Rents are still rising nationwide and even faster in some cities like Seattle, but in the District, they're (slowly) going down, at least for higher-end apartments. Is this the result of DC building lots of new housing?
Bisnow reports, “District-wide rents for Class-A apartment buildings decreased by 1.3% year-over-year to an average monthly rate of $2,585, according to research firm Delta Associates, and Class-B rents experienced a drop of 0.6%.” (See definitions at the end of this article.)
Could high rates of new housing construction be the reason? @MarketUrbanism notes that DC has built a lot of new housing compared to last decade.
I'm not sure any city's seen as strong permitting numbers this cycle compared to last as DC pic.twitter.com/jgmk7MPDai— Market Urbanism (@MarketUrbanism) October 14, 2017
What neighborhoods dropped in price?
Bisnow writer Jon Banister says that the actual drops weren't “where experts predicted.” For instance, rents in Class A buildings (the fanciest) declined 6.1% in Columbia Heights. Rents dropped 2.4% in Dupont Circle, Logan Circle, and Mount Vernon Triangle. These are areas which haven't seen a whole lot of new housing this year.
In the Capitol Hill/Capitol Riverfront/Southwest D.C. submarket, Class-A rents grew by 3.2% to an average of $2,410. That submarket absorbed 1,655 units during the 12 months ending Sept. 30, comprising nearly half of D.C.'s total absorption over that period. (See definitions at the end.)
The NoMa/H Street submarket had the second-highest absorption over that span, with its 935 units more than doubling the absorption of the third-highest area. Rents did drop in that submarket to an average of $2,413, though its 1.2% decline was slightly below the District average.
Delta's president Will Rich thinks the pricier market in the fast-growing neighborhoods is because they're getting trendier. There are new Whole Foods in both areas, The Wharf just opened in Southwest, and much more.
Contributor Payton Chung suggested another factor, at least for Southwest: the newer buildings are fancier than the older ones, and therefore are charging higher rents. It's possible for average rents to go up but rents in the same building to go down, if the new buildings rent for so much more than the old ones. He wrote, “So much has been built in Southwest and Capitol Riverfront lately that snazzy, expensive, brand-new apartments are now most of what's for rent in these neighborhoods. Even last year, much of what was available was in older, less-chic buildings. But now, the typical apartment for rent is inside a brand-new building with top-end rents, which brings up the average rent.”
It'd be really helpful to see what's happening to rents in buildings that aren't brand new. Are they going down? Theoretically, adding housing supply should allow those rents to slowly decline or at least level off.
What does this do to rents in cheaper buildings?
The Delta report just looks at higher-end apartments; even Class B are far from cheap. What about the existing apartments for middle class and lower-income folks?
This question ties into a perennial debate about new development. Some advocates for low-income residents say that even though supply and demand laws tell us more supply would decrease prices, on a neighborhood level, growth makes a neighborhood's rents rise.
There's some truth to that. As Rick Jacobus explains in this widely-disseminated Shelterforce article last year, new “luxury” housing in “otherwise distressed neighborhoods … dramatically changed the perception of these neighborhoods–they sent a clear signal to the market that these places were safe–both in the sense that they were safe for wealthier residents to live in and in the sense that they were safe for more investment in residential development.”
Sometimes, the developers run marketing campaigns to sell the neighborhood to more affluent renters or “even coin a new name for the neighborhood,” Jacobus explains. “If you are concerned about displacement, you don’t want your neighborhood to be 'discovered.'”
However, Jacobus goes on to explain that “fighting to block new luxury development neighborhood by neighborhood is a losing strategy.” Not just because it often won't succeed, but that even blocking most of the new luxury development won't help. At most, it would stop a neighborhood from getting “trendy” for a short time, but usually at the expense of some other neighborhood.
After all, especially in DC, most “gentrifying” neighborhoods had a strong stock of beautiful, desirable old row houses. Neighborhoods can, and do, shift from less-desirable to more-desirable for wealthier residents even without luxury high-rises.
On a citywide level, Jacobus says, the only solution is to find a way to build as many new places to live as there are new jobs. And, pursue policies to ensure some homes remain affordable to people with lower incomes. That includes policies that set aside new housing as (somewhat) affordable, ones that preserve existing, more deeply affordable homes, and programs like land trusts which transfer land to a nonprofit that ensures it remains affordable.
A land trust will protect homes around the planned 11th Street Bridge park, which is sure to make the area more desirable. Meanwhile, inclusionary zoning is gradually building up a stock of permanently affordable housing, which while not serving the neediest (who we must provide for as well), help ensure a place for middle income earners for the long term. All of these strategies together are necessary.
In addition to protecting and building dedicated affordable housing, DC does need a strategy to ensure it keeps building the market-rate places to live that meet the overall area demand. So far, that's happening by filling in old industrial areas, strip club zones, and parking lots. That can continue for a little while, but not too long.
Meanwhile, huge swaths of the most affluent parts of the city continue to fight against adding homes for new people, with lawsuits, restrictive zoning, and historic designations. That's why Greater Greater Washington and a coalition of other groups, including social justice groups, affordable housing groups, tenants' groups, developers, and faith groups submitted amendments to DC's Comprehensive Plan which try to tackle all of these issues:
- Building enough homes for the overall need
- Furthering fair housing by adding places to live, including affordable ones, in high-price areas
- Making new affordable homes a top priority for community benefits in new development
- Protecting existing lower-income tenants when properties are redeveloped
We think all of these are necessary to ensure a city where all can afford to live, or keep living. Given that DC's rents seem to be more stable than in the past, it can be done. But we can't do it without affirmative public policies that hold these ends strongly in mind.
Definitions: There are some real estate jargon terms here.
- Class A/B: Delta Associates defines Class A mainly as large apartment buildings built in or after 1991 with the most extensive packages of amenities. Apartment buildings that are still fairly high-end but built before 1991 or which have fewer amenities count as Class B.
- Absorption basically means new units that were rented out or sold. If someone builds a 200-unit rental building, they're “delivering” 200 units all at once when the building opens, but they won't all rent instantly; if half of them rent in the first 6 months, then that's 100 units of “absorption.”