Report: The DC Area is Expensive, But Not Expansive

• April 18th 2016

by Nena Perry-Brown

Development in the District and its suburbs has boomed in recent years, but a recent report shows that the DC area has become pricey due to its slowing rate of expansion since the 1970s.

As BuildZoom chief economist Issi Romem explains, there is an inverse relationship between growth in housing prices and outward expansion in metropolitan areas. Although U.S. cities have expanded into surrounding areas at a steady clip since the post-World War II era, they have done so in two different ways: expansively or expensively.

Expansive cities have developed at an accelerated rate, coupling their economic strength with strong population growth. Conversely, expensive cities have sharply reduced their rate of outward expansion in recent decades leading to higher property values.

DC offers a clear example of the development dynamic of expensive cities, wherein an inelastic housing supply has led to a reactive style of development in response to rising property values.

“[Expensive cities like DC] create jobs and opportunities that attract many people, but when these people compete with each other over a limited housing stock the highest bidders prevail, raising home values and rents,” the BuildZoom report stated. “A key implication of housing cost escalation is that it sorts people into and out of these cities based on their financial ability, churning out a population that is increasingly well off. Because affluent residents tend to ratchet up land use regulation more than others, the process results in an even more constrained housing supply that raises property values further in a vicious cycle.”

In the DC area, stringent building and land-use regulations are also coupled with the development challenges posed by natural topography. The cycle of rising housing prices, inelastic supply and slow-rolling development will continue unless the area gets more creative and expansive in its growth.

Click here to see more data and analysis from other cities around the country.

This article originally published at https://dc.urbanturf.com/articles/blog/how_dcs_development_rate_has_made_it_expensive/11122.