D.C. Housing Starts Drop 79% As Investors 'Move Their Money Elsewhere'

For most of the last decade, the skyline in the nation’s capital was defined not only by the Capitol and the Washington Monument but by a flock of construction cranes. Over the last year, most of those cranes have disappeared.

Last year, 932 rental housing units began construction in D.C., according to the Washington D.C. Economic Partnership’s annual Development Report. That was down 79% from the 4,474 units that started construction in 2023. Every year before that, going back to 2015, developers started on at least 5,000 units. 

D.C. has seen a dramatic slowdown in construction starts for all property types, but the pullback from multifamily developers risks further driving up the cost of housing as the city reckons with forecasts of a localized recession.

Developers are facing the same issues of high interest rates and construction costs that have depressed housing starts across the country — the U.S. as a whole experienced a 25% decline in multifamily housing starts last year, according to federal government data. 

But local leaders say the downturn is sharper in D.C. because of tenant-friendly policies that have upended the city’s rental market and driven investors and lenders away.

The D.C. Council is now debating changes to those policies — which developers and lawmakers say are necessary to keep investment flowing into D.C. real estate — to keep rents from skyrocketing and avoid a devastating economic spiral. 

The city’s most active developer over the last five years was MRP Realty, with 11 projects completed, according to WDCEP’s report. Now, after completing an affordable housing building on North Capitol Street in recent weeks, MRP has zero projects under construction in D.C. 

“It’s challenging to get development done at this time,” MRP Realty principal Matt Robinson said. “We have shovel-ready projects that are waiting for the market.”

The market for financing new housing in D.C. has become frozen, Robinson and other developers said, in large part due to the high levels of unpaid rent that are depleting the income of landlords across the city. 

D.C. landlords are sitting on rental arrears that average $2,207 per unit, more than twice the national average, according to a March report from a D.C. Council committee. The committee advanced a bill that aims to fix the problem by changing a pandemic-era policy that enabled tenants to delay eviction cases while not paying rent, and the council is scheduled to hold a final vote on it next month. 

The council is also considering wider reforms to longstanding housing policies, like the Tenant Opportunity to Purchase Act, which Council Member Robert White, who chairs the housing committee, says are critical to bringing investment back to the city and keeping housing costs down. 

“We need the market to start investing in housing in D.C. again,” White said Monday at a Small Multifamily Owners Association event. “If they don’t, it’s not going to hurt the most wealthy in D.C., it’s going to hurt the people who are struggling to find a place they can afford to live.”

D.C. has long been one of the most expensive cities for renters in the U.S., and the cost of apartments has continued to rise: The median asking rent in D.C. was $2,325 in February, according to Redfin, a 2.7% year-over-year increase. 

But that figure doesn't account for the rent that landlords aren't being paid. The millions in rental arrears across the District have put many properties at risk of foreclosure and made it much harder to finance new housing projects, developers say.

When developers underwrite projects, they have historically assumed economic vacancy — the share of units not occupied or not paying rent — would be around 5%, Robinson said. 

Now, with high levels of rent delinquency and potential policy changes coming, it is difficult to project what that figure will be in the future. Robinson said when developers must make assumptions in pitches to investors, they are projecting economic vacancy between 7% and 10% — slashing the returns they can achieve.  

“It completely wrecks the pro forma,” he said, referring to a developer’s projection of a project’s profitability.

The lower returns caused by unpaid rent, combined with D.C.’s 45-year-old TOPA policy that developers have long criticized for delaying sales transactions, has made investors and lenders wary of putting money in the city. 

“We’re already seeing lenders not willing to invest in the District for a number of reasons whether its rental arrearages, whether it’s TOPA,” Erika Wadlington, vice president of public policy and strategic affairs at the D.C. Building Industry Association, said Monday night at an industry event for apartment landlords. 

Wadlington said she hears from DCBIA's developer members that they want to build in D.C., but they are finding their national investment partners are deciding to put their money elsewhere due to the local regulatory environment.

“They’re looking at places where the policies are clear, places where there is a political will to have housing policy that is balanced,” Wadlington said. “They’re also hearing of the rent arrears that are five or 10 times higher than the national average. They notice D.C. is more of an unstable market for them, so they want to move their money elsewhere.”

Priya Jayachandran, CEO of nonprofit affordable housing developer National Housing Trust, said at a Bisnow event Tuesday the firm has five affordable properties that are losing money due to high levels of unpaid rent. She said the nonprofit is having to put more money in to hold onto the assets, and it is trying to sell one of them because it can’t afford to maintain the property. 

She said it had a deal in the works for a new affordable housing development with tax credits lined up, but the lender, which she declined to name, backed out because of uncertainty in the city.

“Their credit folks have decided D.C. is not a good investment right now,” she said. 

Robinson, Wadlington and Jayachandran all said the changes to local housing policies that the council is considering would likely spur more investment to boost D.C. housing development and help keep down rents in the city. 

Mayor Muriel Bowser in February proposed the sweeping RENTAL Act, which seeks to speed up the eviction process, reform TOPA and make other housing reforms. When proposing the bill, the mayor presented data showing that over the last two years, D.C. has experienced soaring levels of rent delinquencies while falling behind neighboring Maryland and Virginia in housing starts. 

Deputy Mayor Nina Albert said in a statement that D.C. has been a leader in housing production during Bowser’s 10 years in office. The mayor set a second-term goal of adding 36,000 units to the city's supply and last year declared victory. 

“The data make it clear that policy changes have pulled our housing system out of balance,” Albert said. “It’s critical that the Council pass Mayor Bowser’s legislation to rebalance the housing ecosystem, ensure that rent is paid, and improve the investment climate. Without making these fixes, new housing production will continue to slow and housing prices will increase.”

The RENTAL Act would exempt all market-rate buildings from TOPA, which has drawn criticism from tenant advocacy groups. Council Member Brianne Nadeau filed a bill this month with an alternative proposal to only exempt buildings for the first three years after construction. 

Nadeau said in an interview Monday that TOPA is a “bedrock for tenants rights” in D.C. But she does think it can be improved, and her bill would also take steps to expedite the transaction process. 

“It has led to both the preservation of affordable housing units, it’s led to condo homeownership, it’s led to the creation of co-ops, and it is still doing that, steadily,” she said. “So the thinking behind my bill is let’s make some reforms to TOPA that streamline the whole process, that help minimize complaints about it as a barrier.”

White said he doesn’t think Bowser’s or Nadeau’s bill would fully solve the problems with TOPA that stifle investment and development. He said he plans to propose an amendment to the RENTAL Act with a third option to reform TOPA: exempting buildings for the first 15 years after construction or 15 years after a “major” renovation. 

Such a move could allow developers to sell their projects for a return and give prospective buyers a longer window before restrictions set in.

He said his committee plans to hold a hearing on all three proposals in the coming months. He acknowledged that reforming the contentious TOPA law won’t be easy, but it is necessary to save the city’s economy.

“This is not a time we can kick the can down the road and tinker around the edges,” White said. “We are in a different point economically in D.C. than we have been in about three decades, and we have to take it seriously.”