News Flash: DC is Expensive

A little fodder for a Sunday afternoon conversation...

This past week, the Center for Housing Policy released a report that showed DC to be the nation's sixth most expensive rental market (although, interestingly, only its 25th most expensive home buying market). The housing market numbers actually surprised me a bit--I had assumed they would be higher--but still represent on of the highest markets in the nation.



The CHP's study examined the question from a perspective of affordability: are American cities becoming increasingly unaffordable to American workers? Some quick number crunching shows the difficulty that many face when buying a home in a market such as DC. Consider a family with a household income of $75k a year. The average 2BR apartment in DC goes for around $1500 a month. Looking at rent as a proportion of a household's monthly take-home pay, that $1500 a month slots right into the recommended 30-35% of income that should be spent on housing in order for the housing to be considered "affordable". Unfortunately, the median household income in DC--$58,500--is substantially lower than the $75,000 figure. And for that family making $75,000, purchasing a home becomes an even tougher proposition, when associated costs such as real estate taxes, condo fees, insurance and other expenses are factored in. Neighborhoods such as Logan are essentially completely out of reach.

In short, it is increasingly difficult to comfortably afford housing in DC unless your household income exceeds the median by a not-insubstantial amount. Those wishing to peruse the CHP study can do so here.

But my question is one whose answer is grounded less in facts than in terms of perception: has the recent spike in real estate values caused DC to become an overpriced market? There are some whose immediate answer to that question is a simple 'no': the market is what it is, since people are willing to pay the prices offered here, the market cannot be overpriced. There's a basic reasoning behind that argument that seems sound, but there's another perspective on this question that warrants consideration that relates to the general affluency of the DC area.

It's no secret that DC is one of the nation's most affluent regions. Six of the ten U.S. counties with the highest median income are in the DC area, and generally wherever incomes are higher, housing costs will rise. But they do not always rise in direct proportion to a city's livability factor, nor in proportion to the amenities it offers its citizens. And that's where the question of the appropriateness of DC's housing costs comes into play. DC is now in a position where it plays with the big boys--the New Yorks, the San Franciscos, the Los Angeleses--in terms of housing costs. But do we stack up with the nation's most expensive and populous cities in terms of amenities?

In certain neighborhoods, unequivocally so. DC's commercial centers--particularly in many NW neighborhoods--are truly outstanding neighborhoods by any comparison. Unfortunately, the housing market isn't applicable only to Dupont, Georgetown and Capitol Hill. Housing prices in neighborhoods like Brightwood, Brookland and Takoma have risen commensurately as well, as more desirable neighborhoods far exceed the realm of affordability for many buyers and renters. But is a 3 BR townhome in Petworth truly a good value at $485,000? Is a brick colonial in Brightwood a reasonable investment at $735,000? I can't say for certain--perhaps they are (after all, as I alluded to above, if people are willing to pay...) But I do feel that these are questions worth asking, particularly in such a competitive and volatile market.

And this doesn't begin to address the even larger and more perplexing issue of affordable housing in DC--what qualifies, who qualifies, how it is implemented, and so on. Another topic for another day, I suppose.

So, I'll leave you with a question: do you find DC's real estate market to be essentially appropriately priced for the kind of city one is buying into, or do you feel that the last decade's worth of rising housing costs has led to the market becoming overinflated? Please share your thoughts in the comments below.