demand for home ownership increases, the population of younger renters grows more slowly, and the number of lower-wage workers expands in the region, there is a great need for lower-priced home ownership opportunities and apartments and other rental homes with lower rents.

Some key findings from the residential permit data released from the U.S. Census Bureau:

Residential construction activities to grow steadily but still remains below long term levels regionwide. Over January through November of last year, there were about 22,000 permits issued for the construction of new residential housing units. The 2016 residential permitting activity included 4,321 building permits in the District of Columbia, 5,806 building permits in Suburban Maryland, and 11,739 building permits in Northern Virginia. Residential permitting activity in the region has been increasing steadily since 2009, but remains below the 2000-2016 annual average (~25,000), suggesting that new home construction has not been sufficient to meet the demands associated with population growth.

[Figure 1]

One-fifth of the residential construction activity in the region was in the District of Columbia in 2016. While residential construction activity has increased throughout the region, the District of Columbia still accounts for one-fifth of new permits. About a quarter of the permits were for housing in Suburban Maryland and a little over half were in Northern Virginia. By contrast, before the recession, only about five percent of permits for new residential units in the Washington DC region were in the District of Columbia. The District’s share of new permits has slipped slightly, to 20 percent in 2016 from 23 percent in 2015.

[Figure 2]

Multi-family construction remains strong though new single-family construction is on the rise. In 2016, 44 percent of permits for new residential construction in the Washington DC region were for multi-family units, including nearly all (93 percent) of the permits in DC, 35 percent in Northern Virginia and 28 percent in Suburban Maryland. Historically, over the past 16 years, about 38 percent of permits in the region were for multi-family units so the current share remains higher than average. However, over the past two years, the share of multi-family units has declined somewhat, generally because of a slight decline in the share of permits issued in DC.

[Figure 3]

Home prices and rents in the Washington DC region continue to climb. Recent data from MRIS have shown that home prices in the metropolitan area have now matched the record high set during the housing market boom. The median sales price in December 2016 was $410,100, slightly higher than the previous record high price of $408,000 in 2014. As typical, there is wide variation in home prices throughout the region that reflects location as well as home types. For example, in the District of Columbia, the median sales price was $550,000. In Fairfax County the median home price was $470,000 and in Prince George’s County was $265,000.

Rents have also been on the rise, and new multi-family construction has skewed substantially towards luxury, higher-rent apartments. Even as concessions at new apartment buildings have increased, rents in buildings, particularly in DC and in the closer-in suburbs, are often only affordable to very high-income renters. According the 2015 American Community Survey data, the median rent in DC was $1,417 in 2015; however, the median rent for units built in 2014 and 2015 was $2,334. A household would need an income of more than $93,000 in order to afford the median rent in a new apartment building in the city.

Homelessness remains an intractable problem in the District of Columbia. Even as new residential construction increases, there remains insufficient housing affordable to all residents in the region. A recent survey by the U.S. Conference of Mayors found that Washington DC has the highest rate of homelessness among the nation’s 32 largest cities. The ability for the region to expand the housing supply will depend not only on land use and zoning changes that encourage more housing, but also policies that promote the development of housing for our region’s most vulnerable residents.

December 4, 2016

By Lisa A. Sturtevant, PhD

Fair housing never emerged as an issue in the presidential election; however, the new President and his HUD secretary and Attorney General will have responsibility for overseeing the enforcement of new fair housing laws, including the Affirmatively Furthering Fair Housing (AFFH) rule and the disparate impact court decision. There is uncertainty about what a Trump Presidency will mean for housing nationally, but given his selection of Ben Carson as HUD Secretary, it seems more important than ever to re-commit to working regionally to support the goals of fair housing and access to opportunity here in the Washington, DC metro area.

It has been over a year since the U.S. Department of Housing and Urban Development published the Affirmatively Furthering Fair Housing (AFFH) rule that established a new housing needs assessment process (replacing the analysis of impediments) with the Assessment of Fair Housing (AFH). The AFFH rule lays out a new procedure for local jurisdictions to assess areas of concentrated poverty, to identify disparities in access to good schools, transit and other amenities, and to evaluate unmet housing needs among certain subpopulations, including racial and ethnic minorities and persons with disabilities. In addition, for the first time HUD is providing a trove of local data to help localities identify patterns of demographic change. The goal of the AFFH rule is to bring greater guidance to localities for “affirmatively furthering fair housing” as mandated in the Housing Act of 1968.

Despite some of the rhetoric, the new regulations reflect only an incremental change to HUD’s approach to enforcing fair housing and is designed to encourage a more intentional assessment of whether the goals of the Fair Housing Act are being met. However, the AFFH rule has been castigated as a vast overreach by the Federal government into local autonomy, and the change in leadership at the Federal level will likely give broader voice to those claims.

During the campaign, President-elect Trump said he wanted to dismantle the AFFH rule. Donald Trump’s company has been sued by the Justice Department for violating fair housing laws in New York. In the 1970s, Trump’s father was arrested in Prince George’s County while allowing an apartment complex he owned fall into disrepair and for subjecting African American tenants to deplorable housing conditions. It’s not likely that a President Trump will take the lead on promoting fair housing from the White House. Trump’s pick for HUD Secretary, Ben Carson, has given every indication that he will not be a champion for fair housing at the Federal level either. He has called the Affirmatively Furthering Fair Housing Rule a “mandated social-engineering scheme” and a policy indicative of a “communist” country.

The Region Should Be a Leader in Promoting its Own Fair Housing Goals

With likely backpedaling on AFFH at the Federal level, the Washington DC metropolitan area should remain committed to advancing fair housing in the region. Now, more than ever, local elected officials need to be leaders for promoting access and opportunity for all members of our community.

Regional discussions about AFFH are already underway. Last spring, the Metropolitan Washington Council of Governments partnered with Enterprise Community Partners and the National Housing Conference to host a full-day training and information sharing session around the AFFH rule. The primary objective of the convening was to discuss the data component of the assessment tool but the conversation shed light on the entire AFH process. At the meeting, we had representatives from HUD, as well as from the Baltimore area, which recently completed a regional housing plan.

This meeting led to further discussions among local Housing Directors at the Metropolitan Washington Council of Governments (MWCOG), but momentum around AFFH slowed over the summer. Given the road ahead, now seems like a good time to re-energize regional partners around fair housing. The lack of Federal leadership is one important reason for mobilization. But there is increasing evidence that regions that are more racially and economically integrated have stronger, more resilient local economies.

There are several things we can do now which would not only help support housing options and integration throughout the region but could also allow us to act proactively—to do something!—in the wake of the unprecedented Presidential election:

Produce data on housing needs and opportunities more efficiently. We learned in our March AFFH meeting that HUD is providing a tremendous amount of data to localities, but jurisdictions are advised by the new rule to make use of locally-generated data. Rather than each jurisdiction analyzing its own data, MWCOG should facilitate a regional data analysis exercise that can help with local housing plans but also help jurisdictions connect regionally.

Consider a regional assessment of fair housing. HUD recommends, though does not really incentivize, a regional approach to assessing housing needs and developing strategies. While each local jurisdiction in the Washington DC area will still develop its own financial, land use and other tools to meet local housing needs, there may be some degree of regional assessment that could be undertaken. Local elected officials, along with housing and planning directors, should become better informed about what it would take to do a regional assessment of fair housing, and whether some type of regional approach is possible.

Share best practices. At the very least, local jurisdictions in the Washington DC region need to do a better job at sharing best practices for expanding housing options. In the last few years, many jurisdictions in the region have conducted housing studies that have led to the development of policy recommendations. The policies and plans should be shared across jurisdictions through MWCOG or another regional body so that jurisdictions can learn from each other and possibly help promote consistency in policies and regulations throughout the region.

Focus on community engagement. There is no silver bullet that we have yet to discover that will solve our region’s housing challenges. Jurisdictions in the Washington DC region are among the most innovative communities in the country in terms of affordable housing tools. We know what needs to be done. The major obstacle that remains is building political will and responding to community opposition to housing, particularly multi-family housing and housing affordable to low-income individuals and families. We should work together to solve the NIMBY (not in my backyard) issue by figuring out how to respond to concerns about density, schools, and parking; how to provide elected officials with education and information they can use at public meetings; and how to have conversations that promote inclusion and tolerance.

On that last point, I think there would be a lot of people in our region who would want to be part of that conversation right now.

September 27, 2016

By Lisa Sturtevant, PhD

You can’t hide from media reporting on Millennials and home ownership. But the message tends to be oversimplified and often contradictory. Millennials are getting set to jump into home ownership. Millennials are walking away from home ownership. Some reports say student debt is the reason Millennials can’t buy a home. Others say it’s not.

The attention to Millennials housing choices is justifiable. The generation of Millennials—those roughly age 18 to 34—have surpassed the Baby Boomers as the nation’s largest generation and are in prime household formation. Furthermore, surveys of Millennials uniformly find that the vast majority of this population wants to be home owners. For these reasons, Millennials will potentially have an enormous impact on the nation’s housing market.

As we know, however, housing markets are local. The Millennial population in the Washington DC region tends to be more highly educated and have higher incomes than Millennials in other parts of the country. But home prices are also substantially higher in the region than they are in other places. So what are the prospects for home ownership among 20- and 30-somethings in the DC region and how will their choices and the constraints they face impact their ability to accumulate wealth through home ownership?

There are about 1.5 million people between the ages of 18 and 34 in the Washington DC metropolitan area. The shares of Millennials tend to be higher in closer-in jurisdictions like the District of Columbia (35%) and Arlington County (34%), but Millennials make up substantial shares of the population in the region’s suburbs, for example in Loudoun County (20%) and Montgomery County (21%). The housing choices this group is making now and will make in the future depends on their economic situations and choices about marriage and family, as on the available housing opportunities in the region. These factors combined will determine the extent to which young adult households in the Washington DC region will be longer-term renters than past generations—or will move out of the region where they find more affordable home ownership opportunities.

There are two key decisions individuals make that are relevant to understanding home ownership potential among Millennials—whether or not to form an independent household (measured by headship rates) and whether to rent or buy (tenure choice).
Headship

Headship
Headship rates are defined as the percentage of people that are heads of households. The main way young people become the head of a household is when they move out of their parents’ home. Households are also formed—and therefore headship rates are higher—when roommates that are living together decide to live on their own. Headship rates decline when individuals living alone get married or move in together.

Headship rates for the 25-to-34 year old population were lower in 2014 than in 2005 or 2000. (The focus in this section is on the older Millennial population who are most likely to be looking at home ownership.) Therefore, young adults in the Washington DC region are not forming independent households at the same rate as they did at the height of the housing market or even back during a more “normal” housing market. The biggest decline in headship rates were in Prince William and Prince George’s counties. These are the jurisdictions that were hardest hit by the foreclosure crisis and also tend to have lower household incomes that in other jurisdictions in the region.

Tenure

Home ownership rates have fallen pretty substantially since the height of housing market and the declines have been biggest among young adult households. Perhaps, surprisingly, though, home ownership rates have rebounded more quickly in the District and Arlington—places with some of the highest housing costs—than in many other places in the region. For example, the home ownership rate among 25-to-34 year olds in the District was 18.9 percent, lower than the 2005 rate of 27.2 percent but not too much lower than the rate among this age group in 2000. In Arlington County, the home ownership rate was over 30 percent for 25-to-34 year olds in 2005. The 2014 rate of 21.1 percent, however, is in line with the rate in 2000. The biggest drops in home ownership have been in Montgomery and Loudoun counties. One conclusion from these trends may be that home ownership opportunities have rebounded for the highest income Millennials who are able to buy in the District and close-in locations but remain limited for young adults with more modest incomes.

Home Prices
Most young adult households do not earn above the area median income and the vast majority of homes on the market are unaffordable to them. In 2015, the median income for a household headed by someone age 25 to 44 was $92,326. (Data were not available specifically for the 25-to-34 year old population; however, the median household income for this younger cohort will be lower.) Under standard assumptions, a household with an income of about $92,000 could afford to purchase a home priced at about $370,000 (four times income). However, options are few in many parts of the region. In the District, the average sales price of a condo in August 2016 was nearly $520,000 and the average townhouse price in the city was over $740,000! In the broad Suburban Maryland and Northern Virginia regions—which includes Frederick, Charles and Calvert counties in Maryland and areas south to the Fredericksburg area and west to Fauquier and Clarke counties in Virginia—prices were lower. The average condo in Northern Virginia was about $300,000 and it was about $230,000 in Suburban Maryland. The average townhouse sold for $406,000 in Northern Virginia and $293,000 in Suburban Maryland. But prices were much higher closer in and in areas well connected to jobs, transit, and amenities. For example, in the City of Alexandria, the average two-bedroom townhouse sold for $590,000 in August 2016. In Arlington, the average condo sold for $430,000.

Implications for Millennials—and the Region

Will Millennials in the Washington DC region become home owners at the same rate as past generations? Probably not. Overall, they definitely won’t become home owners as easily or as young as Gen X’ers and Baby Boomers did. There are several implications of the delayed and abandoned home ownership among Millennials.
• Many Millennials will rent for much longer than they anticipated. As a result, many young adult households will not be able to take advantage of historically low interest rates and will not be able to start accumulating wealth through home ownership. While some may choose to rent, others will rent long-term out of necessity and will be subject to rising rents each year. Furthermore, as Millennials marry and have children, they may find few rental options that are large enough or otherwise suitable for families.
• Moderate-income Millennials who want to buy a home will move to further out neighborhoods. The desire for home ownership will supersede the desire for close-in walkable locations for at least some Millennials. Therefore, these households will “drive ‘til they qualify” to find a home they can afford. Increased demand for housing further from transit and jobs can have negative impacts on traffic congestion and environmental quality in the region, as well as on families that endure long commutes.
• Some Millennials will leave the region. Some young adults in the Washington DC metro area, including some highly skilled, college-educated workers, will choose to leave the region and move somewhere with a lower cost of living and more options for home ownership. The local economy loses out when workers are forced leave to find more affordable housing.

There are no easy solutions to increasing home ownership opportunities for Millennials in our region since this particular housing issue is so closely tied to challenges related to student debt, access to credit and wage and employment growth. However, it is important to continue to support the construction of new housing that is affordable to more moderate-income homebuyers, which could mean changing zoning to allow smaller housing units or residential buildings that fill the “missing middle.” In addition, local governments, businesses and advocacy groups can work together to help identify resources for downpayment or other home purchase assistance for first-time homebuyers.

August 5, 2016

By Lisa Sturtevant, PhD

Demand for rental housing has increased dramatically in recent years, and despite a surge in new multi-family construction, many individuals and families still face daunting affordability challenges.

In many parts of the Washington DC region, new construction has ramped up to meet the growing demand for rental housing. However, these new apartments largely target the upper end of the market. Unfortunately with this new market-rate construction, existing affordable housing is often demolished. While it is critical to continue to promote policies that encourage the production of new affordable rental housing it is preservation that is perhaps more important.

Across the country and throughout our region, the most important source of rental housing that is affordable to lower-income households is found within the existing housing stock. Subsidized affordable rental housing continues to be at risk of becoming unaffordable due to expiring affordability contracts. Unsubsidized, or market affordable units, which comprise the largest share of affordable rental homes, are lost as a result of demolition as well as improvements and upgrades that lead to rent increases. As the demand for homeownership swings upward again, condo conversions will also put pressure on the existing stock of affordable rental homes.

Preservation is a challenge, particularly in high-cost regions like the Washington area. The challenge is even greater in areas that are best connected to opportunity—those near transit and jobs—and neighborhoods that are improving as a result of gentrification. There is a strong case that these are the places where housing affordable to lower-income individuals and families is most needed, but it’s also where preservation can be most expensive.

But preserving existing affordable housing is often much more economically sound than new construction. According to one study of preservation efforts in 37 states, the cost to rehab a unit was half the cost of building a comparable new unit.

Preservation policies can target resources on specific units or buildings, or can more generally focus on preserving residents’ access to affordable homes in a particular jurisdiction or neighborhood. In either case, key components of successful preservation strategies include:

i) being able to identify developments or neighborhoods that may be at risk of loss through gentrification or other factors; and
ii) ensuring sufficient resources to leverage preservation opportunities when they become available.

Because preservation is so challenging in high-cost areas, a set of strategies is called for. Many of the more inventive and effective preservation policies have been adopted by local jurisdictions in the Washington DC region…but there may be opportunities to expand the reach of existing preservation tools.

Inventories of At-Risk Properties. The effectiveness of any preservation program depends on the timely identification of at-risk properties. A comprehensive data collection effort can help local jurisdictions identify which affordable rental properties appear to be at risk of loss (including the reason behind it) and target outreach and preservation efforts accordingly.

The recently created National Housing Preservation Database tracks at-risk, subsidized properties throughout the country. The District of Columbia’s Preservation Catalog provides a local example of a database that includes information on subsidized properties in DC which may be at risk of being lost from the affordable stock. It is important to keep track of subsidized units with expiring contracts, however, it is equally—or perhaps even more important—to be able to identify and track market-rate affordable units. With support from the Metropolitan Washington Council of Governments, developing a regional database of market-rate affordable rental properties would be a worthwhile endeavor.

Notably, inventories developed for tracking are only useful for preservation when a jurisdiction has an acquisition strategy. To be effective, the strategy would have to include a funding source and a process for working with developers when market-rate affordable properties become available for sale.

Property Tax Abatements and Exemptions. Some local jurisdictions have attempted to help preserve affordable rental housing by offering property owners tax incentives in exchange for preserving units as affordable—Chicago and New York City offer two examples of fairly comprehensive property tax abatement/exemption programs. Here in the Washington DC region, Fairfax County has a property tax exemption option for non-profit property owners that serve extremely low income households. In many cases these tax incentives are designed to make it financially feasible for owners of low-cost rentals to make improvements to their properties without raising rents to levels unaffordable to low-income residents.

Preservation tax incentives tend to be most effective in neighborhoods where rents are not yet rising significantly – this highlights the importance of tracking at-risk units and developing ways to predict neighborhood change.

Right of First Refusal. Right of First Refusal (RoFR) policies can require owners of rental properties to give advance notice of the intention to either sell the property, make substantial property improvements, or convert to condominium ownership, and then requires that a preservation buyer has an opportunity to match a purchase offer. In some cases, the tenants or the local jurisdiction indicate the intent to make an offer, though the purchase is usually made by a non-profit developer.

For a RoFR policy to work well, there must be a capable buyer that has experience purchasing and operating rental housing. In addition, the buyer needs quick access to capital to close the transaction. Local funding sources that can respond quickly and flexibly to requests from nonprofits and tenant groups seeking to purchase and rehabilitate at-risk housing can therefore enhance the effectiveness of RoFR policies.

Several jurisdictions across the region, including the District of Columbia and Montgomery County, have RoFR policies though their reach has been limited by very high property prices and insufficient resources.

In many ways, preservation policies are harder to create than policies designed to promote new affordable development. However, as rents continue to rise, it is critical to stem the loss of existing affordable homes. If not addressed, low- and moderate-income individuals and families in our region will face dramatically declining housing options.

June 6, 2016

The Washington, D.C. area economy is the in the midst of dramatic restructuring – largely as a result of declines in federal spending in the region.  A group of business and community leaders, along with advocates, philanthropists and funders, have come together to work on strategies for repositioning the regional economy to ensure that the Washington, D.C. area is able to compete in today’s global economy.

They called this strategy the “Roadmap for the Region’s Future Economy.”

In a series of recent interviews with senior business executives in the region, it was clear that quality-of- life issues—specifically housing and transportation—were key to our economic success. Many business leaders interviewed for this project said that “reducing social inequality across the D.C. region was critical to bolstering the region’s economy” and policies related to affordable housing and transportation were “more important than adjustments to corporate tax policies.”

So, according to the Regional Roadmap project, having sufficient affordable housing is vital to the region’s economic future.

The growing recognition of the link between housing supply and economic growth is not unique to the Washington, D. C. region. In a 2013 report, researchers Chris Benner and Manuel Pastor found a strong relationship between regional economic resiliency and economic integration. Last year, researchers Chang-Tai Hsieh and Enrico Moretti concluded that the lack of a sufficient supply of housing has reduced U.S. GDP by 10 percent. They also explicitly linked the economic loss to excessive regulation in the housing market which has precluded the building of enough housing. The Chairman of President Obama’s Council of Economic Advisors—a non-housing official—said that restrictive local land use regulations are contributing to increasing inequality and declining productivity, nationally.

Is Regional Cooperation on Affordable Housing Likely?

All of the partners involved in the Regional Roadmap project seem to agree that regional cooperation and collaboration is key to the success of the initiative and to building a vibrant, sustainable economy. However, regional cooperation on housing issues is probably more difficult than on any other issue identified in the project. Why is a formal regional compact (or a collaborative) on housing unlikely in the near term?

Local control over housing decisions. Land use and development approvals are ultimately local decisions. The decision to provide public resources—or to allow greater density, a streamlined approval processes, or provide other incentives to produce or preserve affordable housing—are subject to intense local debate by community members, elected officials and other stakeholders. Regional collaboration is very challenging when it involves—or even appears to involve—weakening local autonomy over these decisions

No good models. It turns out that there are very few models, from around the country of regional efforts that have had a meaningful impact on the production or preservation of affordable housing, specifically in Baltimore, Illinois and with the Northwest Regional Housing Authority. The regional initiatives that have been adopted in other parts of the country are quite modest, and have tended to focus on a regional approach to allocating housing choice vouchers. Furthermore, there are no examples of regional collaboration on housing issues across multiple states (or state-like entities), such as what we have here in the D.C. region.

Other more urgent challenges: Fix Metro. While housing is definitely an important issue, the region is currently grappling with a more immediate challenge—Metro. Local elected officials, business leaders and community members are focused on making sure Metro remains a viable transit system. There seems to be little opportunity to use this possibility as a way to bring stakeholders together to work more generally on regional issues.

Despite the hurdles with a formal regional initiative around affordable housing, there are several things that advocates, developers, planners and other stakeholders can do to keep the attention on the region’s housing needs and to move towards a more coordinated approach to expanding housing options throughout the metropolitan area.

Collaborate in some way on fair housing assessments: Under HUD’s new Affirmatively Furthering Fair Housing rule, local jurisdictions must use new data, and follow a new process, for assessing fair housing issues and identifying strategies for expanding housing options. Currently, there are no federal requirements or local pushes for a regional fair housing assessment.  However, there may be opportunities for housing planners and other stakeholders from local jurisdictions—with leadership from the Metropolitan Washington Council of Governments (MWCOG)—to work together to analyze HUD-provided data and assess regional conditions as part of local fair housing assessments.

Share best practices across localities. In addition, regional organizations, including the MWCOG, the Greater Washington Housing Leaders Group and HAND, should continue to find ways to bring area housing planners and elected officials together to talk about local land use and effective financial strategies used in their communities to facilitate the production and/or preservation of affordable housing. These meetings should go beyond the high-level program descriptions and discuss the nuts and bolts of garnering support, implementing the program and following through on measuring outcomes.

Learn more about how to communicate. We are probably not going to come up with a new approach to housing that has never been tried before. In fact, the local jurisdictions in the Washington, D.C. area tend to be leaders on affordable housing policy among communities across the country. Instead, we need to focus less on documenting the need (it’s considerable!) or identifying best practices (we know what they are!) but rather on how to communicate with residents, neighbors, community groups and elected officials to make a better case for action—both at the local and regional levels—especially considering there are so many competing needs and conflicting priorities.

Achieve small regional successes. Although a large-scale regional housing initiative in the Washington, D.C. region might be a long-term goal, in the immediate future there are opportunities for local jurisdictions to work collaboratively on a smaller scale. Last year, the District of Columbia, Prince George’s County and Montgomery County agreed to work together towards eliminating homelessness. Other potential regional efforts could involve a subset of local jurisdictions to advocate for at the state-level. Successful, smaller initiatives can help build trust among local leaders and lay the groundwork for more comprehensive regional housing efforts.