The DC condominium supply chain will decrease significantly over the next 2 years, adding fewer new condominiums to the market than it has over the past 2 years and supplying only half the number of units that had previously been expected, according to data provided by
DCRE real estate, a DC-based marketing firm and real estate brokerage. The analysis shows that during the next 24 months, approximately 7600 condominium and coop units will become available for sale within the District as a result of new construction or apartment conversions, a forecast down markedly from the 13,000 new units that had been expected to be released over the 24-month period beginning January, 2006. An analysis of the market shows that many of the projects that had been expected to begin sales over the next two years had been delayed, canceled, or converted to rental units as a result of perceptions about the housing market's inability to absorb large additions to the housing supply.
The pullback in the market reflects decisions over the past 18 months about whether to advance a project in the initial planning stages, affecting supply as early as one year later, but in many cases three to four years later due to the time needed to approve and build large projects, which often require lengthy review by a city nominally encouraging growth but fastidious about architectural review and skittish about density. Though the pace of development could be considered brisk compared to the '90's, the softening of the condo market that began in the Spring of 2005 led many developers to shelve planned construction, decisions that will reverberate even through an upturn in the market. And despite factors favorable to further development - strong job growth numbers, low vacancy rates on apartments, rising rental rates, and projected population increases across the DC area - confidence in the housing market may take some time to rebound.
According to the analysis, 2871 newly built or converted units are now available for purchase on the market, a number that is likely to decrease gradually over the next year as new condominiums developments replenish supply less rapidly than it is absorbed.
By contrast, MRIS, the region's multiple listing service, reports less than 1400 units actively on the market in the District, a total that includes resales listed with a brokerage as well as some new construction, though many new developments list only a fraction of the inventory in MRIS, or none at all. The city fared better than its immediate neighbors, which not only experienced a slowing of construction and conversion, but which saw numerous projects canceled even after significant pre-construction sales had occurred, a predicament that affected very few purchasers of property in the District. Construction and conversion that has not materialized as expected included Broadway's Atlantic Plumbing site (700 units, and may instead become apartments), the Fairfield Residential project in NoMa (650 units), Pavilions at Takoma (93 units, now to be built as apartments), T Street Flats, and Il Palazzo on 16th St. (79 units, canceled for now due to zoning issues). Many other buildings will simply be built or marketed as apartments, including Vaughan Place (530 units) and View14 (170 units)
The study also shows new development is shifting dramatically, away from the Northwest quadrant of DC to Southeast.
The spurt in development toward the less densely populated areas of Southeast DC results from several forces, including construction of the new ballpark, but also from investment in areas south and east of the Anacostia River, an area once considered less attractive by developers, but where construction can satisfy the growing demand for more affordable housing, and where land is more available and communities less opposed to construction. Building outside of downtown, where developable land is less scarce, less subject to historic restrictions, often with Metro Rail access, and offering larger parcels for development, is beginning to prove increasingly attractive for developers. And as commute times lengthen and empty lots in urban areas decrease, the middle ground between the downtown and the suburbs has become the new hotbed of land speculation. Areas with the most projected condominium development include the ballpark / Navy Yard, Anacostia / Southeast, and upper Georgia Avenue - areas where the DC government has encouraged investment and where developers hope to find better appreciation in the short term.
Areas that had seen the largest pace of development over the past several years - Logan Circle, Penn Quarter and Mt. Vernon Triangle - will see far less new construction due to the lack of developable land.
And despite persistent public fears that housing is overvalued and that supply is excessive, the development community generally perceives the market as stable to positive, viewing the market as more a factor of consumer confidence than of actual demand. "We continue to believe, and our success at CityVista supports the notion, that infill communities close to transportation nodes and differentiated by their proximity or inclusion of a neighborhood amenity base will continue to see strong demand", according to Jeff Miller of Lowe Enterprises.
Adding to the woes of developers is the recent reluctance of some lenders to fund condo projects. Instead, lending institutions have in numerous cases conditioned funding of residential development on building units as rental apartments, in some cases forcing the conversion to apartments after condo sales began, to the consternation of both developers and purchasers. The perceived over-supply has led investors and banks with little stomach to fund a project that may take years to build and face uncertain sales.
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