How is the Washington, DC Real Estate Market?


Washington DC real estate marketNote to readers: I’ve been criticized for some blunt statements about real estate markets in the past.  You can disagree with me, but I ask that you not doubt my integrity.  I have no real estate interests outside New Hampshire and am not representing anyone.

When I started researching the Washington, DC real estate market, I was impressed by the stability of institutional markets in general and astonished by the growing disparity between federal government and private industry employment.  Put bluntly, the federal government has become the best employer in America.  It is the most stable, with a headcount that grows annually and essentially guaranteed salary increases.  It also offers the best benefits and salaries, except for the very top (the government’s CEO, President Barack Obama, makes $400,000 per year – a nice paycheck, but lower than that for almost any CEO in the Fortune 500).

As you might imagine, having the biggest employer in the country in your back yard is a good thing.  When that employer can always be counted on for a raise, that helps.  Partly as a result of that, the DC real estate market is looking pretty darned good.

The Washington Metropolitan Statistical Areas (MSA) is best understood as three separate areas: southwestern Maryland, the District of Columbia and northern Virginia.  I use DC, the District of Columbia and Washington interchangeably, as they really are the same.  The three areas are very different and present different challenges to investors.

In this post, I’m just talking about the District itself.

The population of DC has actually declined significantly since the 1950s as residents have moved out to the Virginia and Maryland suburbs.  Unemployment in DC is also fairly high, at 11.1% compared to 9.7% nationally.  Almost all job losses have been in the private sector.

That’s the bad news.  The good news is that DC is improving in several ways.  One big one is the rate of violent crime.  Everybody “knows” that Washington, DC is the most crime-ridden city in America.  It’s not true!  CQ Press, using data from the FBI, ranks DC 21st among cities.  Rates of all forms of violent crime, in particular, have decreased sharply since the 1990s.  That’s not to say that Washington is a safe city – the violent crime rate is about three times the national average.  That is still lower than Orlando, Cleveland, Memphis, and even Minneapolis.

Many DC neighborhoods, particularly in the western part of the city, have been gentrified and experienced fast-rising property values.  These are the “cool” neighborhoods where young professionals like to live: Columbia Heights, Adams Morgan, Mount Pleasant and others.  I have no doubt that many DC investors are currently on the hunt for the next “cool” neighborhood.

Understanding DC’s business climate is a bit tricky because many studies don’t include it.  However, the tax climate is somewhat worse than average – residents have a bit higher than average state/local tax burden and corporate taxes are significantly higher than average.

DC real estate has declined in value over the last few years, but relatively slowly, as seen in this chart.

I think DC’s future looks bright.  The reduction in crime is one of the great under-reported stories.  The city is beautiful, and as noted before, the biggest employer isn’t going anywhere.

Image by Willscrlt via Flickr

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