Sunday, March 28, 2010

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.


ArchitectDesign™ said...

I honestly think DC is so completely ridiculously over-priced given the number of low-paying jobs here.
But -where do you find a 2 bedroom apartment for $1500??!! Median price? Thats a DEAL!

IMGoph said...

the variance between neighborhoods is amazing. i have a mortgage that is 40% below that average rental price.

convexhull said...

ArchitectDesign must be stoned or something. DC has the 7th highest metropolitan area median per capita personal income

of course rents will be high. Also note that high rents keep the riff-raff out, thankfully.

Mr. 14th & You said...

"Also note that high rents keep the riff-raff out, thankfully"

Thankfully? I think not. There are a plethora of cities whose rental markets pale in comparison to DC's who have significantly lower rates of crime. Logan Circle has some of the highest rental rates in the city, and we also have more than our share of violent crime. I don't see any supporting evidence that a high rental market throughout a city has a sibstantial impact on crime and so-called "riff raff".

What an obscenely high rental market keeps out are many who are not among the uber-wealthy. When there are only five cities more expensive than you, you're not presenting many options to middle- and working-class residents. If that wasn't a problem, then cities wouldn't concern themselves with providing affordable housing to their non-wealthy residents.

Also, the Census Bureau income figures don't discredit ArchitectDesign's statement about a high number of low-paying jobs. Yes, the DC area is abundantly wealthy, but how much do you think the bussers, line cooks and dishwashers at all of our nifty new restaurants are pulling in? Simply because an area has a high median income doesn't mean that everyone there is abundantly well-off. The District has 25% of its residents living below the poverty line, for instance.

Anonymous said...

All good points, but the study doesn't acknowledge the vast disparity in wealth and concentrations of poverty within DC. Yuppies tend to only want to live in a select number of neighborhoods in the District, though the number of these neighborhoods are expanding as gentrification marches on.

The point is, young urban professionals in San Francisco or New York actually have a lot more options for walkable, hip neighborhoods than those in DC and can thus find a better deals rent-wise.

I know this sounds ridiculous, but if you only looked at these hip, trendy neighborhoods, I think you end up paying more for what you get in DC. I could get a lot more space for a lot less money in Brooklyn in a neighborhood that's comparably as hip as Logan Circle.

Anonymous said...

OK, I do want to know... $1,500 for a 2/2 in a decent place... is that realistic?

I agree with the comment of disparity. Any half-decent 2BR apartment in the city is gonna cost you at least $2K.

That is why I have to leave outside the city... it is simply not affordable in a decent area.

You are either rich/wealthy or live in a bad hood.

Is my perception incorrect?

Anonymous said...

"You are either rich/wealthy or live in a bad hood.

Is my perception incorrect?"

Therein lies the rub. What is a "bad" hood. I have a 3/1 row-house in Petworth for a little more than the "median."
1200sqft, small back yard for the dog etc.
Is my hood Logan/DuPont? Hell no! can I afford to be in the city and get to those places, Ah Yep.

The State I'm In said...

I will totally acknowledge that I bought a place that was new and is around U Street (call me a yuppie if you like) and I overspent. That being said, I am paying the same on my mortgage as if I were renting. As a single girl, I didn't have the know-how or the budget to update an older house with any renovations, and I needed something around 1400sqft.

My mood and attitude towards the place changes daily. Sometimes I love it and am happy that I bought something that I will more than likely not lose much money on when I eventually sell, but other times, I kick myself for getting swept up in the overpriced housing market. I have so much admiration for those that don't make much money and are able to save for the ridiculous rent/mortgages around here- I don't think I'd be that strong.