The secret is out. Washington, DC is a great city. Great history, great jobs, great communities, and great nightlife. It is also known that all of those great things come at a cost, which means gaining ready access and having D.C. at your doorstep takes more than a bit of financial sacrifice.
Well, there could be a perfect storm brewing that may take the already (seemingly) outlandish cost of homes and rent to new heights. We are on the cusp of one of the most significant demographic shifts our country has ever seen. Baby Boomers, all 77 million of them, will be retiring/becoming empty nesters over the course of the next 20 years. And according to the Brookings Institute, the majority of these 77 million strong want to leave the suburban outskirts for a life of greater walkability and urban access. This is putting increasing pressure on the housing inventory of places like, you guessed it, our beloved Washington, DC.
But that is not the perfect storm. Yet another generation also has simplicity and walkability as a high priority. Millennials, “the biggest population bubble in 50 years.” (Jeff Speck: Walkable City: How Downtown Can Save America One Step at a Time). Millennials are becoming a more and more substantial presence in the workforce, and as the above referenced Jeff Speck writes in his book, Walkable City, this generation has grown up in an era where the small screen has left the suburbs and most of what we watch is based in the city. And these are not the crime ridden representations of a couple decades ago, but socially rich, coffee shop laden cities where there is always something to do and someone to see.
There is much more to why boomers and millennials are descending on our nations cities in droves, but my point here is less about the motive, and more about the impact. You have the two largest population sets in the country, and they have the same goal, city life. Or better put, urban life, and Washington, DC is on their list of desirable locations. So, people ask me how it is that housing prices in D.C. can still be going up so fast, and whether this is all sustainable.
The short answer is that, if this data is correct it is possible we are only seeing the tip of the iceburg in the cost of housing, and that this trend could well be sustainable for the next 20 years or more. If you look at the numbers the only way to ease the tension is build more product. With the pullback in new construction after the “great recession” developers are behind the curve on that front. It only takes a little driving around D.C. to see that development is back, and seems to be at a fever pitch. However, delivering new units takes time, and demand is proving to be so high (and growing) that there is little chance developers will keep up. Nor do they likely want to.
It is likely that no mater how many new units come to market, there will be thousands of would be buyers who would love to live in D.C. if only they could afford it. This number is going to be constantly fed over the coming decades. So, it is supply and demand and demand is going to have the heavy hand.
What if interest rates skyrocket you say? What do people do if they can’t (or don’t want to) buy a home? They rent. What do investors do if there are a lot of people who need to rent? Buy. If interest rates are high for those investors they will just charge a higher rent. So, no matter how you look at if, if supply cannot keep up with demand, cost of housing is going to rise.
NOTE: Jeff Speck is an city planner and architectural designer who lives in Washington, DC, so his book, Walkable City makes several D.C. specific illustrations to make his points. A great read for any D.C. resident.