Senior Homeowners: A Waning Segment of the District’s Housing Market
In many regards, the District of Columbia economy has fared well over the past 20 years. It has grown in both income and jobs, renter- and owner-occupied housing, and in the number of young and older residents. Consequently, the District now has a housing affordability crisis that is contributing to many residents leaving the city (see here). Still, we maintain the goals of attracting new residents and retaining existing ones of all socio-economic backgrounds even as we grapple with daunting affordable housing challenges. Thus, it is important not to overlook a small but important segment of our housing market: senior homeowners (see here for full paper).
Since 2002, the city lost 23 percent of its senior homeowners, while other homeowners (less than 65 years of age) increased by 37 percent. The vast majority (75.5 percent) of the reduction in senior homeowners occurred in Wards 1, 4, 5 and 6, even as the majority (78.5 percent) of the increase of younger-aged homeowners occurred in these same four wards. All of the major causes of the net decrease in senior homeownership are not yet clear, but it appears that the Senior Credit by itself (equal to half of the annual real property tax bill of senior homeowners) has not provided an incentive to forestall the reduction in new senior homeowners in recent years (see here and here for OTR Real Property Tax Credits).
Homeownership & Homesteads in the District of Columbia
Compared to rental housing, homeownership is thought to provide an increased sense of stability and financial security. For many, homeownership is an investment that boosts household wealth through equity and appreciation over time, especially if the homeowners eventually sell the property, realizing the gain.
Since 1978, the District of Columbia government has helped lower the cost of homeownership via its Homestead Property Tax Deduction. This annual deduction is given to eligible residential owner-occupied properties that are the principal residences of their owners/applicants (referred to as homesteads). The deduction reduces a home’s annual assessed value (by $76,350 in 2021) and makes respective properties eligible for capped annual growth in the taxable value to 10 percent (5 percent for residents 65 years of age or older or disabled). Seniors and disabled also can claim the Senior Credit, which lowers the final annual real property tax bill of these senior homesteads by 50 percent. In addition to being a homestead owner who is a senior or disabled, the credit also requires everyone living in a respective property to have a combined federal adjusted gross income of $135,750 or less in 2021.
Figure 1 shows an example of the layering of real property tax relief for a hypothetical senior citizen homeowner in 2021. The figure assumes a senior citizen purchased a home in the city in 2020 for $400,000 and the property assessment value increased by 25 percent in 2021. In sum, the example illustrates how the senior homesteader pays just 40 percent of the $4,250 tax liability, a reduction of $2,530 (see Appendix in Full Paper for calculation of tax liabilities in Figure 1).
An Overview of the District’s Growth Since 2000
The District of Columbia has experienced impressive growth in its economy and demographics over the past two decades. Figure 2 shows that the total earnings of all District residents and the average income per household more than doubled in 2020 compared to 2000, And even though there has been a notable boom in construction in multifamily housing since 2009 (see here), there also are 36,048 (16.9 percent) more owner-occupied housing units (Figure 3). Furthermore, there has not only been a 39.5 percent increase in the number of residents age 25 to 44-years old, but also a 19.7 percent increase in residents 65 years of age or older.
Homesteads in the District of Columbia by the Numbers
According to District property tax records, there were 84,095 homesteads in 2002 and 101,092 in 2019 (Figure 4), a 20 percent increase. Over this time period, non-senior homesteads increased by 22,319 (37.0 percent), while the number of senior homesteads decreased by 5,322 (22.5 percent) (Figure 5). As a result, the share of senior homesteads decreased from 28.2 percent in 2002 to 18.2 percent in 2019.
The assessed market value of all homesteads practically quadrupled from $17.6 billion in 2002 to $69.4 billion in 2019 (Figure 6). And, notwithstanding having 5,322 fewer senior homesteads in 2019, the assessed market value of all properties claiming senior homesteads more than doubled as of 2019 (Figure 7).
Of the $125.7 million in real property taxes collected from homesteads in 2002, senior homesteads accounted for only 11.4 percent of the total (Figure 8). Also, despite collecting $17.5 million more in real property taxes from senior homesteads in 2019, the $31.8 million collected was only 6.8 percent of the $467.7 million collected from all homesteads in 2019 (Figure 9).
Figure 10 shows that there were more non-senior homesteads in every ward in 2019 than in 2002, but less senior homesteads in all wards except Ward 8. Over the study period, Wards 1, 4, 5 and 6 accounted for 78.5 percent of the net increase in total non-senior homesteads, but the same wards accounted for 75.5 percent of the net decrease in senior homesteads.
The Senior Tax Credit: Ambiguous Effects
According to the U.S. Census Bureau, homeownership in the District of Columbia grew 14.5 percent between years 2000 and 2019. But despite both the growing economy and population (including residents 65 years and older), homeownership among the District’s senior citizens decreased by 22.5 percent even as non-senior homesteads increased by 37 percent. And while the senior real property tax credit effectively reduces the annual real property tax bills of all senior homesteaders by 50 percent (with some senior tax bills as low as $633 in 2019), it does not appear that the credit by itself led a considerable amount of new seniors from across the city to join the program.
What’s this data?
This analysis is based on District of Columbia real property annual tax data for years 2002 to 2020. Demographic data is from the U.S. Census Bureau, and economic data is from the Office of the Chief Financial Officer/Office of Revenue Analysis.