We’d like to thank the Community Foundation for the National Capital Region and the Cafritz Foundation for funding the attached study conducted by the Urban Institute and the Metropolitan Washington Council of Governments. The idea of bringing some empirical research to the debate over affordable housing is most welcome:

Housing Security in the Washington Region — Community Foundation Study

Broadly, the study concludes that there is a distinct lack of affordable housing in the District of Columbia and the metro region. The first response is probably, “duh,” but we’d like to take a few minutes to point out some of the other effects that the spiraling cost of housing have on the District’s economy:

1) A slow down in population growth: Population growth has been slowing steadily in recent years. In 2010, 14,999 people relocated to to the District. In 2012, that number had dropped to 13,022. The Office of the Chief Financial Officer predicts the number will slow to approximately 5,000 over the next few years. The cost of housing has become a major barrier to a decision to move to the District. Especially for young people who face spiraling rents and a job market that’s deceptively weak, the unaffordability of housing incentivizes young adults to look for alternatives to DC, such as Austin, TX.


2) A slow down in home buying: The price appreciation that’s good for those of us who already own homes in the District puts a home purchase further out of reach for the average buyer.


3) A slow down in family formation: When young adults can’t afford housing, or when they spend an increasing percentage of their income on housing, they put off major life events like getting married and having kids.


4) A slow down in enrollment rates at DC schools: If fewer DC residents, especially younger residents, can afford a home, or even rent, the result of the slow down in family formation is fewer students matriculating into DC schools. This will put financial pressure on DCPS and could lead to additional school closings.


5) A slow down in business relocations: Employers want to be located where it’s convenient for their employees to get to work. If a company is considering relocating to the District to take advantage of its proximity to the federal government, or its highly-skilled workforce, the decision to locate in the District proper versus the suburbs will be influenced by housing affordability.


6) A slow down in new business creation: If more and more of a DC resident’s annual income is devoted to housing, less of it is available for the risk taking that’s required to start a new enterprise. Housing unaffordability ultimately crowds out new capital and business formation.


7) A slow down in job creation: Most District jobs are created by small businesses that operate as what’s known in the tax world as pass-through entities. That means the profits of the enterprise flow through to the owner and are paid as ordinary income. If that business owner is caught in a spiral of housing price appreciation, that represents less money available for business expansion and hiring.

Like any relatively free market, the DC housing market sends price signals. The signal its been sending for the past decade is “build more housing.” There may be a glut of luxury apartments that is moderating rental prices at the high end, but a healthy market creates a robust supply of many types of housing at different price points.

The only upside to housing unaffordability is perverse. It will eventually reduce demand, which will slow the rise in rents and home prices, thus bringing the market more into equilibrium. We can sit and wait for that to happen, and it already has to some degree, or we can build, build, and build some more.

Send us your feedback at letters@economicgrowthdc.org.