Given its proximity to Washington, D.C., its nearly continuous prosperity over time, and its diverse demographics, Northern Virginia is a unique market. For this reason, the factors that will drive future housing supply and demand here will differ from most other places.
This article by David Versel, senior research associate with the George Mason University Center for Regional Analysis. examines five key factors that will affect the Northern Virginia market. Each of these has the potential to alter the course of the market and should be watched closely by real estate professionals.
Factor 1: The 2016 election
The impact of the federal government on the Northern Virginia real estate market is often overestimated, or at least misunderstood. The conventional wisdom is that the entire housing market is driven by the transferring in and out of government employees, particularly military personnel. Those Realtors® who are active in the market know that the market is far more diverse.
Regional employment statistics bear out the fact that Northern Virginia is less dependent on Uncle Sam than ever before. The federal share of all jobs in the D.C. metro area has declined from 38 percent in 1950 to just 12 percent by 2014. Between 2010 and 2014, the metro area lost more than 25,000 federal jobs and $11 billion in federal contracting activity. Despite these declines, the federal government remains the largest employer in the metro area and still accounts for about one-third of economic activity in the region.
Therefore, the results of the 2016 national elections will be critical to the Northern Virginia real estate market. This election cycle is shaping up to be the most unpredictable and potentially transformative presidential election since 1968, with the slate of candidates representing the political spectrum from far left to far right.
The outcome of this presidential election, as well as the congressional ones, could produce a new political order that will have a strong influence on the size and shape of federal employment and contracting. Depending on who wins—and by how much—this election could dramatically alter the regional economy and housing market.
Factor 2: Regional cooperation on economic development
One of the primary reasons why the Washington metro area has struggled to overcome its dependence on the federal government is the absence of regional approaches to economic development. In recent decades, most of the regions competing against Washington have overcome their historic parochial interests to form regional partnerships. These partnerships, which typically involve both public and private sectors, have been instrumental in the recent growth and development of regions such as Denver, Dallas, Atlanta and Charlotte.
Instead of building partnerships based on common interests, the Washington region has remained locked in its historic pattern of fierce competition for jobs and investments among its states, counties and cities. This inability to work across county lines has unquestionably hampered the region in efforts to shift its economy away from dependence on the federal government.
If the Washington region hopes to resume strong economic growth, a greater level of cooperation is needed, not only among the region’s state and local governments, but also between governments and the private sector.
Factor 3: Investment (or lack thereof) in transportation
Until recently, residential growth in Northern Virginia was shaped by the mantra of “drive ’til you qualify.” The search for less expensive single-family housing pushed the suburban frontier into southern and western Fairfax County in the 1960s and 1970s, into Loudoun and Prince William counties in the 1980s and 1990s, and into outlying counties during the past two decades.
With the region’s major transportation network at capacity, its outward expansion has likely peaked. This is increasing the pressure for infill development around existing road and transit infrastructure, which is further straining an overburdened system. Future growth prospects in Northern Virginia will thus depend more than ever on the region’s ability to improve its roads, bridges, trains and buses. The inability of public and private leaders to come together around this issue will likely reduce the region’s appeal to businesses and residents, lowering demand for both residential and commercial real estate.
Factor 4: What will Baby Boomers do?
The oldest Baby Boomers will be turning 70 in 2016, meaning that the impending “gray tsunami” of aging Boomers is arriving. Although many Boomers are now past the traditional retirement age of 65, they still own nearly half of the single-family homes in the region.
Until large numbers of Boomers start to sell their houses, much of the area’s potential inventory of homes remains unavailable. This factor plays a strong role in limiting the supply of units that are affordable for most entry level homebuyers.
Because Boomers continue to dominate ownership of the existing housing stock in Northern Virginia, they will play an important role in determining what happens in the regional housing market during the next decade. If most Boomers choose to age in place, the supply of single-family housing will continue to be limited, forcing most young families to rent, purchase smaller homes, or move further away from Washington. Alternatively, if more Boomers choose to trade down or move away, it will increase opportunities for first-time homebuyers in the area.
Factor 5: Local land use and development policies
Even if the stars align for Northern Virginia’s economy, and demand for new development comes roaring back, the local market may still be hampered by resistance to higher density development. Although the region’s counties and cities are largely built out, local politics are often dominated by the interests of current homeowners, many of whom are opposed to infill or redevelopment.
However, there is reason for optimism, as major revitalization efforts are occurring regionally. Areas such as the Rosslyn-Ballston corridor, the Alexandria waterfront, Potomac Yard, Tysons, and the Mosaic District represent some of the most innovative efforts in the U.S.
Still, these developments have largely been limited to areas that had been established for intensive commercial uses, and resistance to higher densities persists in most of the region’s residential neighborhoods. Perhaps more than anything else, this factor is likely to limit the scale of development that can occur in Northern Virginia during the next decade.