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.

 

 

District’s residential property assessments grew by 6 percent

Housing in the District of Columbia is expensive.  The U.S. Census tells us that the District had the second highest median housing prices in 2013, after Hawaii.  Listing price data from the online real estate company Trulia for February 2015 also ranks District second highest among states.

Last week, the District’s tax office put in mail the residential property assessments for Tax Year 2016. The aggregated data at the city and neighborhood levels tell us the following:

  • The tax office valued the total housing stock in the District at $105 billion. 2016 assessments are more than six times the 2000 assessments.
  • On average, housing values assessed by the tax office grew by 33 percent annually for the last 16 years. There are many more housing units today in the District, so most of this growth is coming from new development. But some growth is due to the appreciation of the existing housing stock.
  • Between 2015 and 2016, assessed values grew by 6 percent (similar to the growth last year). Growth is still strong, but below its long term average.
  • Assessments increased the most in Old City neighborhoods, which include parts of Adams Morgan, Dupont Circle, Shaw, Capitol Hill, the U-Street Corridor, parts of Chinatown, and parts of Southwest Waterfront.  Total assessments in these two neighborhoods increased by $1.6 billion.  This change accounts for a quarter of the increase in assessed values (and it is mostly due to new housing units).
  • Highest growth in assessments were generally in northeast neighborhoods. Assessment at Riggs Park grew at 16 percent; Trinidad, LeDroid Park, and Eckington assessments grew 12 percent. Neighborhoods that grew over 10 percent (which adds Chillum, Deanwood and Woodridge to the list) added $800 million to assessed valued, accounting for 10 percent of the new growth.

Changes in map

Comparing the residential market value assessments today to those of 2000 show that housing assets are more equally distributed across the city.  In 2000, Georgetown and Chevy Chase–just two neighborhoods–accounted for 15 percent of the assessed market value in the city.  Today, they account for less than 10 percent.  Seven neighborhoods in the west of Rock Creek park, plus Old City and Capitol Hill collectively accounted for half the housing value in 2000. Today, growth in the Old City neighborhoods have balanced out the values in west of the Rock Creek Park.  Southwest Waterfront, Brookland, and Petworth also hold significant value.

Assessment Increase Long

What happened to market assessments in your neighborhood? Use the interactive tool below to see the market assessment changes between 2015 and 2016 in each assessment neighborhood.

Assessment Change bars

What exactly is this data? Tax years 2015 and 2016 data are from District’s Computer-assisted mass appraisal (CAMA) database, aggregated for assessment neighborhoods.  The 2010 assessment data is from the real property tax database for 2001, as it was extracted in March 2001.  2001 and 2016 data are not perfectly comparable since assessment methodology was different, and neighborhood definitions in 2000 were slightly different from the definitions today, but one can draw broad conclusions.  The data presented here are assessed market values. The tax base for the District is related, but different:  the difference between market assessment and taxable assessment is the homestead deduction, but taxable assessments can also be constrained by the 10 percent cap on the annual growth in each property’s taxable assessment.

John Codd at the Office of Tax and Revenue helped with this post. (All errors belong to the author)