Rising Price of the American Dream
- [The disposition of Parcel 34 and other city owned parcels in Columbia Heights should be considered in the context of this article. NCRC needs to even further refine its RFP. With requirement of 30% affordable, 30% Workforce as minimums and no more than 5% of units one bedroom. If NCRC, developers and city can't figure out how to do it, then something is seriously wrong.]
Rising Price of the American Dream
By Eric M. Weiss
First of two articles
They were a real estate agent's dream: well heeled, well educated and preapproved for a $400,000 home.
But in the District neighborhoods where the couple wanted to live, all that real estate agent Leyla Phelan could show them were one-bedroom apartments in Logan Circle or small houses in Petworth or Brightwood.
"It just blows my mind," said Phelan, an agent in Northwest Washington. She said the city's continuing real estate boom has been great for her business and good overall for the city. But as a District resident, she has concerns about who will be able to afford to buy a home in the city in the future.
"They can't all be attorneys and patent lawyers," Phelan said. "I love them as clients, but D.C. also has a lot of nonprofit people and universities. As a citizen of the city, you have to ask, where are the Whole Foods workers or gas station attendants going to live?"
Those hoping for a respite from skyrocketing property values will be disappointed when the District government begins mailing out assessments this month, city officials said. Residential assessments on average will rise citywide by 15 to 18 percent, said Thomas Branham, the city's chief assessor.
"Unlike the anecdotal data you hear over the fence from neighbors that things are about to burst or slowing," Branham said, the numbers show "a continuation of a strong market."
Branham said his department has not finished crunching the numbers and does not have data broken down by neighborhood. But he said he has seen no dramatic changes in terms of which neighborhoods are experiencing the greatest rise in values.
Such surges are a mixed blessing for homeowners, increasing the value of their investment but also signaling the prospect of higher property taxes.
The assessments that Branham's office will mail out before March 1 will be reflected in tax bills for 2006. The 2005 tax bills will be based on assessments completed a year ago.
An analysis of city assessment data from 2002 to 2005 shows that Shaw, Logan Circle, Dupont Circle, Capitol Hill, Eckington, 16th Street Heights and Columbia Heights were among the neighborhoods that had the sharpest rise in real estate values, with total increases of more than 130 percent in each of those communities during the three-year period.
But even in the three city neighborhoods with the smallest overall change -- Congress Heights, Marshall Heights and Fort Dupont Park -- assessments rose by at least 39 percent over those three years, the analysis shows.
Real estate brokers who work in the District said homes in neighborhoods such as Logan Circle, Shaw, LeDroit Park and Petworth continue to appreciate dramatically because their values were relatively deflated in previous years. And neighborhoods that already were highly valued, such as Georgetown and Cleveland Park, continue to post large gains.
"Pricewise, we're not seeing any sort of slowdown," said Fred Kendrick, an agent with Coldwell Banker Residential Brokerage in Georgetown.
Based on sales data from the Greater Capital Area Association of Realtors, Kendrick said, single-family houses and townhouses increased in value by 15 percent from 2003 to 2004, while condominium and cooperative units rose by 23 percent.
Branham said that condos and co-ops are still catching up after years of being undervalued and that he expects they will outpace single-family houses in this year's assessments as well.
"Historically, the traditional single-family detached house is the first to rapidly appreciate," he said. "After that, the more nontraditional housing types such as townhouses increase. Then there were the condos, and now we are seeing stock-ownership properties steadily increasing."
District real estate prices have been skyrocketing since the mid- to late-1990s, when the city began to recover from years of political and fiscal turmoil and rampant crime that had prompted D.C. residents interested in short commutes and urban environments to consider Bethesda, Arlington, Alexandria and other close-in suburbs.
The development community, which essentially had stopped building residences in the city, jumped back into business, launching a boom that has transformed many neighborhoods. Long-empty lots and crumbling buildings have given way to attractive new townhouse and apartment complexes. Neighborhoods once considered dangerous and isolated are now billed as lively, thriving and close to downtown.
But the supply has not kept up with demand. Houses and condos in neighborhoods from Cleveland Park to Bloomingdale rarely stay on the market longer than a few weeks. New projects downtown, in Logan Circle and along the U Street corridor often sell out before construction begins, as suburban traffic worsens, the D.C. crime rate continues to drop and the attraction of close-in living keeps growing.
Not even the Sept. 11, 2001, terror attacks, which some said might scare people away from locations close to downtown, seemed to dampen the demand.
As a result, prices continue to rise -- not just in tony, long-established neighborhoods such as Georgetown, Woodley Park and Spring Valley but also in formerly working-class areas such as Petworth, Bloomingdale and H Street NE.
Upscale professionals, most of them white, are moving into neighborhoods that for decades had been overwhelmingly black or Latino, as they clamor to lay claim to new condos, fixer-upper rowhouses or already transformed Victorians.
District officials are grappling with how to protect residents from the city's success. Last year, the city reduced the cap on annual property tax increases from 25 percent to 12 percent and increased the homestead deduction from $30,000 to $38,000. So homeowners whose assessments rise by 20 percent or even 30 percent this year will have to pay a maximum of 12 percent over what they paid last year in property taxes, Branham said.
Still, D.C. Council members and others worry that rising prices are locking out prospective home buyers who want to live in the neighborhoods where they grew up and putting pressure on elderly homeowners on fixed incomes who can't handle the steady rise of property taxes.
Some homeowners are fighting back, accusing the city of punishing them with inflated assessments and crushing tax bills while it socks away record revenues and reserves.
Peter Craig, a Cleveland Park homeowner, has been waging a legal fight against the city, saying its assessment process is secretive, unfair and arbitrary. Ninety-eight homeowners have signed onto his class-action lawsuit, which is awaiting a judge's decision. "There's going to be a howl when the new assessments come out," Craig said.
Staff writer Debbi Wilgoren contributed to this report.
Tomorrow: The personal toll. How rising assessments are affecting the residents of one neighborhood.