Generally, no one likes to move in the middle of winter, but for newly elected and appointed officials in Washington, D.C., we are right in the middle of moving season. Inaugurations that involve a transition of power tend to bring a mix of new people and seasoned veterans into the mix. Regardless of what a Biden presidency may mean for real estate investors in the long term, there's one thing we know for sure: Some people will be moving to Washington, D.C. Let's take a look at what happens when we welcome a new president.
It's decorating time
The President earns $400,000 a year and is also given an expense account and a nontaxable travel account. While the president's income is taxable, he doesn't have to pay taxes on the other perks of power, including the White House and all of the chefs, housekeepers, and assistants, as well as private plane and helicopter travel. The president also has access to Camp David as a nearby country retreat. The White House is owned by the National Park Service and is part of the President's Park.
When a president enters office, he and his family are given $100,000 for redecorating, but some, including President Obama, opt to pay for the redecoration on their own. The First Family are temporary residents of the White House and do not pay property taxes. The White House itself is a tax-exempt property. The Vice President and family live at One Observatory Circle, a residence on the grounds of the United Naval Observatory.
A city transitions
The shift to a new government doesn't usually dramatically change the Washington, D.C. real estate market. However, in early 2017, the market saw an increase in the purchase of luxury homes partly because President Trump's cabinet was wealthier and more likely to buy property in the area.
This year's transition comes as real estate remains at a premium. The October 2020 statistics from the Greater Capital Association of Realtors show that there were just 2.6 months of inventory available, which is up from 1.2 months a year ago. The median sold price in the area is $675,000, However' Bright MLS has seen a rapid uptick in available condos. In fact, new listings of condos and co-ops are up nearly 50% from one year ago.
"D.C. is a market where demand is dictated by shifts in governmental power," says Laura Dietzel, Partner and Real Estate Senior Analyst at RSM US LLP. "Fundamentals remain solid with overall low interest rates, a recovering job market, and improving virus outlook. DC continues to be a rental dependent market with homes for purchase in the CBD and surrounding areas within reach of the wealthiest residents."
Many who come to D.C. for a four-year (or shorter) job opt for a rental property instead of buying. The good news for them is that the rental supply in the District is strong. A presentation from Delta Associates pegged the stabilized vacancy rate in September at 7.8% up from 4.4% one year ago. Effective rent growth is down by 10.7%, and with 17,802 units in the pipeline over the next three years, it could stay that way.
"The D.C. rental market has been challenged by several headwinds: new projects coming online adding to the rental supply pool as renters exit the market; vacancies reached their highest ever recorded value at 8% average for D.C. with four and five-star properties most significantly impacted (11.6% vacancy), further demonstrating that those with financial wherewithal are seeking alternative housing options outside of the city," adds Dietzel.
The Millionacres Bottom Line
In a year of remote work, many potential renters and buyers are opting to spread outside of Washington, D.C. That has strained the rental and condo markets inside the District. However, an influx of new jobs and new residents could be good news.