Housing Complex

Real Incomes in the D.C. Area Are Falling

Per-capita income in the D.C. region is $61,743 as of 2012. That sounds pretty high. Between 2008 and 2012, per-capita income in the region increased by 5.4 percent. That sounds pretty good.

Except that incomes weren't the only thing rising. According to a new report from the Center for Regional Analysis at George Mason University, the price of goods and services was rising, too. In fact, it was rising faster than incomes—so much so that real incomes actually declined by 4.1 percent between 2008 and 2012.

Compared to the other big metropolitan areas in America, D.C. doesn't stack up very well in this regard:

income

According to the report, the D.C. area experienced the third-biggest increase in prices over this time period, behind New York and San Francisco-Oakland. But incomes in those cities rose faster than in D.C., leaving New York with a 1.8 percent drop in real incomes and San Francisco-Oakland with a 0.8 percent gain.

So what accounts for the big jump in prices in the D.C. area? In a word, rents.

In 2008, according to the report, D.C.-area rental costs were 48.1 percent above the national average. In 2012, they were 69.6 percent higher. That's a huge increase—the biggest, in fact, of the 15 largest metro areas, and the third-biggest of all 381 metro areas studied, behind just San Jose-Sunnyvale, Calif., and State College, Pa.

This is what people are really talking about when they say that affordable housing in D.C. is dwindling. It's not that there are fewer overall units, or fewer subsidized units. It's that rents are shooting up, and incomes aren't shooting up to match. A new nationwide study from the National Employment Law Project found that in the recovery from the recession, low-wage jobs are proliferating, but the middle-income jobs lost during the recession haven't come close to being replaced. That's why, in D.C., you find homeless residents who work jobs but still can't afford housing.

And it's why, ultimately, city investments in new affordable housing simply won't be enough to make the city affordable for all of its residents. To accomplish that, the growing gap between incomes and costs will need to be bridged, with higher incomes, a slower rate of price increases (particularly rents), or ideally both.

Chart from the CRA study

  • http://dcvacantproperties.blogspot.com Mari InShaw

    The last paragraph bugs me. The higher rents are there because landlords and property companies would like to maximize profit and new residents are willing to pay for housing do-dads (granite-stainless-steel-fancy ranges they'll never use). What incentive does a property co. or owner have to cease raising rent when there are lots of people who will put out and pay the higher rents?
    Face it we're a little like SanFran, lots of educated & skilled workers are flooding in and taking up housing, leaving less for the lower skilled workers, and developers are producing/landlords are renting less subsidized housing and more luxury housing.

  • James

    I suspect a moral or ethical argument won't appeal to you, so let me frame this in your own self-interest: if no "poors" can afford to live in DC -- or its surrounds -- any longer, nobody will be available to serve you your coffee, clean your office, or babysit your children. There are a host of reasons that communities should house people of all socio-economic backgrounds -- and economics is one of them.

  • gnatitude

    Frickin' awesome article, Aaron. Thanks for posting.

    "So what accounts for the big jump in prices in the D.C. area? In a word, rents."

    This is the kind of solid journalism you'd expect from the Post, but what are we getting out of them? Darrell Issa has a twinkle in his eye for us?

    Thanks for the solid numbers to support the same thing I've been e-mailing, stuffing envelopes & tweeting the city council about - & I will send them a link to this fine post - but to no avail... They're in the pocket of developers & real estate. Who else can afford to buy elections in this town?

    Not me.. I got to pay the rent.

  • gnatitude

    Where is NOODLESS to yell @ me IN ALL CAPS AND TELL ME EVERYTHING IS GOING TO BE ALRIGHT??

  • Noche

    Mari, the problem is that the more rich single people replace families, the weaker a city becomes in many metrics (ie, maybe not the tax base). No one that I can tell really bothers to address this - the demographic shift, in terms other than using words meant to generate eyeballs (using 'gentrification' and so on). The CP won't be the go-to place for this discussion. We need real thought here about what is going on.

    James, I wish your premise was true because then a solution might be easier. Unfortunately, in this country (and others too), the poor must put all their money into transportation. *Their* rent is cheap, but it is usually because they are 4 or 5 in a one BR in the city or close-in suburbs, or they have bigger housing in Loudon or some such, and then make the long trek daily. There are vans and buses from Fredericksburg bringing people in to DC offices. Not to mention the far out Maryland places as well. Check out K Street at 4.30 pm and 5 pm.

  • Pop M

    Is it public policy that will solve or significantly address the "housing affordability challenge" in this region or city? I very much doubt that it can, will -- or even should. The author doesn't accept that "housing markets" are functional. Tell me what interventions you support and another place that has thrived with those controls in place. If you think even MORE massive government intervention in the housing market will have more intended than unintended affects, you must also be shopping for rainbows, pots of gold,unicorns, and the like.

  • CapHoya

    I blame a lot of this on our city counsel, who for years aggressively stripped away tenant protections that had kept rents in line with income. Over the last decade, the rent for units in my building, where new tenants no longer have rent control, have skyrocketed 350%. Wages in no way have kept pace with that kind of inflation; in fact they've been pretty stagnant through this recession.

  • http://dcvacantproperties.blogspot.com Mari InShaw

    James, the 'poor' are diverse. There are the working poor, who as far as I can tell live in various pockets around the DC metro region who commute along with the rest of us on public transit.
    I live in Shaw were there are many buildings built in the 70s and 80s as affordable or subsidized housing, and remain so for the elderly who have aged in there and some of their mooching relatives. Though some places like Lincoln-Westmoreland are becoming mixed income, there are other places that will never become market rate, such as the Northwest Co-ops. Then there is the rest of the city, which includes 3 other quadrants. Provided a family is willing to live near nothing interesting or cool, nor near public transit, and around lots struggling people battling demons, cheaper housing can be found.

  • Typical DC BS

    @CapHoya - luckily socialism and communism are continuing to decline when it comes to the housing market. Funny you think government should determine housing prices and be allowed to tell PRIVATE OWNERS what they can charge for THEIR property. Karl Marx would be proud of you.

    Next, rent control needs to be abolished.

  • hillmandc

    Yep. Rent control. Right after wage control.

    Lets cap your raises at less than 2 percent a year for life no matter how hard you work. What? Doesn't sound so awesome for you?

    Also study after study shows that rent control actually decreases the affordable housing stock, andclanflords sick of getting half of market rate rent will just condo and sell the building.

  • SmartGrowther

    "The author doesn't accept that "housing markets" are functional. Tell me what interventions you support and another place that has thrived with those controls in place."

    I dont think the article is suggesting controls to reduce rents - but rather taking steps to make possible more supply, esp of the units in the kinds of walkable and transit accessible places that are currently in demand (and which reduce people's transportation costs). Ways to do that include modifications to a range of local govt policies in DC and the inner suburbs that limit the supply of new housing, adding more transit so there are more places that are transit accessible, improving walkability so more places that are close to transit are really TOD (this is more of an issue in the suburbs than in DC) and improving public safety and schools in parts of DC where there is still a large amount of land available for development.

  • SmartGrowther

    " There are the working poor, who as far as I can tell live in various pockets around the DC metro region who commute along with the rest of us on public transit."

    A. If they live far from their jobs, public transit is still a significant expense
    B. Many of the affordable pockets in the suburbs have limited public transit. They either have to spend an hour on a local bus just to get to the nearest metro, or they have to pay high fares on an express bus, where those even exist. If their jobs are also in the suburbs, sometimes their options are even worse. Thats why in many suburbs you find lots of poor folks biking, without helmets or lights - the bike they pick up cheap at a garage sale (thats why they are usually mountain bikes) and they won't spend the extra money on a helmet or lights.

  • SmartGrowther

    "Face it we're a little like SanFran,"

    San fran has extreme limits on new construction, both in the city itself, and in the suburbs where many of those techies actually work.

  • Pop M

    @smartgrowther - So Portland is one place that put in many policies to increase and concentrate density of population and more walkable, transit oriented development. Their housing price index is WAY above the u.s. and the pacific region. They had considerable population growth. I think most observers view Portland as having among the most far reaching sprawl control, density-inducing, transit and accessible development policies in the U.S. Also it seems by the facts that the desired outcome -- more affordable housing particularly for lower income households -- was not AT ALL achieved. So you are arguing for what policies and can you tell me a place where those policies have produced your intended effects?

  • SmartGrowther

    I am not familiar with of Portlands policies. My sense is their denser areas are not all that dense by the standards of a northeastern city, and I do know they stepped back from their position on parking minimums.

    Also I have discussed only steps by which the govt would get out of the way of density - Oregon has a growth boundary to limit suburban development. While that may be a rational policy given their concerns about the environment, preserving farmland, and the costs of sprawl, it wouldn't help with the cost of housing, and of course could hurt.

    Chicago I would say is a city that has tended to make it easier to build new housing, and has lower housing prices for walkable urban places than metro DC, and is a metro area of similar size.

  • SmartGrowther

    BTW, pop, which index did you use? could you provide a link? Did it include transportation costs?

  • Noche

    One of these days I wonder if I'll ever get tired of playing whack a mole with these dull ole technocrats and "smart growthers" who worship at the alter of The Market to the exclusion of all else. What bad taste they have, among so many other things.

    My Lord yes, rent control has done a ton to preserve affordable housing. It's been key to establishing what precious little sense of community there exists in NW Washington, DC because most of the people who live in rent controlled apartments don't and can't go away on the weekends and holidays. In other words, for them, Washington is home and not an investment property meant to cycle people in and out, shaking that money tree. Those are the people who do a lot for your community.

    So sad when a city's sense of community is something to be sacrificed to the market - excuse me, The Market.

  • Landlord

    "I blame a lot of this on our city counsel, who for years aggressively stripped away tenant protections that had kept rents in line with income. "

    Nothing could be farther from the truth. In fact, DC's tenant laws are the strictest in the nation, and discourage more affordable housing and limit the existing housing stock, raising rents. In addition, DC's rent control policies are so backwards that they actually have the result of encouraging apartment building owners to convert to expensive condos rather than keep them rentals.

    So, if affordable housing is what you desire, the answer isn't tighter regulation, but the opposite. Revised, smarter rent control policies combined with reformed landlord/tenant laws to reduce the risk of renting to tenants would increase affordable housing availability.

    Until then, watch for rents to continue to rise to meet demands of people with the wages (which makes is odd that Wiener wishes for higher wages as a solution) and for the few rent control buildings to turn condo.

  • James

    @Landlord -- obviously you will oppose rent control -- you're a landlord! You profit from doing nothing -- earning rent on your capital (your apartments/houses) -- and want to keep the gravy training chugging down the tracks.

    Rents in DC are out of control. How do I know so? I'm a dual European-American citizen and have spent time in the truly great cities of Europe. Right now, rents in Columbia Heights buildings -- Columbia Heights (!) -- are the same as rents in similar buildings in Central London -- like the super nice, popular, trendy parts of Central London five minutes from all the most high-paying jobs in the City. Compared to Paris and Berlin? Well, rents in DC are dramatically higher.

    In a world where the market for rentals was competitive -- and abusive landlords disciplined by rent control -- DC -- a provincial city with poor infrastructure -- would not have rents HIGHER than the great cities of Europe. (And, if you want me to compare to American cities, higher -- or equal to -- the dramatically more livable and interesting cities of San Francisco, Boston and New York.)

    Whatever, though, I say to you landlords, keep the greedy practices coming!

    As you continue to raise rents to insane levels, DC politicians here you saying, "Please bring back rent control and put us in our place!"

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