Relief from Rising Rental Rates in DC

Posted By: Dawn Hamer  -  10/31/2013 5:15:11 PM  - 

It’s a common urban dweller complaint, “rent is high and every year the rates go up!” But lately there is speculation that rental rates in the Washington DC area will level off or even begin to decline.

In the past, rent hikes in the DC area have been the result of low vacancy rates and high demand. Units  on notice were often snatched up before the current tenant even vacated the unit. This unusually high demand made it easy for communities to continue to increase rental rates year after year.

In January 2011, a report from Delta Associates, a real-estate research firm, concluded that “average rents for mid and high-rise apartments in the region had increased almost 8% in 2010, and a tremendous 14% in Northwest DC”.  The trend continued and by October 2010 “rents in the DC area had risen 3.7% and vacancy rates sat at just 2.8% over a one year period.” New York was the only metropolitan area in the US to experience lower vacancy rates than this.

A more recent report released by Delta Associates shows that Washington, DC rental rates are still high, but the upward surge is finally starting to subside. Rentals Gone Wild, a free apartment finder, has recently seen some of the best DC rental rates since 2009 even in upscale areas like Bethesda and Northern Virginia. There are multiple factors contributing to the pressure for decreased rates. One factor is the sheer number of apartments already in the construction pipeline.  As these properties are completed the market is being flooded with additional units. This is good news for renters, bad news for developers.

In addition, larger rental projects, already available in the market, are unable to convert to condos regardless of buyer demand. Due to the current housing crisis, mortgage lenders, Fannie Mae and Freddie Mac, which are both government mandated, are prohibited from converting apartment loans to condominium loans without first requiring that the original mortgage be paid back in full.  Some communities will be able to convert, but the majority will not.  As a result, most large communities will remain in the rental market.

When you add the existing inventory to the newly developed inventory you end up with good, old-fashioned market over-saturation. Delta Associates states that “the supply of new apartments coming online in the region is staggering. In total for 2012, 12,472 units are projected to deliver and of those 97% are under construction; in 2013, 10,877 will deliver, with 61% under construction already.”

Inevitably, the market will correct itself. Analysts estimate delivery figures will start to trail off in 2014.  Long term, DC is a growth area and the population will continue to increase. But, until delivery figures start to drop, renters should experience some relief from rising rental rates.

Tags: urban | Washington | DC | unit | community | construction | rate | decline | vacancy | real estate | trend | lower | projects | mortgage | loans | condominium | developed | inventory | deliver |
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