The DC Housing Crisis

Much like the rest of the nation, Washington DC is in the midst of a severe housing crisis, but it's in the opposite direction. According to zillow.com, the cost of the median home in my neighborhood of Arlington, VA is just under $500,000 (as compared to the median US home price of $187,000). While this may seem unreasonably high for a DC suburb, it is in fact down 6% from a year ago.


What does it take to afford the median home in Arlington?



Now for the fun part, financial calculations! First let's assume that our buyer has good credit, relatively little debt (including student loans, car loans or credit cards) and enough cash in the bank to make a 10% downpayment of $50,000 (this downpayment alone poses a significant barrier to ownership). Based on these assumptions our buyer qualifies for a $450,000 loan at a 30-year fixed interest rate of 6.5% resulting in a mortgage payment of $2844/mo (since the loan is over $417,000, we have to use the jumbo rate instead of the current standard rate of 5.4%). Let's also assume home utilities of $350/mo, annual property taxes of $4325 (Arlington tax rate is 0.865%), annual maintenance costs or $2000 and annual homeowners insurance of $850.

That leaves our buyer with annual housing costs of about $45,500. This is a slightly conservative estimate because you can deduct your home interest payments from your federal taxes, but that all depends on a number of unique personal financial aspects. Using the rule of thumb of paying no more than 30% of your gross income on housing, that means our buyer must make an annual income of about $152,000!

This means that our buyer is either a well to do lawyer (without significant student loans), an experienced manager/senior manager in a professional services firm or large company, or a modestly well off married couple making slightly over $75,000/year each in jobs with the government or professional services firms. Who does this exclude from affordable housing? Just about any non-federal public servant (teachers, cops, fairfax county prosecutors), most service industry workers, and about half of the pan handlers that post themselves at the corner or fairfax dr and glebe rd (seriously, don't give these fake homeless people any of your money). As a benchmark, the median Washington metro area family of four household income is $99,000/year (missing our Arlington median target by $53,000/year).



So what does half a million bucks get ya?

What kind of dream home does half a million dollars get our "well off" lawyer/senior manager, or our "modestly well off" couple of business consultants? A 2-bedroom, 1.5 Bath, 1000 sqft single family home between 1-3 miles from the nearest metro station.


The house you'll buy is probably between 50-75 years old, has horrifyingly inadequate HVAC and insulation, and has spent at least 10 years on the rental market being abused by beer chugging, pot smoking, late night chicken wing burning recent college graduates. Congratulations, the baby's room smells like pabts blue ribbon and stale Mario's pizza! You're having another kid? I'll help you convert the living room into a third bedroom as all four of you fight over the one shower upstairs.
Don't make $152,000/year? Don't fret! You can rent a 650 sqft, 1-bedroom apartment in Ballston for only $1800/month. After buying enough top ramen to feed your family 7-nights a week, you will have just enough income left to catch a cab to home depot and buy a rope.