Household formation and home ownership in the District: millennials and Gen Xers are dominant forces of change

Compared to the rest of the nation, homeownership is lower across all age groups in the District.  The largest differences are for millennials and while the gap narrows by age, it never fully closes. Millennial heads of households are nearly twice more likely to own the homes they live in across the entire nation compared to the District. There could be many reasons for this: high prices in the District, or delayed family formation for the millennials.image002

We already know that the prices in the District are high, and there is some evidence that millennials are delaying forming households. Here is how we see it: The recent population boom in the District can be largely attributed to inflow of young people. Of the nearly 75,000 net increase in resident population between 2000 and 2013 (the latest year for which age breakdown of the population is available), 51,000 come from those between the ages of 20 and 34 (comparable to today’s millennials who were between the ages of 18 and 34 in 2014). This group now constitutes 32 percent of the total population compared to 27 percent in 2000.


However, millennials of 2014 are not forming households as fast as their comparable age group did back in 2000 (today’s Gen-Xers). Those under the age of 34 added more households to the District compared to older groups between 2000 and 2013, but each net increase in resident population in this age group resulted in a net increase of 0.5 new households headed by a similarly aged person. In contrast, those between the ages of 35 and 55 added about 3,000 new residents, but more than 17,300 new households. That is an increase of 5.6 households for one new resident from this age group.


Homeownership plays a role in this dynamic. For the young people under the age of 34, homeownership rates increased between 2000 and 2005, and suffered since then, first through the great recession and once again since 2011. This probably has to do with steep increases in home prices beginning early 2000s. In contrast, those between the ages of 35 and 54 defied the Great Recession, increasing their ownership rates by more than 4 percentage points (just as comparison, ownership rates for this age group declined by 6 percentage points since the great recession across the entire nation).


This is yet another picture of gentrification. We sometimes think of gentrification as something driven by young people. They move in, drive up rents and force low-income families out.  This data suggest, however, that the changing profiles of Gen Xers might be another key driver of socioeconomic changes in the District.  The dynamics of population for those between the ages of 35 and 54 suggest a great churn, with a small net increase in population but a large increase in household formation and homeownership, suggesting that the newcomers in this age-group are probably wealthier than those who leave.

What exactly is this data? Population data by age groups is from the U.S. Census. Homeownership and income data are extracts from the Current Population Survey data maintained by Miriam King, Steven Ruggles, J. Trent Alexander, Sarah Flood, Katie Genadek, Matthew B. Schroeder, Brandon Trampe, and Rebecca Vick. Integrated Public Use Microdata Series, Current Population Survey: Version 3.0. [Machine-readable database]. Minneapolis: University of Minnesota, 2010. The post uses the generation definitions from Pew Research Center.

Homeownership in the District

In 2014, according to data compiled by the Federal Housing Finance Agency on home purchase prices, homes in the District sold for over three times the prices they commanded in 2001.  During that time, home prices in the U.S. also increased, but not nearly as fast—2014 prices were 45 percent greater than 2001 prices.  The great recession did dampen prices in the District (shaded in the graphs below), but not enough to undo the rapid gains in early 2000s and since the end of the recession, rapid price increases once again became the norm.image003

So how did all this affect homeownership?  In 2014, 44 percent of District residents lived in homes they owned—that is down 4 percentage points from 2001 and down five percentage points from 2007 (right before the great recession) when ownership rates reached 49 percent. As a relative decline, this is about 10 percent (5 out of 49).  Homeownership rates declined in the US too, but not as rapidly.  Ownership rates declined by 4 percentage points since the beginning of the great recession from 71 percent to 67 percent, but given that ownership rates in the nation were much higher to begin with, this is a relative decline of 6 percent.


We have written many times on this blog about the changing demographics and gentrification in the District (see here, here and here).  Homeownership lies at the heart of these issues.  So we checked: how did home ownership change among different income groups?  We divide the District’s resident population into three groups: low-income, which includes all households with incomes in the bottom 25 percent of the income distribution in 2014, high-income, which include households in the top 25 percent of the distribution, and middle-income, which is all the households in between. We look at these groups since 2001, adjusting income thresholds for inflation.  This way, we are comparing similar groups based on today’s demographics.

In 2014, 19 percent of households who fall in the bottom 25 percent of the income distribution owned their homes.  If we looked at the same income group in 2001, we would have seen that 31 percent of them owned their homes.  That is a relative decline of 40 percent.  Homeownership among the middle-income groups increased through the 2000s, only to go back to their 2001 levels in 2014, at 43 percent.  Homeownership among high income residents also lost ground, but only slightly, going down from 77 percent to 72 percent.image007

There are many issues at play here: increasing prices, transient population, limited growth in housing stock, demographic change (read: more singles who are less likely to own across all income groups and overall growth in population).  But what is clear is that the income composition of homeownership is changing, with ownership of housing shifting towards middle and high income residents.

What exactly is this data?  The home price data is the quarterly index of home prices based on estimated purchase price.  Homeownership and income data are extracts from the Current Population Survey data maintained by Miriam King, Steven Ruggles, J. Trent Alexander, Sarah Flood, Katie Genadek, Matthew B. Schroeder, Brandon Trampe, and Rebecca Vick. Integrated Public Use Microdata Series, Current Population Survey: Version 3.0. [Machine-readable database]. Minneapolis: University of Minnesota, 2010.

Business Survival and Job Churn in the District

In March of 2014, the District had nearly 3,700 businesses that began hiring employees for the first time in the previous 12 months. This is the highest number of such establishments since 2001, according to Bureau of Labor Statistics data, which track business births (and deaths) in the District. These new businesses collectively added 17,000 new jobs in the same year—that is 3.7 percent of all jobs in the District.


On the down side, 2,661 businesses that hired employees in the year before stopped hiring—the businesses are either dying or moving elsewhere. This number is better (lower) than what we saw last year, but still pretty close to its five-year average. The closing businesses took away with them 13,193 jobs—this is about a third of all jobs lost in the District during the same period. In fact, new and closing businesses account for a third (and declining share) of the job churn. For a net increase of 9,730 private-sector jobs during the year, the District’s private sector added 55,342 new positions, nearly 37,800 coming from establishments that are expanding – or have a higher number of employees in March of 2014 compared to the March of 2013.


The data suggest that over that single year, only one out of six jobs opened were net additions, the remainder made up for jobs that were lost somewhere else in the District. That is, 5 out of 6 positions or 82 percent of all job openings were just compensating for existing jobs. That is our churn rate.

The churn rate turns out to be an interesting figure. First, to go through the mechanics of it, the higher the churn rate, the lower the net number of job increases. For example, when the city adds no new jobs, the churn rate is 100 percent. When the churn rate goes above 100 percent, it tells us that the city is losing jobs—like a game of musical chairs, when all opened positions are filled,  some people who just lost their jobs still remain standing. New and expanding establishments continue adding jobs, but they are not doing it as fast as the rate at which contracting and closing businesses are removing jobs from the District. We see such rates during the last two recessions (shaded gray in the graph below)—we also see that the District weathered both these recessions better than the nation in general. We lost net jobs, but not at such a high rate as the entire nation.  In the nation, for ten jobs lost, only four new ones opened in the same year, and six were lost. We generally talk about the federal government expansion as the reason why the District’s total employment did not suffer very badly, but the churn data from the private sector shows us that the private establishments in the city  handled the recession much better than the private establishments in the U.S. in general.


So, how likely are the new businesses to survive in the District? It turns out that the odds of survival is lower in our city compared to the nation in general. In March of 2014, the District had 2,899 new businesses. This is the highest number of new establishments for a year since 2001, according to BLS data. These new businesses accounted for about 12 percent of all business establishments in the District. On the other side of the age spectrum were business that had been established before 1993: one-fifth of all private sector business establishments in the District first began operations 21 years ago!image009

If previous trends hold true, the District will lose one quarter of these 2,899 new businesses by March of 2015. In fact, in about ten years, only 762 businesses established today will remain intact. The odds of survival for private sector firms is much lower in the District compared to the nation in general. The first year survival rate (counting from 2014 backwards) is 76 percent in the District compared to 79 percent in the U.S. 48 percent of today’s new firms would still be standing in the District after their first five years of operation while the comparable metric for the US is 58 percent.


What exactly is this data? The data are from the Business Employment Dynamics data compiled by the Bureau of Labor Statistics. New Businesses are businesses who had no employment in the previous quarter. Expanding establishments have positive employment in the March of every year with a net increase in employment over the year. Contracting establishments have positive employment in the March of every year, with a net decrease in employment over the year.

Student loan balances in the District are highest among the nation

Student loans play an increasingly important role in financing higher education.  Student loan debt from federal and private loans almost tripled between 2004 and 2012 across the nation, and is now close to $1 trillion.

Many District youth attend out-of-state schools, and despite federal tuition support for District students,  increasing burdens of higher education is an important financial consideration for District families. We estimate that total stock of student loans in the District was approximately $5.1 billion at the end of 2012, up from $2.2 billion in 2004.  Some of this increasing burden is imported; it belongs to those who  moved to the District after school, in search for better jobs.  Still, the total growth in borrowers outpace the population growth, suggesting that some of the increase is due to higher demand for higher education,and rapidly increasing costs, which push more people into borrowing.  In 2012, 126,000 individuals, that is, one fifth of the resident population, reported student loan balances in the District. This figure was 73,000 in 2004, only 13 percent of the total population for that year.

Indeed, data show that average student loan borrowing in the District is the highest in the nation. According to data collected by the Federal Reserve Bank of New York, average student debt among D.C. residents was $41,200, up from $30,000 in 2004.  To compare, student debt among residents of New York City was $11,000 less, and debt reported for the entire nation was $16,000 less.  Even residents of Manhattan carried less student debt in 2012, at $38,500.image002

Who carries the biggest student loan burden?  They are mid-carrier individuals, likely still paying for their own student debt.  Those between the ages of 30 and 40, on average, report about $50,000 in student debt, and survey data suggest that this group accounts for 45 percent of all borrowing in the District. Borrowers from this age group carry the highest balances in the nation, too, but their individual borrowing are not as high in relative terms, so they account for 33 percent of total borrowing across the nation.  Those below the age of 30 (bulk of the millenials) are not far behind, juggling about $37,000 of debt, accounting for the 35 percent of total borrowing in DC.


District residents above the age of 50, on average, owe $31,100.  These borrowers could be parents paying for their own children’s education; they could also be professionals who went to school at a later age to get a graduate degree–an important consideration in career advancement in the District’s competitive labor market. The average loan amount older residents carry is much higher than the national average of $24,800, but a as a group, 50+ year-olds do not borrow intensively: they only account for only 9 percent of the borrowing In the District, compared to 16 percent in the nation.


Delinquency rate for student loans is increasing and this increase will likely continue given many loans were deferred in 2012, and were still under the grace period when data were collected.  Delinquency rate in the District stood at 16 percent at the end of 2012, up from 11.8 percent the year before.  The same year, national delinquency rate was at 17 percent, and in NYC, this rate was 16.5 percent.  However, District residents have relatively small delinquency balances at about 7 percent of their total borrowing, compared to the national average of 11.7 percent and NYC average of 10.5 percent.

Surprisingly, delinquencies among 50+ year-olds are very high at 22.4 percent—this is 6.4 percentage points above the average across all age groups in the District.  Across the nation, this age group has the lowest delinquency rate.  However, on loans that are bulk of the borrowing in the District—those carried by 30- to 40-year-olds—delinquency rates are much lower at 13.6 percent and these borrowers have been delinquent only on 7 percent of their total balances, compared to the 12 percent across the nation.  Younger adult residents of the District do even better—under-age-30 delinquency rates are similar to the nation at 15 percent, but these borrowers are delinquent on 5 percent of their balances compared to 9 percent across the nation.


What exactly is this data? Student borrowing and default data is a part of The FRBNY Consumer Credit Panel,  a nationally representative 5% random sample of all individuals with a social security number and a credit report (usually aged 19 and over).  Delinquency rates are calculated as the proportion of student loan borrowers with 90+ days past due accounts (including defaults).

What is happening to middle-wage jobs in the District?

Middle-wage jobs lost a lot of ground during the great recession, but they are making a comeback across the nation.  Yet high-wage and low-wage jobs are growing faster than the middle-wage jobs, suggesting that over time, the job market will be more polarized.

Is the job market in the District becoming more polarized?  To see this, we looked at employment and wage data by occupation for years 2005 through 2014 (BLS just released the 2014 data on March 25).  We then grouped the data by wage level (low, middle, or high).  Middle-wage occupations have median salaries that fall within the 25th and 75th percentiles of the annual wages paid in the District.  We define occupations with median wages below the 25th percentile as low-wage, and occupations with median wages above the 75th percentile as high-wage.

This grouping exercise reveals interesting things about our city. First, a low-wage job in the District pays a lot (but might not buy much): In 2014, the District’s 25th percentile of the annual wages, at $37,440, was greater than the U.S. median wage of $35,540.


Second, middle-wage jobs–the bulk of positions in professional and business service areas, health, and education–have grown through the recession, but they are no longer the engine of District’s economy.  These jobs never went away, but their growth declined with the recession, and never really boomed.  Occupations that pay low-wages—these include positions in retail, food services, grounds maintenance, and personal services—have more than recovered from the losses during the recession.  These jobs have been the biggest source of increase in employment since the official end of the recession.  Between 2011 and 2014, the District added about 21,000 low-wage jobs, easily reversing the loss of 7,500 jobs in this category during the recession.  Finally, high-paying jobs increased rapidly during the recession, first due to federal hiringand then with population growth, but the growth in these occupations have also slowed down.


The composition of middle-wage occupations could change over time.  Middle-wage occupations are changing either because these occupations are no longer needed in the District economy, or because these jobs are no longer middle-wage.  Between 2013 and 2014, middle-wage jobs declined by 9,700, partly because there were fewer accountants, property, real estate, and community association managers, fundraisers, counselors, and legal secretaries.  Another part of the decline was that some occupations typically considered to pay middle-level wages transitioned into low-level wage occupations. For example, office and administrative support workers (about 2000 of them in the District) made the permanent transition to low-wage workers around 2012.  Of course, some office and administrative support workers still get paid a middle-level wage, but if one were to look for a job in this occupation, chances are his or her salary would be less than $37,400.

The interactive graphs show the number of jobs paying middle-wages and the number of occupations that could be considered middle-wage under each major occupation category.


What exactly is this data? We used BLS Occupation Employment Statistics to construct a series of low-, middle-, and high-wage occupations.  Low-wage occupations are defined as occupations with annual median salaries below the 25th percentile of wages for the entire city in the same year.  High-wage occupations are defined as occupations with annual median salaries above the 75th percentile.  Middle-wage occupations lie in between.

D.C.’s baby boomers: seniors today are richer than the seniors of early 2000s

US Census estimates that 11 percent of District’s population are seniors—that is approximately 75,000 District residents. The number of seniors in the District moved up and down with the population, but with some lag.  Still, senior population has remained relatively stable, varying between 78,000 during mid-80s, down to 68,000 during mid-2000s, and now back up, although they are now slightly a smaller share of the entire population (through mid-90s, seniors were approximately 13 percent of the population.)  The recent increase in the senior population is most likely coming from baby boomers and they look very different from the seniors of 2000s.


Seniors today have a different economic profile. As a group, they are richer. In 2001, only 3,196 seniors had incomes ranked among the top ten percent of earners in the city. In 2012, this number more than doubled to 7,541. District population and the number of tax filers also increased during this period, but nowhere nearly by that much. Today’s seniors work into their later years and have more access to capital markets. Income disparities among the District’s seniors have also increased since 2001.

Our tax data suggests the following socioeconomic changes among the senior residents of the District:

  • A larger share of seniors are filing income taxes. In 2001, there were approximately 69,000 seniors in the city compared to approximately 26,000 senior income tax filers (the filer is a senior, or the spouse is a senior, or both claiming to be 65 or older). That was about 39 percent of the total senior population. Senior population in 2012—the last year for which we have tax data—was only 3,200 more than 2001, but the number of senior tax filers the same year had increased by 11,233.

Why would we see such an increase?

First, senior earnings are increasing because they work past retirement age. Tax filing data provide some evidence of this. In 2001, seniors accounted for only 2.8 percent of the wage earnings in the District; in 2012, they account for 6.2 percent. Similarly, seniors only accounted for 6.2 percent of the business income reported in the District in 2001, and in 2012, their share was 21.1 percent.


Second, the household size for seniors is declining, with more becoming empty nesters. More seniors are filing as singles: In 2012, 60 percent of all senior taxpayers filed under the single filing status—an increase of 7467 compared to the number of seniors who are filing as singles in 2001.

District’s tax filers also increased during this period. We have more residents who are employed (see here, and here), both because of increases in the population, and because more low-income earners file tax returns to take advantage of local earned income tax credit program, which began in 2003 and was expanded in 2006. Still, the changes among the seniors is much more dramatic compared to the entire population.

  • Seniors now account for a larger share of income earned in the District. The share of tax filers, who identify themselves or their spouses as seniors, have remained stable, at 11 to 12 percent, between 2001 and 2012. However, seniors now account for 18 percent of all federal adjusted gross income reported in the District, compared to 12 percent in 2001.

    image006Why are seniors’ income so sensitive to the economic booms and busts as we see in the graph?

    Tax data suggest that capital gains (and losses) are now a larger share of senior income: Seniors accounted for 37 percent of the capital gains in the city in 2012 compared to 21 percent in 2001. This data point us to another shift in the socioeconomic make-up of the seniors. Seniors have more access to capital markets, and the share of seniors on fixed incomes appear to be declining.


    • Seniors are getting richer relative to all residents, but income disparities among seniors are also increasing. Through 2005, the median income of seniors was similar to that in the entire city. This began changing in 2006, and since then, median incomes among the seniors have been increasing faster. In 2012, senior median income was $52,500, or 19 percent higher than the $44,000 reported among all residents.image010

    The income gap between the poorest and the richest seniors have been widening since 2001. To show this, we compare the income threshold to join the top ten percent earners to the threshold for the bottom ten percent. Usually top ten percent earners make in multiples of the bottom ten percent. In 2001, for the entire city, anyone who earned $110,655 or more (in 2001 prices, not adjusted for inflation) was among the top 10 percent of the earners and anyone who reported less than $7,106 was in the bottom percent, producing a ratio of 15. Among the seniors, the gap was smaller ($125,240 v. $10,248), producing a ratio of 12.

    Since then, the income gap has become greater for everyone ($162,545 v. 8952, with a ratio of 18 in 2012), but for seniors, it is now higher than the entire city. The 90th percentile threshold for seniors increased to $221,137, while the 10th percentile threshold, at $10,192 in nominal terms, is less than what it was in 2001, producing a ratio of nearly 22!image012

    What exactly is this data? We use income tax return data for tax years 2001 through 2012. The analysis is based on federal adjusted gross income. We use this metric because it includes social security and pension earnings (for which District offers a deduction) and it also accounts for the full-year earnings of those who moved into the city in the middle of the calendar year.

District residents who live east of the river have the lowest effective real property taxes

District residents who own their homes do not generally pay taxes on the full value of their properties.  If your District property is your primary residence,  the amount you get taxed on will be different from your assessment.  First, you are exempt from taxes on the first $70,400 of your house value (this is called homestead deduction, and it is adjusted every year for inflation).  Second, you are protected from the tax implications of large upswings in home values by the assessment cap. Your taxable assessment, which is what you pay taxes on after the homestead deduction, cannot grow by more than 10 percent each year.  (These two tax relief policies are not unique to the District; more on this will come this week).  The two policies combined reduce the taxable assessments for all District homesteads, but their combined effects vary by home values and neighborhoods. (In addition, seniors with incomes below $127,100 get a 50 percent reduction on their final tax bills).

The homestead deduction is more valuable in low-value houses. Because it is a flat amount ($70,400 this year), the homestead deduction produces a relatively bigger tax break for properties that have lower assessed values.  If the tax office assessed your home’s value at $300,000, you would be taxed on $229,600, or 77 percent of your home’s market value.  If your assessed value were $1.3 million, your would pay taxes on $1.23 million, or 94 percent of your home’s market value.

The 10 percent cap on tax assessments is more valuable in neighborhoods with rapid growth.  Going back to our example, a homestead property of $300,000 would be taxable over $229,600.  At 85 cents for each $100 value, the tax would be $1,951.  Let’s say the assessed value of this property grew by 33 percent to $400,000 in one year.  If there were no caps, the new taxable assessment  would have been $329,600.  The cap, however, limits the taxable assessment growth by 10 percent, thus the owner would only pay taxes over roughly $252,560 ($229,600 times 110 percent).  The cap is removed once the house is sold to a new owner.

Looking at the District residential properties that are eligible for homestead deduction and assessment caps, we find the following:

  • More than half the District properties are eligible for homestead deduction, and potentially, the taxable assessment cap. Of the 178,300 residential properties, approximately 95,876 are homesteads eligible. (This figure is only for properties that are purely residential such as single family homes, row houses, apartments and coops.  It excludes mixed-use developments).
  • Among these homestead properties, the two tax  provisions reduce taxable assessments by about $10 billion, or down 28 percent. In Tax Year 2015, the total assessed value of homestead properties was $53.8 billion; only $44.2 billion of this amount was taxed. In Tax Year 2016, the comparable numbers are $57.3 billion and $47.3 billion (the 2016 data could change since people have a chance to appeal).
  • In the absence of these deductions, the real property taxes would have been $72 million higher every year.  Given the $10 billion difference, the number is indeed lower than the 85-cent rate would bring. This is because seniors, who own 19,200 properties in the District, are eligible for a 50 percent tax reduction.
  • The divergence between full and taxable assessments is greatest among lower valued homes. Among properties assessed below $300,000, the taxable assessments are 65 percent of full assessments–that is, homeowners only pay taxes on 65 cents out of each dollar of assessed value.  Among mid-valued properties (assessed between $300,000 and $750,000), the taxable assessment are 78 percent of full assessments.  Among properties valued over $750,000, the comparable ratio is 92 percent.

Bar Chart

  • Finally, the divergence between full and taxable assessments is greatest in east of the river neighborhoods and in neighborhoods that have been growing rapidly. In the Congress Heights neighborhood, for example, the taxable assessments are only 56 percent of the market assessments.  In neighborhoods where values are growing fast, such as Eckington and Riggs Park, the taxable assessments are at about 67 to 68 percent of market assessments.  In the northwest quadrant, especially west of Rock Creek Park, taxable assessments are closest to market assessments.  This is because the housing values in these neighborhoods are very high, and they grow at much slower rates (3 to 4 percent annually). The 10 percent cap does not bind forever, since taxpayers eventually catch up for previous tax reductions until their taxable assessment is exactly $70,200 lower than their market assessment.  Such is the case in neighborhoods west of the Rock Creek Park.

Here is a map of District’s neighborhoods by the ratio of taxable assessments to market assessments.  Darker colored neighborhoods have market and taxable assessments closer to each other.


What exactly is this data? We use current and proposed market and taxable assessment data from District’s real property tax database as extracted on 29th of February this year. The data only covers homestead properties and properties that receive senior tax reduction.  It also only focuses on non-mixed use properties.