More Growth for the District in the New Year?

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Last year, I expressed moderate unconcern that our house was probably worth less than we paid for it.  This year, our very immediate neighborhood experienced something of a hyperlocal housing bubble, as houses on our block and the one immediately south of it sold for hundreds of thousands more than we'd paid.  These houses were, to be sure, fully renovated (unlike ours) and had finished basements (alas, unlike ours).  Nonetheless, they imply that at the very least, our house is now officially worth what we've paid for it.

Why this should be so--and how long it will last--is a topic that obsesses most DC homeowners. The immediate cause is clear: the District of Columbia grew by 2.7% last year, which is a rocket-like pace compared to most of the rest of the country.  But that simply asks us to go one level back.  Will DC's growth continue?  And for how long?

In the next few years, it's reasonable to expect that the ten year boom in government expansion will come to an end.  Does that mean that the DC housing-and-retail boom ends with it?  Will population stall?

One school of thought holds that it has to; when the government stops expanding, so will all the ancillary jobs--not just the services to people living and working in the district, but everything from think tanks to lobbyists to journalists covering all this added activity.  

If that happens, the gentrification frontier will stabilize, the pace of service addition will slow to a crawl, and house prices will probably fall somewhat, since--especially east of Dupont Circle--they currently contain a fairly hefty expectation of a future price appreciation.

I'm inclined to think, however, that this is not quite right.  I don't know whether house prices will stay high--they increased at quite a clip over the last ten years, and they've barely fallen.  Ultimately house prices can't keep growing faster than area median income, so without New York's absurd finance incomes, eventually they should stabilize or even pull back.

But on the question of population growth, I'm not sure that the federal government's growth is the only explanation for DC's slow transformation.  DC has been plagued with extremely high crime rates for decades; as in many urban areas, that pushed most of the population growth into the suburbs.  As I understand it, instead of reversing this trend, in its early years, the building of the metro system initially enhanced it: you could live in the suburbs, but skip the traffic.

DC's suburbs, however, are largely built out; we have some of the worst traffic in the country. There's obviously still room for exurban expansion and denser infill, but as commutes grow longer, there's pressure to look back to the city.  Meanwhile, for a bunch of reasons, crime in DC has fallen substantially.  In 1995, the city had almost 500 homicides; this year, we'll have a little over 100.

There's a virtuous circle here: as crime falls, more affluent residents stay, providing a broader tax base for better policing.  So even if growth in the area stalls, I expect that the district will continue to see its population rise.  

However, there's one further caveat. As Matt Yglesias points out, the District's institutions--particularly its schools--remain weak.  Most of the growth is taking place among young people who don't yet have kids (or have kids too young to worry about schools).  Anecdotally, there are several young families in my neighborhood keeping their kids in DC schools and working hard to boost the quality of their kid's education.  But unless a lot of other parents follow their lead, that represents a weak spot in DC's potential for population growth.  If job growth slows down, we won't get new young people.  And if the old young people leave for the suburbs to educate their kids, growth will stall.  


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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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