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Posted at 05:30 AM ET, 06/19/2012

Signs of life in Washington area homebuilding

After several years of historically low residential construction activity, there are signs of life in homebuilding across parts of the Washington metropolitan area.

The uptick in new home construction comes as home prices in the region are on the rise, young people are flocking to the Washington metro area and builder confidence is trending upward. The strength of the local economy is tied to the resiliency of the regional housing market, so the increase in building activity is positive for the Washington area’s economic stability, as well as for new residents seeking housing. (About 20 percent of GDP is tied to the residential sector and the housing market has been a drag on the economic recovery.)

The housing being built in the region is concentrated in high rent, multi-family buildings in the District of Columbia and close-in locations, prompting some concerns about overbuilding of luxury apartments and a shortage of more affordable rentals and smaller single-family homes and townhouses.
Residential building permits in the Washington DC metro area (U.S. Census Bureau, GMU Center for Regional Analysis)

Over the past two decades, the Washington metropolitan area has averaged about 29,000 building permits per year. (Building permits are issued by the local governments and do not necessarily indicate a housing unit was built. However, there is a strong correlation between permits and starts.) Residential building peaked in 2005, at over 45,000 building permits, and then housing construction tumbled.

In 2009, the region’s local governments issued only 12,300 residential building permits — the lowest figure since the Census Bureau has been tracking this data. Permit activity was up slightly in 2010 and then up even more in 2011. Data for the first four months of 2012 indicates the increases in residential building will continue this year.

Over the past 12 months, new construction in the Washington region has been dominated by multi-family, mostly rental construction. By contrast, for two decades, about one-third of the new housing built was multi-family and two-thirds was single-family.

In 2011, nearly half of all of the housing units under construction was in multi-family buildings. While the pace of single-family construction has increased slightly in the first few months of 2012, multi-family construction in urban neighborhoods is driving the residential renaissance.

For example, while the District and Arlington County have historically accounted for only about 8 percent of the region’s residential building permits over the past two decades, these two jurisdictions accounted for 36 percent of the building activity in 2011.

These new multi-family rental units serve as an important source of housing for new workers in the region who want to live close to transit and amenities, for empty nesters looking to downsize and for others who value the flexibility and convenience of urban, rental living. And in the short term, the flood of rental housing will keep rents from increasingly rapidly.

But other segments of the housing market — larger multi-family units, condominiums, and small single-family homes and townhouses — also need to accelerate to meet the demand of families and potential homebuyers and to play a role in the recovery of the region’s housing market.

Lisa A. Sturtevant is an assistant research professor at George Mason University’s Center for Regional Analysis.

By Lisa A. Sturtevant  |  05:30 AM ET, 06/19/2012

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