Washington DC is the capital city of the United States, located between the states of Maryland and Virginia on the northern shore of the Potomac River. With an estimated population of 711,500, Washington DC is the 20th most populous city in the US. The Washington metropolitan area is home to over 6.2 million people, making it the 6th largest metro area in the country. The DC real estate market benefits from the positive annual net migration the city experiences, which contributes to a high population growth rate. With more than 60% of the city’s residents living in rental properties rather than owning a home (according to NeighborhoodScout), Washington DC rental properties enjoy particularly high demand and occupancy rates.
Being the seat of the US federal government, the Capital City boasts a strong and stable economy which makes for a high employment growth rate. All three branches of the federal government, the White House, the Supreme Court, and the Capitol Building are located in the city. Much of the local labor force works in federal civil service jobs, with approximately 25% of DC employees working at a federal government agency. DC hosts 176 foreign embassies, as well as the headquarters of many international organizations such as the World Bank, the International Monetary Fund, and the Pan American Health Organisation. Many other organisations such as national trade unions, lobbying groups, and various professional associations have their headquarters in and around the city.
Tourism is the second largest industry in Washington DC. Home to the nation’s most important monuments and museums, DC is the 5th most visited city in the US. Nearly 22 million domestic tourists visited the city in 2018, generating an estimated $7.8 billion for the local economy. DC is also a center for higher education, with a number of higher learning institutions located there, including Georgetown University, George Washington University, and the American University. Other leading industries contributing to the city’s economy include healthcare, international business, public policy, scientific research, telecommunications, technology, and hospitality. Fortune Magazine’s 2018 list of the 500 largest US companies by revenue includes 15 that are based in the Washington DC area.
The Washington DC real estate market was named as the 18th most important US Market to Watch by PWC in its annual Emerging Trends in Real Estate: United States and Canada 2019 report. Washington DC’s position as the nation’s capital offers long-term stability and security for real estate investors, making the DC housing market one of the nation’s most desirable for real estate investment.
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The Washington DC real estate market has experienced some of the highest real estate appreciation rates in the US. Since Q1 of 2000, DC properties have experienced a total appreciation of 299.65% according to NeighborhoodScout, which is an average annual home appreciation rate of 7.56%. However, it seems that home value growth is slowing down as Zillow reports that DC property values have gone up only by 0.5% over the past year. This is a good sign for those considering buying an investment property in the capital as price growth will likely slow down as well.
The Washington DC housing market is currently a hot seller’s market. Housing supply is low, while demand from homebuyers and real estate investors continues to rise as the population grows. This situation enables DC real estate investors to enjoy high real estate appreciation.
As the Capital City is a very popular domestic and international tourist destination, the Airbnb and vacation rental industry has experienced major growth in the city in recent years. In 2018, a total of 517,500 Airbnb guests stayed at DC short-term rentals, bringing a total revenue of $96 million to the local Airbnb hosts.
In November 2018, Washington DC passed a new law setting restrictions on short-term rentals starting October 1, 2019. Under the new law, Airbnb DC hosts may only rent out their primary residence as short-term rentals, meaning that they are allowed to rent out a bedroom, basement or carriage house without limit, provided they are living in the home at the time of the guests’ stay. In the case that hosts are not present at the time of renting, the law imposes a 90-day annual cap on short-term rentals. The use of second or third non-owner occupied homes for short-term rentals is banned in the city.
In order to operate a short-term rental, Airbnb DC hosts are required to obtain a license from the city. They must also collect a 14.95% city sales tax on accommodations from guests and remit it to tax authorities. The Airbnb platform, as well as HomeAway, both collect this tax on behalf of their operators. Hosts who do not use these platforms must collect and remit the sales taxes themselves.
There are other operational requirements for short-term rental hosts in Washington DC, such as having liability insurance and installing smoke detectors in the rental property. Anyone operating illegal short-term rentals in violation of DC Airbnb regulations risks facing civil penalties.