Washington's economic future depends on more housing

Development

Washington's economic future depends on more housing

by Lisa Sturtevant and Agnès Artemel • October 17, 2012 10:38 am

This is the second in a 5-part series about how the Washington metropolitan area can provide housing options for its growing workforce. Read part 1.

Is the Washington region building enough housing, or the right types of housing, for the future? At current rates, probably not, and that risks stifling the region's economic vitality.

Photo by dan reed! on Flickr.

Over the next 20 years, the Washington metropolitan area will add over a million net new jobs. At the same time, the region will need 1.8 million workers to replace retirees and others leaving the workforce.

These workers will need over 700,000 new housing units by 2030, but even if the pace of construction over the last 20 years continues, the region would only add about ¾ that much. Plus, new workers will (and already do) demand more multi-family housing and housing at lower price points than what exists today or what most builders are constructing.

In 2010, the Washington metropolitan area depended on non-resident workers more than any other metropolitan area in the country. About 230,000 commuters from places like Baltimore, the Eastern Shore, Richmond and West Virginia work in Washington every day. Hundreds of thousands of other workers commute between jurisdictions each morning and evening.

A major source of the region's transportation problems is the inadequate supply of housing within the region. Without enough housing for our future workers, the consequences will be enormous. Home prices and rents will rise, our roadways will become more congested, our transit systems strained to the limit, and employers will depend more and more on non-resident workers.

Housing the workforce is key to the Washington region sustaining its current economic success and achieving its economic growth potential in the future.

The region needs more than 700,000 new housing units by 2030

Forecasts from the George Mason University Center for Regional Analysis found that to accommodate future employment growth, the Washington region would need to add 731,457 new housing units between 2010 and 2030, or about 36,500 housing units each year. The table below shows how many units each jurisdiction needs if it wants to house all of its future workers inside its borders.

Housing demand by jurisdiction, 2010-2030

Yet, over the past 20 years, the region has only built about 28,000 housing units each year. During the economic downtown of the last few years, there have been especially low levels of building activity by historic standards.

Building permits, Washington region

Future workers will demand different housing from what exists today

The types of units needed in the future will also differ from the region's current stock. The shifting demographics of entry-level workers will create demand for more multi-family and rental units and more moderately-priced housing.

While current housing in the region is about 67% single-family and 33% multi-family, the housing demand forecasts foresee demand that is the reverse of current patterns, 40% single-family and 60% multi-family.

Comparing current and forecasted units
Single-family vs. multi-family

New workers will need relatively lower cost housing. About 55% of the region's new workers will demand owner-occupied housing (about 400,000 owner-occupied housing units). 69% of homeowners will demand housing priced below $400,000 (in 2010 dollars), including a quarter that can only afford homes priced up to $200,000. Current owner-occupied housing is disproportionately higher cost (over $400,000).

Comparing prices of current and forecasted units
Owner-occupied units, Washington region

On the rental side, the forecasts predict a significant need for rental housing below $1,250 per month for more moderate income households. The luxury segment will only be about 1% of rental housing compared to 9% today.

Comparing prices of current and forecasted units
Renter-occupied units, Washington region

Most local governments are not planning enough housing for their future workers, and may hinder new housing with regulations on new development. Meanwhile, builders need to recognize the need for more multi-family housing and smaller, more affordable owner and renter homes in the region.

Next in this series: To what extent do local government regulatory processes affect the region's ability to provide housing units that meet the forecast needs?

22 comments

Tags: development, housing

DC area incomes fall behind skyrocketing housing costs (Oct 4, 2012)
As rents rise, Alexandria tackles affordable housing challenge (Mar 20, 2012)
Housing is more than supply and demand (Sep 21, 2011)
Downtown posts big gains in housing units (Dec 28, 2010)
Condos are missing from Fairfax County's revitalization story (Jun 6, 2012)

Lisa Sturtevant is Deputy Director of the Center for Regional Analysis at George Mason University. Dr. Sturtevant's primary areas of research include housing, demographics, and economic development. Prior to working at the GMU Center for Regional Analysis, she spent four years as County Demographer in the Arlington County Department of Community Planning, Housing and Development.

Agnès Artemel became interested in revitalizing cities after growing up in France and Germany, where livable and walkable have always been the norm. She is a founder of the Northern Virginia Streetcar Coalition and Alexandrians Delivering smart growth Around Metro (ADAM). Her professional focus is on market and feasibility studies, real estate development approvals, and economic development partnerships. Agnès has a Masters in urban and regional planning.

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Once again, you've got to take finance into the equation here.

We're experiencing a massive drop in housing units being built. If anything, DC is doing OK because you can get financing to build apartments and luxury condos.

Given that the current, 4-5 year recession and the promise of future cuts in spending over the next 20 years, I think reducing the job estimates by 3/4 is very realistic.

by charlie on Oct 17, 2012 11:12 am • link • report

Methinks the demand numbers for NoVA are way too optimistic. I just don't see Fairfax or Loudoun sustaining that kind of growth for another 20 years.

by andrew on Oct 17, 2012 1:16 pm • link • report

The important thing here is the assumptions and the likelihood they will hold in the future. Given that many people may remain in the workforce longer than in the past (e.g., fewer people with defined benefit pensions, long-term effects of the great recession on IRA/401k returns), federal spending may more or less contract and that patterns of family formation may change, this would have significant limitations. There probably are varying vacancy rates across the region which also may distort supply and demand. There also are variations in the degree to which housing might be subdivided or otherwise reconfigured in the future.

by Rich on Oct 17, 2012 1:21 pm • link • report

110k in FFX over 20 years? I dont know. depends on A. if that 1 million net new jobs pans out B. How many will be either in FFX or in places where FFX is a particularly competetive commute C. how well the inner jurisdictions do in building WUP housing (since most of that 110k has to be in WUPs, FFX being built out for SFHs)

Also how many people retire in place, vs leaving the area. If the housing does not get built, and prices go up even more, the incentive to sell and retire elsewhere strengthens.

by AWalkerInTheCity on Oct 17, 2012 1:22 pm • link • report

These numbers for Fairfax and Montgomery are both assuming a full build out of Tysons and White Flint for both jobs and housing. I find the relatively large estimates for Stafford and Spotsylvania more staggering. Also, why not count Howard and Anne Arundel Counties in MD at the least. They are closer in than some of the VA counties cited in the study, and being from MD, would venture to argue the DC region is becoming more and more a driving factor in their growth.

by Gull on Oct 17, 2012 1:38 pm • link • report

I can see it for fairfax certainly. Its just that its going to be in Reston, Tysons, Springfield and Route 1 and its all going to be a lot of vertical housing. Though it'd be nice to more urban development in the traditional parts of Vienna.

Loudoun is also getting into the WUPs game with stuff on the outskirts of Leesburg and Ashburn village going up quickly. My wife's school is surrounded on all sides by construction.

by drumz on Oct 17, 2012 1:49 pm • link • report

I await the day when we snatch Howard County from the Baltimore metropolitan area. Really most of the growth is from proximity to Washington. Not Bmo. On a side note, did you guys realize that projections now place DC (just the city) ahead of Baltimore city in terms of population? We are just surpassing them this year or something like that. Can't remember where I read that.

by dan starzek on Oct 17, 2012 1:50 pm • link • report

Considering the verbiage in this post, Howard and Anne Arundel Counties are likely lumped with Baltimore, Gull.

by selxic on Oct 17, 2012 1:51 pm • link • report

69% of homeowners will demand housing priced below $400,000 (in 2010 dollars)

Ok, that covers some of the 660 sq ft., 1 bed, 1 bed units. Anything larger and you're probably going to be SOL.

by Fitz on Oct 17, 2012 1:57 pm • link • report

If the equation of 1.5 people per housing unit is used, 122,613 net new housing units in DC by 2030 would expand the District's population to nearly 800,000. That's almost a 25% increase from the 2010 census.

Considering that DC boomed during the 2000s, but only grew 5.2% in population, it seems unlikely the city will reach this projected estimate. Nevertheless, the city is growing rapidly, and reaching a population of 700,000 by 2030 is very possible, particularly if households with children begin to move in and stay, rather than leave.

by Sage on Oct 17, 2012 2:19 pm • link • report

@Sage

The city is adding about 1,000 residents a month at the current pace. I would guesstimate actual resident gains started in the late 2000's. In my neighborhood, in 2000, rowhouses were still going for 99k, which says to me that there was not a lot of demand. It doesn't take many years at 1k per month growth to get to that 800k mark. We are already over 620,000.

by Kyle-w on Oct 17, 2012 2:56 pm • link • report

"These numbers for Fairfax and Montgomery are both assuming a full build out of Tysons and White Flint for both jobs and housing."

In twenty years? I thought the county plan was for build out over at least thirty years. Full build out of Tysons, including the office space, over 20 years, sounds quite optimistic.

by AWalkerInTheCity on Oct 17, 2012 3:07 pm • link • report

I don't see those job forecasts panning out. There simply isn't enough infrastructure being planned to support that kind of job growth. Yes, there's a lot of infrastructure planned for Tysons but that's just a small part of what's needed to support those forecasts. Unless there's a seismic shift in political will, I don't see local governments building enough infrastructure to support those jobs. Perhaps new technology like telecommuting or driverless cars will enable more growth with less infrastructure but that's pretty shaky ground.

That said, the more interesting question is "why has there been a market failure for supply to meet demand over the last few decades?" Did developers underestimate job growth and housing demand (both quantity and type)? Are regulations too tight on building new housing? The article goes into great detail about the market failure but doesn't really tell us what caused it and how we can resolve the issue.

by Falls Church on Oct 17, 2012 3:11 pm • link • report

Interesting that Jefferson County, West Virginia is considered part of Metro DC. Ah, the benefits of Metro (and MARC).

by Tom Coumaris on Oct 17, 2012 4:19 pm • link • report

Interesting that Jefferson County, West Virginia is considered part of Metro DC. Ah, the benefits of Metro (and MARC).

That has nothing to do with it. MARC has a very small number of riders on the Brunswick Line in the three WV stations. Rather, it's people that have jobs in Loudoun County and take avantage of cheaper housing Jefferson (and arelatively high level of amenities in WV). The taxes are better and houses are cheaper, and if you have a 35-40 minute commute to work, it's far cheaper in WV than eastern Loudoun or Fairfax (my mother is a teacher in central Loudoun, and about half the teachers live in WV)

by AA on Oct 17, 2012 5:48 pm • link • report

To give an idea of how much the National Capital Region has grown since 1980, here's the population numbers:

1980 3,401,522
1990 4,122,914
2000 4,796,353
2010 5,586,525

Since 1980, the region's population has grown between 600,000 and 800,000 each decade. If this rate of growth continues and is extrapolated to 2030, the population will approach or surpass 7,000,000.

Below is a link to a good map that clearly delineates the extent of the Washington Metropolitan Region:

http://en.wikipedia.org/wiki/File:Dc22counties.jpg

by Sage on Oct 17, 2012 9:54 pm • link • report

This is a nice excuse for more new-built housing but ignores the effects of zoning and real estate taxation on existing structures which could accommodate many more units. Our existing housing stock in DC especially was geared to large family townhouses but are more often used today for single person or couple housing of way too much square footage.

New-built isn't going to solve all the problem. There has to also be zoning and real estate tax incentive to subdivide, for example, an existing 2400s' townhouse into 3 800 sq' units.

by Tom Coumaris on Oct 18, 2012 4:16 pm • link • report

Tom,

It's not like "new-built" housing isn't also constrained by zoning.

by Alex B. on Oct 18, 2012 4:22 pm • link • report

@Sage: thanks for the population data. Plotted as log(pop) vs year, the data is very linear. Fitted to a straight line the rate is 1.642% +/- 0.07% per year, with an excellent R-value of 0.9946.

That is very stable growth, good enough to project out 20 years. The increase is 38.8%, to a total population of 7.754 million, with an increase of 2.168 million.

by goldfish on Oct 18, 2012 5:28 pm • link • report

New-built is usually in commercial or high residential zones in DC. Of course we don't even make use of the units allowed in R-4 and R-5 zones in DC now for some weird reason. That's why a tax incentive is necessary.

by Tom Coumaris on Oct 18, 2012 8:25 pm • link • report

Arlington is being praised for its commitment to affordable housing in its Form Based Code along Columbia Pike when the reality is that the area could sustain much, much more density than is on the table. It's a perfect example of how both politicians and the planning community lack the boldness required to address these issues.

by John Black on Oct 19, 2012 1:45 pm • link • report

Too many X factors are working against future growth to justify increase housing in the District.

1.The Bush Tax CUTS for the Rich; will automatically kick-in unless Congress act.
2.Federal Government must scale back office space and leasing and rental agreements.
3. Contractors are holding their breath…and have put a freeze on their company’s expansion in fear that the President must reduce the Government size of employees and must reduce federal contracts.

The sole employer of the District of Columbia is the Federal Government…period. Without (a steady pace) an increase of the number of Federal Gov’t. jobs there is no justification for new housing…period. This study is fictional and fails to examine future job outcomes as a basis to justify increase building for housing.

Additionally, worker’s pay is far behind the increasing scales of inflation and lagging behind the rising cost of living essentials…food, transportation, utilities and insurance costs (health & property).

The planned expansion of Department of Homeland Security Annex Building on Mass. Avenue was suspended. I see a delay if not suspension of the planned DHS site at St. Elizabeth’s Campus.

This study must be a last call for developers to ensure that they can keep food on the table. I don’t see it happening – increase housing numbers planned for 2030 coming true. Chg.

by GURLEY on Oct 20, 2012 9:10 pm • link • report