Housing USA: Washington, DC

5 min read

The ultimate industry town

Readers of this publication may already know about the modern industry towns of America, and what they have done to housing markets. The growth, respectively, of tech in the Bay Area, finance in New York City, eds & meds in Boston and Amazon in Seattle has inflated prices, especially when mixed with tight land regulations that restrict unit supply.

But all this pales in comparison to the government’s presence in Washington, DC. As the nation’s capital, the District—and the larger metro area spreading into Maryland, Virginia and West Virginia—is ground zero for the federal government. And because that bureaucracy has grown, DC has received the largesse, seeing rapid cultural overhauls, inflated housing markets and general opulence, causing one journalist to dub it “America’s Gilded Capital.”

There are a number of ways that this growth tangibly surfaces here. Mainly, there are just a lot of well-paying government jobs. While the size of the federal workforce has declined, the jobs still compensate far better than similar private sector ones. According to separate studies by the American Enterprise Institute, the Heritage Foundation and the Congressional Budget Office, federal jobs have higher pay, better fringe benefits and more security – and about 200,000 of them are located in D.C. Because federal workers’ pay is adjusted for local cost-of-living, the ones in DC likely earn more than others nationwide, said Andrew Biggs, a federal spending analyst for AEI.

Another factor is the increase in private contract employees, which are now nearly twice as high in number as federal employees. Biggs said there is not reliable data on how much contractors make; but it’s safe to assume that, like government staffers, they’re paid well. Many contractors work in highly-specialized fields—such as tech, economics, data analysis, legal and consulting—that earn big salaries most anywhere. DC’s higher cost-of-living likely drives wages up for them as well.

A third factor is the various people who aren’t directly employed or contracted with by the government, yet work in industries that result from this massive agglomeration. These range from journalists on the Capitol Hill beat; to think tank and non-governmental organization employees involved in political advocacy; to the lawyers and lobbyists who have become ever more necessary, as the federal regulatory code increases in size.

Collectively, these direct and indirect government industries have caused a massive influx of highly-skilled, highly-paid professional workers. Since 2010, DC proper has added nearly 100,000 residents, enjoying its fastest growth rate since the 1940s. The metro has grown by nearly 600,000, which is similar in net to other dynamic metros, like Atlanta and Miami. Although it’s no longer the case, DC after the recession had faster job growth and lower unemployment rates than the national average. According to Yesim Sayin Taylor, executive director of the DC Policy Center, the jobs created during this period have been in high-paying fields, like tech, business management and professional services.

This has left the metro swimming in cash. The physical manifestation is found in the buildings themselves, from the shiny private condos of Cardozo and the southwest waterfront, to the new public monuments and museums that line the National Mall. Demographically, it exists in the wealth that has spread throughout the metro. Half of America’s ten richest counties are DC suburbs, and Washington has the second-highest median household income of any MSA.

But where the rising wealth really surfaces is in real estate; citywide median home prices have skyrocketed from $353k to $567k since 2012. While the southeast side remains a low-income ghetto, large portions of the city are gentrifying. Taylor says that in a typical scenario, young professionals who move in “are actually more affluent than the families in the District. They don’t have children; they can spend a larger share of their income on housing.”

My stay this past July in the Park View neighborhood, near Howard University, gave me a firsthand look at this dynamic. Just to the west is Columbia Heights, an already hip and expensive neighborhood. Once you cross Georgia Avenue into Park View, the population becomes overwhelmingly black and Hispanic. But that area, too, is changing.

The same goes for businesses, added Taylor. Commercial rents are high, so there are various firms —legal, accounting, temp agencies, etc.—that have moved to Tyson’s Corner, Reston, or further exurbs. The upper management of these companies may remain in the city; but the “backend” offices, with their paralegals and secretaries, have relocated.

Taylor said that a major factor behind the high costs is that Washington, like other industry towns, has suppressed growth in the core. The wealthy neighborhoods west of Rock Creek Park, for example, remain zoned for single-family homes, while the infamous height act keeps the downtown area suppressed.

But the largest force may be the sudden wealth resulting from government growth. A charitable view would be to say that this technocratic federal bureaucracy is needed to run our complex nation. Perhaps a more realistic view would be to recognize that the bureaucracy has also become a patronage mill that overpays workers, and props up a regulatory state that requires lawyers to interpret. But one thing is for sure: Washington, DC has had a rather unique economic situation heaped onto it. The metro represents, for better or worse, America’s foremost modern industrial town.

Story Contacts:
Yesim Sayin Taylor
D.C. Policy Center

Andrew Biggs
American Enterprise Institute