Greater Greater Washington

Can Silver Spring build enough housing to stay affordable?

Economists say one of the best ways to provide more affordable housing is through filtering, a theory that as expensive new homes age and decline in value, they'll become low-cost homes tomorrow. But this requires building enough housing to keep up with demand. Is that possible?


Photo by dan reed! on Flickr.

I analyzed trends in downtown Silver Spring, where over 600 new apartments and condominiums were built last year. Another 1,300 apartments are under construction as we speak. Almost all of them are high-end, luxury rentals.

While there are more affordable alternatives, the area as a whole has become more expensive in the past 10 years. Persistently low vacancy rates suggest there's a lot of demand for housing as well, further pushing up rents. It appears that for filtering to take effect, the area may need even more housing than it already has.

I looked at 32 market-rate (as opposed to entirely subsidized) apartment complexes within a mile of the Silver Spring Metro station, which includes downtown Silver Spring, South Silver Spring and East Silver Spring. I found their advertised monthly rents and unit sizes on the landlords' websites and sites like apartments.com, apartmentguide.com and rent.com, and used everything from Historic Silver Spring to aerial photos from the 1950's to find out when each building was built.


Click the image to see a larger version.

Rents varied dramatically across the 32 complexes, and as predicted, age appeared to be a factor. Apartments at the Solaire on Ripley Street, which opened last year, rent for an average of $2.87 per square foot, more than twice the $1.36 rent per square foot at Hillbrook Towers on Thayer Avenue, built in 1961. Typical 2-bedroom units at both buildings rent for $3,023 and $1,250 a month, respectively.

It's said your annual income should be 40 times the monthly rent for an apartment to be truly affordable. Thus, you'd have to make $120,000 a year to live at the Solaire, or $50,000 to live at Hillbrook Towers.


Click image to see a larger version.

Next, I plotted each building's age and its average rent per square foot and found a trendline. As it turned out, each year since a building was built takes off about 1.19 cents in monthly rent per square foot, or $11.90 for a 1,000-square-foot 2-bedroom apartment. That may not seem like much, but over time, it adds up to a $595 difference between a unit built this year and one built in the 1960's.

According to the 2007-2011 American Community Survey, 25% of the apartments in and around downtown Silver Spring were built during the 1960's, and another 33% before that. This period was the first big apartment boom in Silver Spring, with even more units constructed than during the 2000's. Shouldn't this mean that there are lots of cheap apartments like at Hillbrook Towers? Not quite.


Click the image to see a larger version.

Low vacancy rates in and around downtown suggests that the market is absorbing any new apartments that get built. According to the 2000 Census, just 2.5% of the then-8,200 apartments in the area were vacant. In 2009, that rate had doubled as several new buildings opened. By 2011, with 9,100 apartments in the area, the vacancy rate fell back to 3.35%. In Census Tract 7025, which contains several recently-built apartment buildings in downtown and South Silver Spring, just 1.67% of all apartments were vacant in 2011.

For filtering to work, there have to be enough new apartments to soak up the demand for new housing. Without it, landlords will upgrade their older buildings to draw those potential tenants.

That's what happened at the Blairs, the massive 1960's-era apartment complex across from the Silver Spring Metro station, whose owners recently completed a major LEED-certified renovation. While it's made the complex more environmentally sustainable, it's also resulted in higher rents. A renovated 2-bedroom apartment was recently advertised on their website with rent of $3,060 a month, comparable to new construction.

A combination of new, high-end buildings and old buildings that are essentially being made new means that rents overall continue to rise. In fact, rents in and around downtown Silver Spring have increased by 75% since 2000, 3 times faster than inflation.


Click the image to see a larger version.

In 2000, the median rent for all apartments in the area was $808 a month, which would be $1,042 today. In 2011, it was $1,410 a month, which suggests that apartments like the one at Hillbrook Towers are the exception, not the rule.

It's true that downtown Silver Spring has grown a lot in recent years, so much so that some residents say they've had enough. But the area isn't even growing as fast as did a half-century ago, and even after a global economic recession, the demand to live here remains strong.

Silver Spring prides itself on its diversity, but that's threatened by rising rents. Filtering isn't the only tool we have to protect affordable housing, but it's one we should take advantage of. Especially given opposition that crops up to most new apartment buildings, we will see whether Silver Spring can build enough housing to gain the benefits of filtering, or if it will soon move out of reach for many people and families.

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Dan Reed is an urban planner at Nelson\Nygaard. He writes his own blog, Just Up the Pike, and serves as the Land Use Chair for the Action Committee for Transit. He lives in downtown Silver Spring. All opinions are his own. 

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There can only be one conclusion: We need more construction. Supply is not meeting demand.

by Jasper on Jan 28, 2013 10:27 am • linkreport

The problem with filtering as an argument and your piece is that "filtering" doesn't presume that household economic diversity within particular neighborhoods. It presumes outward migration (a/k/a sprawl) of people as their economic circumstances improve, and their replacement by households of lesser circumstances. It never assumed that better off and less well off people would live in the same general place.

See e.g. the discussion in _Building Neighborhood Confidence_ (Rolf Goetze, 1976) from page 42 "Conventional housing theory holds that housing ages and filters downward in quality, while people filter upwards. Urban renewal was based on this theory and called for new structures to replace the old. But some FHA housing already appears very blighted, and much of the old housing that was not demolished has been recylced by market demand into good condition. Clearly housing age or conditions per se do not determine the future dynamics of neighborhoods: there are more subtle forces determining who are the replacement buyers and the new residents, and shaping their impact of housing demand on the maintenance of housing demand. ..."

by Richard Layman on Jan 28, 2013 10:33 am • linkreport

Economists say one of the best ways to provide more affordable housing is through filtering, a theory that as expensive new homes age and decline in value, they'll become low-cost homes tomorrow. But this requires building enough housing to keep up with demand. Is that possible?

Short answer: not if the new units coming online simply induce greater demand for those types of units, which is what we've seen happening in the DC area this past decade or so.

by Dizzy on Jan 28, 2013 10:52 am • linkreport

Very nice work Dan. I completely agree, we need more construction, with my usual qualifier that it be of the best kind. This dosen't mean gold plated, but rather buildings that strengthen the pedestrian experience and add the the quality of life by their design having some appreciable ability to inspire affection - in other words, beautiful. All styles need apply!

by Thayer-D on Jan 28, 2013 10:53 am • linkreport

The problem with filtering as an argument and your piece is that "filtering" doesn't presume that household economic diversity within particular neighborhoods.

That's not a problem with filtering, however. That's a problem with policy.

Denying the existence of a phenomena like filtering is like denying the existence of gravity.

Filtering is the mechanism through which the housing market works.

by Alex B. on Jan 28, 2013 10:58 am • linkreport

Filtering depends on a regular churning of older units with newer ones. Newer ones will tend to be more expensive, putting aside the fact that Silver Spring is now becoming a desireable place to live.

This is all normal market functioning of the type that creates the necesssary conditions for filtering to occur. The alternative is some form of subsidy to allow for creation of new affordable housing units, or some kind of rent control.

by Crickey7 on Jan 28, 2013 11:10 am • linkreport

Long answer: The primary driver of housing costs in this area is not lot size or the newness of the construction or anything that has to do with the physical attributes of the unit (those certainly are factors, but they are subsidiary). It is the location, and, specifically, the socio-economic demographics of the neighborhood and (closely related but not always directly so) the school options associated with that neighborhood.

Most of the affordable housing stock in DC and the close-in suburbs is not affordable because it is old or due to other physical characteristics - it is affordable because of who lives there now, which makes it undesirable to those with the money to access larger parts of the housing market, rather than having to settle for whatever they can. Racism plays a significant part in these perceptions, to be sure, but crime & education stats are front and center as well.

So what you have is a situation in which the housing market is strongly segmented and certain parts of it are simply considered off-limits by those with inflationary purchasing power until something (broadly speaking, the assurance that there will be a non-trivial amount of people of similar SES) opens up that neighborhood market. At that point, new demand is induced for that area.

This dynamic does not favor the kind of filtering postulated by economists. Or rather, it might, but not within the close-in DC area. The properties that are losing value and becoming affordable due to filtering are not older units in the urban core, but units further out, from which people are moving to fill up new high-end construction. The market for garden apartments and duplexes in Prince William, Chantilly, etc. is hanging on for dear life right now, held up by the proximity to things like the Dulles Tech Corridor and Fort Belvoir. Pending the size of defense cuts, those places will quickly filter down and become housing for the next generation of Salvadorans and Hondurans coming over. Something similar has already been ongoing.

by Dizzy on Jan 28, 2013 11:19 am • linkreport

Alex B. -- filtering is based on the presumption that a neighborhood stays at its price point and never increases in value but can decline in value, in perpetuity (the Chicago School of Sociology's work on neighborhoods was not built on neighborhoods in the core resuscitating their value, it was built on a presumption that the better off economically would always move outward, farther and farther away from the center city generally and the core specifically).

So as people's economic circumstances improve, and they have "used up" part of the value of the house so that it depreciates in price, people of lesser economic circumstances can afford to live there.

What's happening in Silver Spring and in most DC neighborhoods is an upgrading of the extant neighborhood, although in Silver Spring this is more a function of new construction at higher price points (current market value), whereas in DC neighborhoods it's a function of either or both price escalation of extant housing or the construction of new market rate housing.

You have a type of "filtering" occurring at the multi-neighborhood scale but not within neighborhoods. People who couldn't afford to live in Capitol Hill chose to live in H St. or Lincoln Park. Then those areas increased in price and people chose to live in Trinidad or Hill East or east of 14th St. NE, in turn leading to price escalation in those neighborhoods, etc.

But that's not the kind of filtering that was conceptualized in the original work for HUD. (E.g., in 1988 houses north of H St. could be bought for less than $100K. Today they range upwards of $500K. This is $200K to $300K greater than the impact of inflation adjusted values.) It's filtration only in that there is a continuum of the better off. There is no room for the less well off in this scenario.

by Richard Layman on Jan 28, 2013 11:59 am • linkreport

If there's anything we've learned over the 20th century, it should be that the more controls are in place that distort the housing market to make it more affordable, fairer or you name it, the more expensive and unequal the distribution of housing becomes. What we need to do is encourage construction to the point that demand somewhat matches or even outstrips supply, which not only will halt price increases, but will also create jobs, improve the local economy and provide more options and market competition. Yes, housing doesn't follow ideal economic models, but no sector truly does. However, the more we distort the market, the worse it becomes for all of us.

by Phil on Jan 28, 2013 12:06 pm • linkreport

If we want more affordable housing in the DTSS area, we need more housing stock. It's unfortunate that some people would rather put their own small considerations above the needs of other people and society as a whole, but that is what has happened in some areas of Silver Spring. Converting a one-story self storage site into a building that could support several hundred residents is exactly the kind of thing that Silver Spring needs to do to be able to support more residents and ease the housing issues we have.

The idea that Silver Spring is overbuilt is foolish and shortsighted. The population of the US is still surging, and DC in particular is booming. The high rents are proof of a tight market, as is the vanacy rate.

We need more housing stock of apartments, condos and townhouses to meet demand. Unfortunately, Montgomery County and some of its residents are lagging behind the needs of people and the market. The market in DC and NoVa is booming again, but we just haven't brought enough new stock online for MoCo to enjoy some of what NoVa and DC are enjoying right now. Our outdated zoning has also held MoCo back, and our county is aging because it's less appealing than other jurisdictions for the next generations.

New apartment complexs help make older complexs cheaper. These complexs will allow DTSS to support more middle income and lower people. When I first lived in the area, I lived in an old building. It didn't have the fanciest features in the world, but it worked, and it allowed me to live in this area. I could not have afforded to live in most of the new buildings, but the new buildings help making older buildings more affordable.

Now I'm a bit older and farther along in my career, and was able to purchase a condo. But without more housing stock coming online, it will be harder for some people to live in this area. At a mimimum, we have to keep up with population growth in the DC region, but we really need more housing stock than that to help make this area more affordable. It's also good for the environment, traffic and human health to build more housing new transit stations than upcounty.

The answer is not more MPDUs. That's a market distortation that drives up pricing for middle class residents. If you make a few thousand more than the top-end of the MPDU range, it's very difficult to live around here. The answer is more housing stock, which will benefit all income ranges. I'm not against MPDUs, but a big push for them without a push for more housing will not help many middle income residents, and could in fact hurt there ability to live around here.

You've also pushed for accessory dwellings, and ideas like that will also help this area support a more diverse population. I am curious to why some people and some of our elected officials don't see the need for more housing and more housing types. Perhaps it is because our council members don't really understand urban areas.

by Patrick Thornton on Jan 28, 2013 12:19 pm • linkreport

- filtering is based on the presumption that a neighborhood stays at its price point and never increases in value but can decline in value,

You and I are talking about different things. I'm not talking about filtering as if it is a policy. I'm talking about filtering as a description of how the housing market works.

Filtering is merely how the market works. I agree that the specific submarkets and their neighborhoods can and do filter up and down market, but that is also impacted by the restrictions on adding new supply to areas in-demand.

There is no room for the less well off in this scenario.

Which is why the policy responses to this phenomena involve adding more supply - both more market-rate units and more subsidized units. Either way, the response to an increase in demand is more supply.

by Alex B. on Jan 28, 2013 12:29 pm • linkreport

Filtering is "a nice idea" but not even a theory esp. when a location is desirable enough to attract new speculative development at premium prices. Increasing supply has not created more affordable housing in any popular area here 9or in other cities). This ssems to be based on the pattern of development from central cities that was happening up until a couple decades ago.

by Rich on Jan 28, 2013 12:33 pm • linkreport

Increasing supply has not created more affordable housing in any popular area here (or in other cities).

So what is the solution to the price problem? Not increase supply? Why would that keep prices down in an area? If people want to live in an area presumably some of them are willing to pay above advertised prices to do so. That drives prices up if you don't build anything new for them to buy.

As Alex B. said, you have to build new market-rate units and new subsidized units.

by MLD on Jan 28, 2013 12:36 pm • linkreport

Rich,

If more affordable housing is not being created, new development is not keeping up with demand. The only way to create more affordable housing within a market context is to exceed demand. Merely keeping up with demand will not move the needle, and if urban housing becomes more desirable, affordable housing will further go away.

So, yes Manhattan has added more stock and the city hasn't gotten more affordable, but that's because the new stock is still lagging demand. Other market distortions such as parking minimums keep housing artificially high. Not only does parking infrastructure take up space that could be used for housing or something else more productive, but it is housing that is geared towards wealthier residents. Get rid of parking minimums, allow developers to build buildings or units without spaces, and watch as those units are more affordable. These units would also not be particularly desirable for wealthy residents who want to own cars or multiple cars in an urban area.

The kind of people who need affordable housing are also the kinds of people that can't afford cards. It's crazy that Manhattan has had parking requirements. It's also crazy that the idea of building units without parking gets people all upset in the Downtown Silver Spring area too.

Additionally development has created more affordable housing in Chicago and other cities. You can get a pretty decent condo on the North Side of Chicago for significantly less than you can in Silver Spring.

by Patrick Thornton on Jan 28, 2013 12:44 pm • linkreport

Note that almost all of the housing growth in the past 10 years has been in District 2 of Montco (which is to say a bunch of single family detached homes). The demand for new places to live is huge, and just looking at the numbers, the last 10 years have seen the construction of what, 4000? 5000? units. The county added 75000 new hourseholds, or 15 times that. Almost all of it in broadly suburban areas. Imagine if it were flipped. Imagine 1/16th of homes were detached single family and silver spring were absorbing its share of 70000 new homes. Say it gets 1/3rd while bethesda etc get 2/3rds. If each 30 story tower has 10 apts per floor, for 300 a building, you'd have seen 77 300 ft towers built. There's certainly space for it in Silver Spring, but it'll also look like NYC (not that there's anything wrong with that). It's just unfathomable for the people there.

by Matt on Jan 28, 2013 12:45 pm • linkreport

For affordable housing advocates,

What sort of solutions do you see for long term affordability that don't include increasing supply?

by drumz on Jan 28, 2013 12:51 pm • linkreport

Patrick Thorton has it right imo, but I think one ought to sprinkle that with the issues Dizzy raised. There is indeed a lot of close in affordable housing that many looking would not consider for whatever reason. The issue there is where would the people who live there currently move to...sprawl, as Richard Layman indicated. Also, the boogeyman of gentrification woujld raise it's head again, and that tends to stall most conversations. In the end, we just aren't meeting demand, which imo could easily be enhanced with building more metro lines or streetcars asap. That along side with easing the beaurocratic restricions to getting permits would go along way to easing the pinch.

by Thayer-D on Jan 28, 2013 12:56 pm • linkreport

If all the new places being built are high end, and the vacancy rate on them is very low, than what does that say. It means there's enough people with enough money to occupy them. Just building more isn't going to do anything to about that. You would have to build more really crappy units that nobody in their right mind would pay the inflated prices for, no matter how close it is to the metro. Then the people with money would go elsewhere, leaving those units affordable. Personally, I don't see the fuss about SS, and paying rent comparable to close in DC. But hey, to each his own.

by Nickyp on Jan 28, 2013 1:03 pm • linkreport

Just to note, I am not against intensification including new construction of multiunit + MPDUs. And Patrick Thornton is more accurate than I was in describing the reason that prices don't drop--because demand isn't being met. It's not a filtration issue really. The other presumption is that it takes a long time to upgrade housing that declines (e.g. in the case of SS, Falklands or I am thinking 1500 Mass. Ave. NW, which I wrote up years ago--can't find the entry--in response to a critical Post article about the building being designated. I wrote that HP would help keep the property affordable. Yet since then the bldg. has been acquired by Equity Residential and has been upgraded).

I will say one thing about Chicago. Chicago is just so damn big compared to DC that it is a perfect example of filtration actually. And there is so much supply of extant housing that keeps prices down. That's been the case for at least 30 years (e.g., those of us in Michigan who thought about moving to Chicago paid attention to housing prices there). So I don't think it's an apt comparable for DC.

by Richard Layman on Jan 28, 2013 1:14 pm • linkreport

Nickyp,

Why pay rent comparable to DC (although not the really trendy parts of DC) in Downtown Silver Spring? Easy: Education.

Montgomery County has one of the top k-12 systems in the country; DC has one of the worst. Maryland residents can attend one of the top public universities in the country (and a top 50 university) for relatively little money. DC residents don't have that luxury.

That and Downtown Silver Spring is still significantly safer than many trendy parts of DC. And it's not too shabby being able to walk to AFI and The Fillmore.

DC has a lot of nice things going for it, and I love the city, but it's difficult for middle class people to live in, especially if they have kids or want to get graduate degrees. My friends my age in DC are deciding whether or not to stay and send their kids to private/Catholic school or move out to a walkable area in MoCo or NoVa that has better public education.

DC is doing a much better job with new development than MoCo and Downtown Silver Spring, so perhaps in another decade the math on this situation will flip.

by Patrick Thornton on Jan 28, 2013 1:14 pm • linkreport

Great local flavor on a regional problem. Interesting that Arlington is a supposed affordable housing leader but the Orange Line could sustain much more housing density if the up-zoning was done a few more blocks off of the transit line (Matt Yglesias had a good post on this awhile back). Similarly, the Form Based Code along Columbia Pike wins awards but it's also not nearly dense enough to preserve the market-based affordable housing there over the long-term.

by Geronimo on Jan 28, 2013 1:18 pm • linkreport

At Patrick. I can't imagine families are the ones occupying 2500 a month one bedrooms in the Solaire. Or 3 grand a month for the 2 bdrm. If they are, than people got a lot more money than I thought, paying that much and raising kids.

by Nickyp on Jan 28, 2013 1:29 pm • linkreport

Nickyp,

As Dan pointed out, older buildings tend to have lower rates. A few years ago, I paid $1100 something for a one bedroom. It wasn't fancy, but it was a short walk to lots of restaurants and things to do and an easy walk to the metro.

But let's say a family did pay $2,500 a month and raised kids here. It's still a lot easier to pay that kind of money to rent in DTSS than in DC. Private school costs thousands a month.

by Patrick Thornton on Jan 28, 2013 1:36 pm • linkreport

Maybe not, but those people living there would likely be occupying other apartments around Silver Spring that are now occupied by a family, or by someone who can afford the space in the older/further/whatever apartment since the person who can afford the higher price point is living in the more expensive apartment.

That is the essence of filtering.

by drumz on Jan 28, 2013 1:37 pm • linkreport

@nickyp
If all the new places being built are high end, and the vacancy rate on them is very low, than what does that say. It means there's enough people with enough money to occupy them. Just building more isn't going to do anything to about that. You would have to build more really crappy units that nobody in their right mind would pay the inflated prices for, no matter how close it is to the metro. Then the people with money would go elsewhere, leaving those units affordable.

This seems to be the important part of what you said. Building more will do something about it, it will mean the people with money will move into the new apartments and won't be competing for the old stuff. If you have 50 people with lots of income who are willing to pay the upscale price to be near Metro, but only 25 units like that, then the other 25 people will find something older (not as nice and cheaper) to rent and push lower-incomes out. But if you build 25 more high-end units, then those high-income people will just pay for those.

I think you also have to build/provide for some subsidized units to maintain some income diversity. But that might be better solved with housing subsidies people can use to rent rather than condos people can buy at lower prices.

by MLD on Jan 28, 2013 1:49 pm • linkreport

"Building more will do something about it, it will mean the people with money will move into the new apartments and won't be competing for the old stuff." I think this is the essence of it. Also, what Patrick said about schools. That's the middle class, that can't afford to shell out thousands of dollars a year for education. Like Patrick said, if that situation changes significantly, I can't imagine the flood of families choosing to stay in DC, but then again, what's the difference between taking the metro to DowntownDC from Tennlytown or Silver Spring? Schools.

by Thayer-D on Jan 28, 2013 2:20 pm • linkreport

Very good article. Personally I love DT SS and am planning on moving there sometime this year. I recently did similar, but somewhat less in depth, research over the holidays (examined rents, floorplans, and reviews for literally every apartment building in downtown SS)

It's worth noting that the "luxury development" theme is the norm in Montgomery County, since no matter where you look, from Germantown to SS to Bethesda, nearly every single non-subsidized residential project under construction or recently built in MC is marketed as "luxury." Also, in sharp contrast to the burgeoning rental market, the new market, in Silver Spring and this region of the country on a whole, is pretty much dead.

Hopefully, the residential developers don't overbuild and flood the market with empty units. While this may be good for rent, it'll throw the market into stagnation. At the same time, with all the current and planned amenities (new civic center, library, Fillmore, purple line, transit center, etc.) in Silver Spring, and the trend of rapid urban growth there's a good chance of vacancy rates staying low.

An (unfinished) map of new and upcoming development in suburban MD: Urban MD Development

by King Terrapin on Jan 28, 2013 2:32 pm • linkreport

Maryland residents can attend one of the top public universities in the country (and a top 50 university) for relatively little money. DC residents don't have that luxury.

"DCTAG provides up to $10,000 toward the difference between in-state and out-of-state tuition at public four-year colleges and universities throughout the US, Guam and Puerto Rico. DCTAG also provides up to $2,500 per academic year toward tuition at private colleges and universities in the District and private Historically Black Colleges and Universities (HBCUs) and two-year colleges nationwide."

Anyway, Thayer-D is of course correct that one of the main solutions is to expand fixed transit, which makes more places suitable for high-density growth through TOD. But the point I raised, and which Richard makes as well, needs to be addressed. Section 8-type vouchers are probably the way to go as far as promoting affordable housing, but those vouchers will not be enough to create SES diversity within high-priced areas (and people who could combine their income with such vouchers wouldn't not be eligible because their incomes would be enough to obtain affordable housing elsewhere, elsewhere being much further out from the urban core).

I don't think there is a realistic policy solution for this problem (we can think of some, like bringing back school busing, but they're not realistic), at least not in the short-to-medium term. That doesn't mean we shouldn't densify - we should, for many other very good reasons. But we should not expect new high-end construction to have any tangible effect on the availability of affordable housing in the urban core.

by Dizzy on Jan 28, 2013 2:46 pm • linkreport

More housing is needed to bring rents down, but where do we propose putting it. Matt suggested we could have 77 new 30 story towers, but where? Silver Spring maybe has room for 15 additional tall buildings total, and then it's built out, and that's including taking down almost anything shorter than 3 stories tall currently to do it - there goes Fenton Village. Bethesda is in the same boat, maybe another 10-15 towers will fit in the CBD.

Of course, almost none of these will be 30 stories tall because zoning does not allow it, and probably never will with almost all of the TOD neighborhoods in MoCo and elsewhere being surrounded tightly by single family detached housing. Also, if we really did built out all this available remaining density as residential, where are people supposed to work? At least some of these new towers need to be office uses and hotels if we want a valued mix of uses. There is already concern that Silver Spring is becoming too residential and there needs to be a new office product or two (of course the market new leased office space in SS is unlikely with the low rental rates - developers don't want to build office if they can't get high profits through leases). We're also assuming everyone out there wants to sell to developers, which is also not the case, and acts to slow down the pace of development, as the developers often go years trying to assemble properties.

These development challenges are part of what is pushing the new residential development in Wheaton, and has helped the developers of White Flint get financing to keep construction occurring there. Don't look at the lack of affordability remaining in Silver Spring as an issue of supply just there, but the lack of supply for urban amenity and transit accessible housing in the entire region.

by Gull on Jan 28, 2013 2:49 pm • linkreport

@Gull, Thayer-D

I totally agree. I don't think there's likely enough room to accommodate the amount of supply needed to stabilize or even lower rents in downtown Silver Spring WITHIN downtown Silver Spring. It'll have to be accommodated in other places that offer some of the same locational benefits (transit, walkability, proximity to other stuff), like Wheaton or White Flint or Hyattsville.

Or upper Georgia Avenue in DC (like Brightwood and Takoma), which is closer to DTSS than it is downtown DC but hasn't really benefitted from the redevelopment of DTSS in quite the same way as areas in Montgomery County. As Patrick pointed out, schools and crime (or the perception of schools and crime) is a big factor, and if it weren't for those two things, you'd see luxury apartments sprouting up across Eastern Avenue.

by dan reed! on Jan 28, 2013 2:57 pm • linkreport

DC didn't have an affordable housing issue (if it has one now at all) until 2002-2003 time frame. The issue the past decade has been the rapid increase of local federal spending, from ~62 billion a year in 2001 (salaries and procurement) to 170 billion a year in 2011. The money created lost of jobs, which draws people here. Boom...you have a ready made housing crunch.

The DC MSA has a population increase of more than 220,000 people in the past 2 years (top 5 of the nation). The Disrict alone got 30,000 of those people in the past 2 years.

The DC MSA population grew 16% (700,000 people) between 2000-2010.

The point I am making is, this problem will self correcet in short order. The economy is recovering, the feds are reducing DC area spending. DC will no longer be the only place to go in the nation for a job.

The District alone has `aproximately 10,000 units under construction right now, with another 38,000 on the board and in the pipeline.

The area (most areas that boomed during this bust did too) were caught off guard. With the credit meltdown, projects were shelved, even in places like DC where jobs and people were becoming more plentiful by the day.

I forsee GGW having an article in 24 months extolling the flat (or falling) rental rates in the region due in large part to oversupply and lack of demand.

by DCr on Jan 28, 2013 3:44 pm • linkreport

@Dan, while I would agree that there is more supply needed in DTSS I am not certain that the way you collected your information nor the way you are interpreting it is really accurate. For example:

- When people are looking for an apartment the square footage matters, yes, but not sufficiently to compare residential units (as opposed to commercial) using this metric. All the buildings from the Veridian through to The Galaxy have very similar 2 bd units available but they vary as much as 100-200 sq. feet. The Galaxy's number even ends up a bit skewed because of a number of units that include a den;

I think a more apt comparison would be:
(a) a map showing walking distance from Metro and how that affects rents (one good reason why the Blairs is more than Summit Hills) and
(b) a comparison chart of what comes with rent in terms of amenities (the Solaire is right on top of Metro and has way more amenities than The Galaxy with slightly smaller units, hence the large difference in the rental rate)
(c) You also fail to account for what new buildings include inside a unit; 2bed 2bath instead of 2/1, or washer dryers in unit as compared to a laundry room. These items matter when someone is deciding where to live.

- Comparing the Solaire to Hillbrook Towers is very apples and oranges using both of my above metrics because of (a) distance from Metro, (b) in-unit amenities and (c) overall building amenities.
- Comparing Hillbrook to Summit Hills, however, is a better comparison because they are similar in age and distance from Metro (Hillbrook is closer by a little) but Summit Hills has much better on-site amenities (playgrounds, pool, fitness center, convenience store) which might explain the difference in price. Having visited Summit Hills compared to looking at the photos of Hillbrook I can also say that Summit looks a lot nicer, has more sunlight in its units, etc.

The bottom line is the question "how much will it cost me to rent a space that fits my needs?" Comparing square footage prices does not accurately tell us the options individuals and larger households have when answering that question as they move into Silver Spring.

by gooch on Jan 28, 2013 3:54 pm • linkreport

Comparing the Hillbrook and the Blairs seems like a bit of a red herring. The Hillbrook is 1.2 miles from the SS Metro- the blairs range from across the street to 0.3 miles from the metro. The Hillbrook has a walk score of 53 ("somewhat walkable"), while the Blairs range from 83-88 ("very walkable"). The Blairs are also near numerous bus lines, while the Hillbrook is not.

In short: location, location, location. The Blairs are in a great location, so they think that by investing in upgrading their facilities, they will be able to get people to pay higher rents (and they are succeeding). The Hillbrook doesnt think that people will pay enough to live in their less desirable location, so its not worth it for them to invest in improved amenities.

by MS on Jan 28, 2013 4:01 pm • linkreport

The thing is it's partially regional, not just anyone one place. Silver Spring I would guess get's a lot of families that want to move out of DC but still have an urban environment so they are seeing pressure on that end as well as the general urbanizing trend. I really think WMATA needs to turn its suburban surface lots into parking structures and sell off the excess land to developers. I feel like it would be profitable and if not it would certainly at least add density in the right places.

by Alan B. on Jan 28, 2013 4:34 pm • linkreport

Alan, head out to Dunn Loring, thats exactly whats happening on the parking lot, where a new metro parking garage, and a new apt building, are UC at the same time.

by AWalkerInTheCity on Jan 28, 2013 4:38 pm • linkreport

Good article! I live in DTSS, and I know in a lot of the older buildings, all utilities are included in the rent. Not sure if that gets factored out when you're comparing it against Solaire and Citron.

by Pat on Jan 28, 2013 4:56 pm • linkreport

@ Alan, AWalkerInTheCity

ditto Twinbrook

by King Terrapin on Jan 28, 2013 5:29 pm • linkreport

@gooch, MS

My study looked at how age effects rental rates. Obviously there are a lot of other competing factors, including proximity to Metro (which is why all of the buildings sampled are within one mile of the Silver Spring Metro station) and size (which is why I calculated the rent per square foot).

However, age still has a lot to do with it - newer buildings tend to have more amenities that cost money to provide, but developers are also paying for both construction AND financing. Older buildings are more likely to be paid off, allowing you to charge lower rents based on that alone. If a new building was built where Hillbrook Towers is located, it would still command higher rents than most of the other buildings I studied, even though it's farther from Metro.

by dan reed! on Jan 28, 2013 6:10 pm • linkreport

@dan reed!:
I think my initial criticism is in how you calculated the difference in rents from building to building as opposed to whether or not the comparison was worthwhile.

I would be much more interested in data from residents as to why they chose to live in a particular building - whether or not it is truly "affordable" for them - as opposed to a numbers only comparison like the one you presented. Of course the resources necessary to conduct such a detailed study are not readily available. I feel like there is a good amount of correlation being confused with causation when trying to figure out why so many people want to live in DTSS and its surroundings in spite of the high rents.

Either way, thanks for doing the legwork. It is an interesting piece and the question of age v. rents is a fascinating one.

by gooch on Jan 28, 2013 7:49 pm • linkreport

@Dizzy--

If you're 18, DCTAG may help some, but not much at today's rates.

If you're a working adult looking to advance or to change careers, you're SOL.

by aces on Jan 28, 2013 8:38 pm • linkreport

Of course they are BUILDING high end. Whether the market will support so many high end properties is another matter. If they don't, the price will come down.

by SJE on Jan 28, 2013 8:43 pm • linkreport

Can someone some me where exactly has there been any type of new affordable housing. For DC as an example as all the new buildings have went up (remember some are not 100% full) I have seen no lowering of the price in older buildings.

by kk on Jan 28, 2013 9:33 pm • linkreport

The author presents what seems to be a market inefficiency. There seems to be a great investment opportunity in building more apartments in Silver Spring yet a "sufficient" number is not getting built. I suggest the author speak with real estate developers in the area and find out why they are not building apartments in DTSS or if they are, why not more. Are they not aware of the high returning opportunity or do they have a different set of assumptions and calculations that leads them to a different conclusion? Or, is there merely a lag between when it became apparent that DTSS was a good investment opportunity (and financing was available) and when additional buildings get built?

by Falls Church on Jan 29, 2013 1:24 pm • linkreport

@Falls Church

New apartments are being built - there are about 1300 in various stages of construction right now. As I see it, the main impediment is really the approval process. It takes years to get anything approved in Montgomery County, and in Silver Spring, there's often some neighborhood opposition, which adds cost and delay as well.

by dan reed! on Jan 29, 2013 1:49 pm • linkreport

I wonder if there isn't a capacity issue at developers, lenders, etc. I recall Joel Garreau author of edge city saying it was hard to do multi use, because the folks in residential lending at banks didnt understand commercial, and visa versa. Now thats not true anymore, but I assume that there are limits (and perhaps more at developers than at banks) I mean its not like just anyone can suddenly be a competent developer, and its not like any developer who has been specializing in McMansions can turn around and to a competent job with the kind of thing thats now in such hot demand.

Over time one would expect this to be overcome - but there could be a lag, well beyond the pipeline lag for individual projects.

by AWalkerInTheCity on Jan 29, 2013 1:58 pm • linkreport

Filtering acts in concert with many other forces in housing markets. New housing supply can even induce some of its own demand, primarily through the mechanism of improved amenities and services.

@kk: Housing prices have declined in real terms across the USA thanks to overbuilding. On a regional level, supply was able to match demand in several markets (many in Texas) over the 2000s, so prices did not get run up there -- measures of housing affordability like the Housing Opportunities Index actually improved by the end of the decade. Even though population has been rising fast, so has new construction, with tens of thousands of units permitted every year. Housing prices also did not increase in cities where demand was depressed by slow economic growth.

by Payton on Jan 29, 2013 2:20 pm • linkreport

Dan Reed: As I see it, the main impediment is really the approval process.

I think that's definitely a big factor. But, I still think it would be interesting to see what major developers say. They're a pretty key stakeholder in this, so it would be worth talking to them (if time permits, access is available, etc.).

AWITC: I mean its not like just anyone can suddenly be a competent developer, and its not like any developer who has been specializing in McMansions can turn around and to a competent job with the kind of thing thats now in such hot demand.

That's true but there are plenty of major mixed use developers who do projects in multiple jurisdictions. And, a very small share of them have a project in DTSS compared to Bethesda, Clarendon, Shaw, NoMa, H ST, etc.. DTSS has the potential to be on a list of hot places like that.

by Falls Church on Jan 29, 2013 5:55 pm • linkreport

@AWalkerInTheCity

Toronto is a pretty good case study for the transition you're describing. The big suburban developers (a handful of families that owned 1000s of acres north of the city) that built out their land over four decades started putting up 30+ story towers in the City in the late 90s. Part of it was policy (ie Places to Grow), part of it was market demand. Since 2000, thousands of units were added annually, contributing to the "wall" of monotonous towers blocking the city from its waterfront. Toronto's condo market has matured, with newer niche developers coming on the scene, some founded by architects and even specializing in mid-rise. In response to the condo building boom, City Planning commissioned two interesting policies on Tall Buildings, and Avenues (mid-rise), both worth a gander.

None of the 100,000+ units I know of built in the city over the past decade were rental apartments. All condos. Domestic and international investors fueled much of that demand, buying out whole floors preconstruction as rental properties.

@gooch + @dan reed!

In the Toronto case I describe above, amenities are considered essential by the developers (like using the word luxury). Even in the burbs, they'd tell you they can't get buyers unless they have the marble lions in the foyer. Meanwhile, the 10+ year old buildings will close their gyms/pools for lack of use, with resident associations preferring to spend their $ replacing the building's roof.

Thanks for the legwork and conversation starter Dan!

by eozberk on Jan 30, 2013 12:24 am • linkreport

@Payton

Show me any place where any rents have gone down in DC, PG County, Montgomery County, Alexandria, Arlington County, Fairfax County or Falls Church.

by kk on Jan 30, 2013 4:21 pm • linkreport

kk - why would DC be different than other parts of the USA (hint - demand may have something to do with it)

by AWalkerInTheCity on Jan 30, 2013 4:36 pm • linkreport

KK,
Your mistake is assuming that all things are equal. When in fact they are not. There are lots more things that go into it though supply is a big part but sometimes the pace of new supply can't keep up with the demand. That argument is made implicitly and explicitly through the story and the comments.

The other mistake is that filtering = prices going down. This is related to my above point but filtering can certainly slow the rate of a rising rent or keep it stable. It's harder to prove that but again you can't assume all things are equal in the real world.

by drumz on Jan 30, 2013 4:37 pm • linkreport

http://dc.urbanturf.com/articles/blog/falling_rents_likely_as_dc_supply_increases/4999

That does show that rents are expected to fall. Yes only by one percent but it explicitly acknowledges that this is because of new supply.

by drumz on Jan 30, 2013 4:39 pm • linkreport

If you did a similar map for DC (i.e. 1 mile radius around a metro station) you would see exactly the same pattern. This is also why there is such a push for the ourple line. Developers see it as a way of jacking up prices. The only way to increase affordable housing is to do so around bus stops, because rich people don't like taking the bus.

However, that overlooks that no developer would want to do that as they prefer to maximize profit.

Finally, there is enough permits already issued to deal with Sivler Spring's growth for the next 35 years. All that's required is for developers to use them.

by Paul on Feb 1, 2013 9:26 am • linkreport

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