Lawsuits (and scarce wood) could make DC rents rise 11 percent over the next three years

Lawsuits have stalled almost 4,000 new homes in DC, a report says. That plus a high price of wood is putting DC on track to build fewer new homes than usual and make rents rise 3.5 percent more a year (or almost 11 percent over three years), according to a new report.

The Washington DC Economic Partnership, an organization jointly led by government officials and business leaders, publishes an annual report on development. UrbanTurf and Eric Fidler noticed a key section on residential development in this year's edition, released Tuesday:

Construction starts have slipped in 2017, as only 2,854 units began construction. Construction starts in 2017 were 31% lower than the total volume from 2016, which had 4,143 units break ground, and 12.6% lower than the five-year average of construction starts from 2013–2017 (3,265 units broke ground on average). The ten-year average of construction starts from 2008–2017 was 2,867 units per year and construction in 2017 in DC was slightly lower than that average.

A main contributor to this decrease in starts is attributed to higher construction costs as lumber prices have increased roughly 20% in the trailing 12-months. Some firms have estimated that costs have risen roughly $20 per square foot. In addition, 13 projects representing 3,986 residential units have been stalled due to local activists challenging the development’s DC government approvals to the DC Court of Appeals.

This reduction in construction starts will allow for lease-up properties to stabilize and for existing units to achieve higher rent growth. When comparing 2017 effective rent to 2016, rent growth has posted negative numbers at 1.0% decrease. With a low vacancy rate and high absorption numbers, DC is poised for a rebound in 2018 and beyond with rent projections forecasted to increase at an average annual increase of 3.5% over the next 36 months.

Deliveries are projected to begin a downward trend over the next 36 months. It is estimated that in DC 4,822 units are projected to deliver in 2018, 4,737 units in 2019, and 1,473 units in 2020. While the market will remain tight in 2018 with many projects in lease-up (the timeframe for a new multifamily property to attract tenants and reach stabilized occupancy), rent growth will begin to increase with minimal concessions offered.

You can probably make out what this is saying, but stripping away the real estate-ese, here's what this is saying:

• Fewer new buildings are getting started this year than last year (31 percent fewer) or the average of the last five (12.6 percent fewer).
• One big reason is that wood is 20 percent more expensive.
• Another big reason is lawsuits.
• Thanks to lots of new homes being built recently, rents have dropped 1 percent.
• But with fewer new buildings starting, it could rise 3.5 percent a year for the next three years.

2016 and 2017 have actually been record years, so while this is a drop, it's a drop from a high point. But the point is, that high point was lowering your rent!

The folks doing the lawsuits tend to argue that new buildings just benefit wealthy people and drive up costs for everyone else. There may be some truth to that in a very localized way; if one neighborhood gets “hot” and the one next to it doesn't, then the first neighborhood may see more general cost increases.

However, if neither of the two neighborhoods got new buildings, and the city as a whole didn't get enough new homes, then prices would rise for everyone. Not building housing might move the problem around within the city, but doesn't actually solve it.

We also need affordable housing and displacement protections

And, it's also important to not stop with “supply will fix our problems.” Not building housing makes the problem worse, but just building housing doesn't solve it on its own. Market-rate new construction meets the needs for the top end of the market, and it's far too tenuous to count on benefits “filtering” to lower levels. The whole region needs to make a major commitment to providing affordable housing for people of many income levels as well, and fighting displacement when existing affordable housing is redeveloped.

That's why Greater Greater Washington has teamed up with housing organizations, tenants' organizations, developers, and faith groups to recommend a set of policy approaches, including these three:

• Fix the development process so that new homes aren't jammed up in court
• Create and preserve more affordable housing
• Protect tenants from displacement in properties undergoing redevelopment

We shouldn't simply focus on getting the blocked construction moving while ignoring the other two parts of this equation. With limited public funds, new and profitable development can provide a path to pay for more affordable housing and tenant protections, and many developers are happy to agree to that as long as their projects can still “pencil out” financially.

Let's keep moving forward and not backtrack over the next three years.