Quick links on rising rents, density, and housing supply

CC image from Eric Wilfong

Some quick notes:

1. DC rents continue to rise:

While the vacancy rate for the Metro area is indeed low, it is most pronounced among Class A buildings in the District where just 1.6 percent of apartments are vacant. Class A rents in the city in the third quarter averaged $2,582/month, up from $2,448/month in September 2010. For Class B buildings, the situation for renters in the city looked a little better; the vacancy rate sat at 2.2 percent (up from 1.8 percent last year), but rents also increased to $1,886/month from $1,793/month in September 2010.

From the report:

“…while all submarkets are chronically low [in the area], there is notable vacancy variance among District submarkets. The Upper Northwest submarket posted the lowest stabilized vacancy at 0.5%, while Columbia Heights/Shaw posted a stabilized vacancy of 2.4%.”

2. I’d say there’s some strong demand in this market. Clearly, room for more development, yes? Yet Housing Complex notes that some developers are concerned about their new projects all hitting the market at the same time.

“There is just a ton of supply coming,” he said. “In certain markets, there will be spot oversupply.” Which is developer-speak for holy shit guys slow down so my building will still sell.

3. Payton Chung with some important synthesis of recent growth and affordability discussions, noting the key distinctions between micro and macro levels:

- as Rob points out, housing is a bundle of goods whose utilities vary for different audiences
- housing construction can induce demand, particularly by adding amenities to a neighborhood
- housing construction can also remove amenities from a neighborhood, like a low-rise scale, thus changing other intangibles included in that bundle of goods
- construction costs don’t increase linearly; rather, costs jump at certain inflection points, like between low- and mid-rise
- housing and real estate in general are imperfect markets, since land is not a replicable commodity
- the substantial lag time for housing construction, even in less regulated markets, almost guarantees that supply will miss demand peaks

Pro-active planning remains the best and most time-honored way of pre-empting NIMBYs. Get the neighborhood to buy-in to neighborhood change early on, and then they won’t be surprised and upset when it happens.

I’ve often cited Chris Bradford’s short post on filtering as a good summary of one of the dynamics at play, but there’s no one thing you can point to for a full explanation.

As for Payton’s last point about the best offense against NIMBYs being a good defense (or maybe it’s the other way around), I hope to write more about that soon as a part of a more complete response to Ryan Avent’s The Gated City.

6 comments to Quick links on rising rents, density, and housing supply

  • The Urban Turf post doesn’t do a good job explaining exactly what Class A and Class B residential space is. Could you elaborate on this at all, Alex? Specifically, I’m curious to know what percentage of total rental units class A and B comprise. When you look at the vacancy rates from ACS, they’re a lot higher than those referenced in the Urban Turf post, which makes me wonder if it’s a definitional issue? or something else?

  • Alex Block

    Rob – the census numbers are housing vacancy, not just apartment vacancy, yes?

    As for these numbers, they’re for Class A space, which generally means a) ‘luxury’ buildings, b) larger complexes, and c) relatively recent construction. So it’s only a subset of all apartments, and those at the top of the market at that.

    That said, these are the kinds of apartments that would be likely built if there is new construction. As those apartments age, that’s when they filter down to more affordable rents.

    I’m afraid I don’t have a breakdown of DC’s apartment market share (how many are class A, class B, etc). These are really investment grades.

  • Rob

    Thanks for the details. I still question whether they represent a good cross section of the rental housing stock in DC.

    As for Census and ACS, typically “rental vacancy” is calculated as “units for rent” divided by “units for rent” plus “units rented but not occupied” plus “units rented and occupied.” It excludes homeowner occupied units and units for sale, though it’s not difficult to switch the components to calculate different types of rates.

  • Alex Block

    I don’t know that it’s a good cross-section of housing stock (at least from the portion of the report provided free of charge) – but rents are rising across the board as far as I can tell. And, as mentioned, this particular segment of the market is where you’re likely to see the most new construction.

  • [...] also an example of housing market filtering in [...]

  • [...] is much higher now than it was.  This represents a short-term constraint. Another factor is the considerable lag time involved in putting together complex development projects. That said, this doesn’t mean the [...]

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