Price Increases Migrating To Poorer Neighborhoods
Previously Hot Areas Cooling, Study Finds

By Lyndsey Layton
Washington Post Staff Writer
Wednesday, June 28, 2006

Housing prices are leveling off in affluent neighborhoods in the District but are escalating significantly in poorer areas, a sign that the city's economic boom is moving from west to east, according to a study being released today.

"People who are talking about a market cooling are focused on particular neighborhoods -- they're not seeing the big picture," said Peter Tatian, a senior research associate at the Urban Institute, a nonpartisan think tank, who analyzed home sales and new construction in neighborhoods throughout the city. "We see some signs of that in certain neighborhoods, like Ward 3. But in lots of parts of the city, we're still seeing strong price increases of 18, 19 percent."

Housing prices are surging in Ivy City, Near Southeast around the Navy Yard and many neighborhoods east of the Anacostia River and east of 16th Street NW, while Capitol Hill, Cleveland Park and LeDroit Park appear to be leveling off, the study found.

That's basic economics, said Jalal "Jay" Greene, director of the D.C. Department of Housing and Community Development. "Land costs are just cheaper east of the river," he said. "You can acquire land and rehab or build new and come out with a product that's in the $350,000 to $400,000 range and that's going to be attractive to a part of the market that can't afford the huge price increases that we've seen elsewhere. Where I live, in the LeDroit Park-Bloomingdale area, prices are in the high $600,000s."

Housing construction in the city began in earnest in 1998 but hit a 40-year high last year. The city issued 2,860 permits for new housing units in 2005, an increase of nearly 50 percent over 2004 and the highest number since 1966, the study found.

And the pace of new construction this year is unabated. In the first three months of this year, the city issued 1,327 building permits, up 135 percent over the same period last year.

Nearly all the homes under construction this year and last have been condominiums or apartments, as opposed to single-family housing.

If that trend continues, it could throw the city's housing supply off balance, Tatian said.

"We're heading in a direction that maybe we want to stop and think about," he said. Condominiums and apartments tend to attract singles or couples, while families with children seek houses.

"If we're not attracting families as well as singles and couples without children, we're creating a population base that is not going to be as stable in many neighborhoods," he said. "People will come here and spend a few years, and when they decide to get married or start a family, they leave."

Greene said the frenzy of condominium construction is fueled by several factors, including the city's lack of large tracts of land and problems with its school system.

"If you specialize in building single-family homes, you're going to go where you can buy a tract of land and put up 100 or 150 units -- that's not the District of Columbia," Greene said. "A lot of these new households are single professionals and young couples, and if we want to retain them here in the District, we need to do things like improve our educational system. The market is always going to respond to demand. If those families want to stay, you'll see [housing] that suits their needs."

More investors are buying housing in the District, especially condominiums, the study found. In 2004, 20 percent of condos were owned by investors; last year, that figure increased to 34 percent.

"Everyone's trying to get on that bandwagon and make a quick buck," Tatian said. "It's adding to the price pressure that we're seeing."

The study also sounded a warning about subsidized housing. Contracts for half of the District's 10,561 apartments that participate in the federal Section 8 program, which subsidizes rents for needy tenants, are due to expire within the next year. Building owners can decide whether to renew their contracts or sell the buildings, making the apartments no longer affordable.

Greene said it is unclear how many buildings will leave the subsidy program. "If a Section 8 contract expires and you have a really hot condo market, there's a lot of pressure on that owner to sell it at a profit," he said.

To try to mitigate the impact of a drop in Section 8 housing, the city is beefing up its program that helps tenants buy their apartment buildings, Greene said. Under District law, tenants have the first right to purchase a building up for sale.

Today's study is the first in a series of quarterly reports about the District's housing market that will be issued by the Urban Institute.

"So much is changing so quickly in the city that an annual report is just not frequent enough," Tatian said.

The study can be viewed on the Web at http://www.neighborhoodinfodc.org/ .