(Washington Blade photo by Michael Key)
It’s not rocket science: The more housing there is, the more affordable housing will be.
In cities with growing populations, the degree to which the creation of new apartment units track with the increased need for additional rental housing is the difference between soaring prices and a stable market.
D.C. has begun to prove this simple reality of supply and demand.
A report last month by real estate research firm Delta Associates indicated that D.C. rental prices dropped for the second consecutive quarter, following a rare drop in rents in the previous period. These drops were only the third decrease in rents since 2010.
District market-rate rents citywide were 1.3 percent lower on a year-to-year basis for newer Class A apartment buildings, and declined slightly less than one percent at Class B buildings. In the D.C. market, Class A buildings are typically larger apartment buildings constructed after 1991, with extensive resident amenities, while Class B buildings are generally older renovated buildings offering more limited amenity packages.
This decline in average rents was the result of a record number of new apartments hitting the market in the past year, totaling more than 11,000 units. Optimism that prices will continue to drop is based on an already-planned addition of nearly 14,000 new units in the next three years.
While apartment rental prices had been predicted to decline by housing experts, due to the major increase in new units, the areas of the city most benefiting by price declines were opposite what was expected.
Rental prices were anticipated to plateau in the areas with the largest supply of new units, primarily the Riverfront area in Southeast-and-Southwest D.C., as well as NoMa and surrounding the H Street, N.E., corridor. These areas are expected to continue to lead the city in rental housing growth over the next three years, eventually exceeding the total number of units in central D.C.
Instead, rents dropped in the more established neighborhoods of northwest D.C., including Foggy Bottom, Dupont Circle, Logan Circle, Shaw, and the Mount Vernon Triangle area. The Shaw-Columbia Heights submarket experienced the largest decrease at 4.1 percent while average rents in Dupont-Logan-Mount Vernon declined 2.4 percent – all near-downtown areas. The NoMa and H Street, N.E., area saw a more modest 1.2 percent drop, while absorbing the second-highest number of new units.
In neighborhoods with the most new rental construction, primarily the Capitol Riverfront and Southwest areas, Class-A rents grew by 3.2 percent, an unexpected development. Excitement surrounding The Wharf, with its destination array of dynamic entertainment and nightlife establishments, became a big part of the draw luring renters to the Waterfront area.
Nearly all new rental housing in almost all cities is typically, and historically, higher-priced housing. The availability of new “luxury” apartments, however, serves to reduce the pressure on existing housing, including less expensive units. This benefits the mainstream market overall and allows for a broader range of rental price points.
Over the past decade, D.C. has become one of the most expensive cities in the country for rental housing. The sky-high cost of living, only partially offset by a relatively high median income, affects the economic demography of residents and both the pace of new arrivals and who they are.
In-migration to the city has begun to taper off while remaining robust, and is increasingly comprised of wealthier new residents. D.C. has yet to see departures by Millennials exceed arrivals, as is now the case in the metropolitan area for the first time in many years, but their net influx is noticeably slowing. Rental housing affordability is a key factor in this shift.
If market-rate housing is to be marginally affordable and price-stable, the essential solution component is creating an adequate supply.
D.C. public policies, zoning rules, and regulatory procedures must encourage and incentivize new rental housing construction. More important, neighborhood NIMBY activists must end their knee-jerk, and counter-intuitive, opposition to building it.
Mark Lee is a long-time entrepreneur and community business advocate. Follow on Twitter: @MarkLeeDC. Reach him at OurBusinessMatters@gmail.com.