Where is the housing for Washington, D.C.’s middle-income earners?


Grosvenor research points to three key reasons behind D.C.’s dearth of Missing Middle housing.

D.C.’s housing affordability problems have worsened since the Financial Crisis.  Grosvenor Research estimates that around 80% of new for-sale deliveries in the District over the last five years were affordable only for the top 40% of the income distribution, while over half of the new rental product fell within the top quartile of District rents.  Clearly, D.C. is not producing housing affordable for its middle-income earners.  And while the problem is clear, the causes are numerous.  Here we highlight three:

Undersupply of construction workers: D.C. employment fell significantly during the Financial Crisis.  During the recovery over the last decade, overall D.C. employment roared back and now exceeds its pre-crisis peak.  Meanwhile, D.C. construction employment remains below its pre-crisis peak.  Simple trend estimates point to the DC metro area being undersupplied somewhere between 8,000 and 85,000 construction workers.  The lack of construction workers pushes up construction labor costs, making developing middle-affordable housing financially unviable for some developers.  As a result, most new development is at higher price points as these projects are the only ones that can cover escalating development costs.

Loss of productive capacity in construction industrial:  Moving beyond labor, it appears long-term productive capacity in the construction industry was permanently damaged in the Financial Crisis.  D.C. was delivering significantly more housing prior to the Financial Crisis than it has over the last decade, as the District has failed to recoup production capacity lost in the recession.  D.C.’s inability to deliver sufficient housing is even starker when you take into account the District’s immense population growth since the crisis; looking at housing units per 1,000 residents, the fall off and anemic recovery in building activity is even clearer.  In a well-functioning market, an increase in demand should prompt an increase in supply and keep prices in check.  In a market that struggles to deliver supply like the D.C. housing market, an increase in demand only serves to push up prices and squeeze middle-income household budgets. 

Restrictive regulation and zoning: Urban D.C. has a significant proportion of its land zoned for single family homes exclusively or reserved as green space.  According to Greater Washington, just under half (47%) of all land in urban D.C. falls into one of these two categories.  Commercial uses and higher density housing – the type that would be more affordable to middle-income households – are left to fight over the remaining 53% of space.  Looking at land reserved for housing specifically, it’s clear that the majority of District residential land is zone for single family homes exclusively.  The preponderance of single-family home exclusive zoning leaves land available for Missing Middle housing scarce.  As a result, the price of developable land gets bid up to the point where high-end housing is more financially viable, and Missing Middle housing options get priced out.

To keep the conversation going or to learn more, please contact Brian Biggs, Research Director or Alexandra Johns, VP Co-Investment.

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