What Housing Crisis?

Greater Washington D.C. stands out among regions in sidestepping the still unfolding U.S. housing crisis. As housing has tanked across the country, losing another 5 percent this year, the greater Washington metro area (which includes Northern Virginia and suburban Maryland) was the one metro market which actually gained value, according the latest Case-Shiller Home Price Index figures. Greater D.C. housing prices rose by 4.3 percent for the year stretching March 2010 to March 2011 and 1.1 percent between this February and March, the latest period for which figures are available.

While great attention gets paid to the slightest gyrations in the oft-cited index, there is another less-cited component of the Case-Shiller series that’s even more interesting. It’s the index value itself, which tracks housing prices in light of their January 2000 baseline (reflected as a value of 100 on the index). While Greater D.C. housing has lost about a quarter of its value since the 2006 peak, its housing remains at 182 on the index, the highest level by far of any of the 20 metros tracked (a number of which have sunk beneath their 2000 levels) and considerably above the level for the nation as a whole, which is 125.

So what accounts for the strength and resilience of the greater Washington D.C. housing market? For many, the answer lies in government spending, which acts as a counter-cyclical device. This is true, but only up to a point.

First off, the greater D.C. area is much more than a government town. It is a center for high-tech and media, software and biotech. It doesn’t just have lobbyists and bureaucrats and politicians (and the journalists who cover their activities) — it has large concentrations of scientists and engineers, software developers and mathematicians. It is the headquarters location for major media companies like AOL, NPR and Discovery, as well as the National Institutes of Health.

Income and education levels drive housing values. And Greater D.C. is among the nation’s wealthiest and most-educated metros. Three D.C.-area counties – Arlington, Alexandria and Fairfax – rank among the top 10 in the nation in income, four of them – those three plus Loudoun - rank among the top five in the nation in human capital (the percentage of adults with bachelor’s degrees). More than 4 in 10 of the Washington metro’s work force are members of the creative class – which means they work in science and technology, arts and entertainment, or professional fields – more than in Silicon Valley, and the third highest in the nation.

The Greater D.C. metro is an economic powerhouse. It currently ranks as the nation’s eighth largest; with 5.5 million people and nearly $400 billion in economic output. Add in nearby Baltimore and this combined metro houses 9.5 million people and generates some $520 billion in economic output. And it is a critical node in the great BosWash mega-region, with 54 million people and $2.2 trillion in economic output, bigger than many nations.

This economic heft, combined with its high quality of life and its relative affordability enables greater Washington to attract talent from throughout the whole region. The D.C. metro posts the nation’s second highest “real income” level in the nation when cost of living is taken into account, while the near-by New York metro ranks second from last.

And make no mistake about it, Greater D.C. is a talent magnet. It took first place on my own recent ranking of the best places for college grads, and it tops lists of the best places for every kind of household: , from families with children to gays and lesbians. It is a big, diverse metro which offers something for everyone. Its talent base acts as a draw for more highly skilled people and also for companies like Siemens, Volkswagen and Hilton, which have relocated their headquarters to the area in recent years.

Finally, greater D.C.'s housing market has benefited from its many great mixed-used, walkable neighborhoods, which continue to command a premium even in today’s housing market. Some of the old ones in the city — Georgetown and Dupont Circle, Logan Circle and the U Street Corridor – are well known. But many others, both in the inner-ring suburbs like Alexandria and Arlington, Bethesda and Silver Spring, and even further out in Tyson’s Corner, Virginia and Columbia, Md. – are showing the world the way to rebuild denser, more vibrant suburbs, which attract people and command higher prices.

D.C.’s housing prices are holding up so well because it’s a place with a vibrant and diverse economy, where talented people with options want – and can afford to -- live. Its resilience in the face of a housing disaster that may be worse than that of the Great Depression makes it an economic role model that other cities and metros as well as our nation as a whole would do well to learn from and emulate.