High-Income Residents: Are They the Driving Force Behind DC’s Premium Apartments?

In a recent post, we concluded that the premium apartment rental market is the more popular and ascendant segment of the city’s housing market in the context of the current trend in net population growth. To further elaborate on this topic, we profile the tenants in the city’s Class A and Class B apartment buildings built after 2000 based on income tax data characteristics. The full research paper can be found here.

Economic Profile of Tenants

Table 1 tells us that in 2015 half of the residents who were income tax filers in the 88 Class A and Class B large and mid-sized apartment buildings that were built after 2000 had annual reported income of less than $57,428 and were under the age of 31.5. And, the vast majority of these tenants were single tax filers (unmarried and no dependents) and were relatively new[1] to the city.

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[1] We classify a new resident as someone who existed in the city’s income tax data in either 2013, 2014, and/or 2015, but did not exist in 2012 or prior.

Who is more likely to live in new apartment units?

Our data shows that there was a tripling in the number of premium apartment units delivered in 2013 compared to 2012. To better evaluate the data, we divided the buildings into two groups. The first cohort is comprised of all 2015 tax filers found to be residents in multifamily buildings that delivered between January 2000 and December 2012 (relatively older premium multifamily buildings). The second cohort is comprised of all 2015 tax filers found to be residents in multifamily buildings that delivered between January 2013 and December 2015 (newer premium multifamily buildings).  We then fit a statistical model to the data to determine the characteristics of new buildings versus older buildings.

Using T-tests, we find that the newer buildings tended to have units that were an average of 88.3 square feet (10.5 percent) smaller and cost 17.5 percent more per square foot (Table 2). We also found that individual tenants in newer buildings tended to have income that was on average of $9,884 (12.3 percent) less and 1.3 years younger than renters in older buildings.

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Using a statistical model to differentiate the characteristics of tax filers living in a newer building in 2015 versus older buildings, we calculate the probability that certain factors affect the choice of residing in newer apartment buildings instead of older buildings.

While the tenants in new and older apartment buildings are generally very similar, we were able to again tease apart a few distinctions in the two populations as well as a few contributing factors for their housing choices.

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We find that income has almost no influence on whether a resident chooses to live in a newer or older apartment building (for every $100,000 increase in income, the probability to choose a newer building increases only about 4 percent). Age is also an important factor in determining how likely a resident will choose newer or older apartment units. Younger residents are more likely to reside in newer apartment buildings. For each additional year in age, existing residents are 0.8 percent less likely to reside in newer buildings, while this percentage is 0.2 percent for new residents. We also find that tenants commonly supplement their traditional wage/salary income with additional business income from entrepreneurial or other self-employment endeavors.[2]

Given that 83 percent of all tenants in these buildings are single filers (as shown in Table 1), we find that long time city residents who are head of household tax filers (unmarried income earning adults with dependent children) are 23 percent more likely to live in newer buildings compared to married residents. This is possibly due to the city’s affordable housing efforts to place low-income households in these new buildings via affordable housing programs.  And finally, single residents are more likely to reside in newer buildings compared to married filers, especially when they are relatively long-time residents.

[2] On government tax forms, adjusted gross income is comprised of wages and salaries, business income, investment gains or losses and other income.

Several Ways DC is Changing

In sum, we find the following results. First, 64 percent of the tenants in all the apartment buildings in this study tended to be new to the city. Second, the newest apartment units are smaller and more expensive, and their residents tended to be slightly younger and have less income than residents in the relatively older buildings. Third, residents in the newest units are more likely to have business income as part of their total reported income, which suggests there is an increased tendency for these residents to supplement their traditional wage and salary income with additional income from entrepreneurial or other self-employment endeavors. Lastly and surprisingly, the analysis shows a relatively strong increase in probability for residents in the newer buildings to be head of household filers. This is possibly due to the city’s affordable housing efforts to place low-income households in these new buildings via inclusionary zoning and various housing subsidy programs.

Conventional wisdom assumes that these newer buildings are attracting primarily high-income residents; however, we find that compared to older buildings, the city’s newest and pricier apartment buildings built during the recent residential construction surge (2013 and after) tend to attract a higher percentage of new residents to the city, and also attract a higher percentage of single, young residents with income below the city average. It appears that both the city’s demographics and apartment rental market are continuing to evolve and change in significant ways. And, it is very likely these changes will have considerable implications on the residential and economic patterns of the city in the years to come.

 

The Data

Using data from CoStar, we identified 88 Class A and Class B large and mid-sized apartment buildings (containing 21,203 total residential units) from across the city that were built after 2000. The list can be found here. This study also uses 2015 individual income tax data for all DC tax filers who listed their home address as being in one of the 88 apartment buildings mentioned above.

 

 

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.

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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.

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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.

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    • 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.

How $200k Can Seem Middle-Income in D.C.

A recent post in the New York Times blog The Upshot discusses 529 college savings plans and what it means to be middle class. The author, Josh Barro, writes:

“…the idea that $200,000 is a normal, not-rich family income, at least along the Acela corridor, has taken hold.”

So what does our tax data say? A household making $200,000 could certainly be seen as rich. Among people paying local income taxes in D.C. in 2012, an income of $200,000 would put a person in the top 10 percent of all taxpayers. It is more than four times the median taxpayer income of $46,000.

On the other hand, if you’re married and have dependents you might see things differently. The median income for D.C. taxpayers in this group in 2012 was $143,000. A couple making $200,000 would fall somewhere between the 60th and 70th percentile of the income distribution. If you’re married with kids and so are your peers, you might well conclude that an income of $200,000 is close to the middle of your peer group.

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