Rural Areas on the Rise in the East

It is not often that a rural area rises from obscurity to become one of the 50 largest housing markets in the country, but that is what is happening on the outskirts of Washington.

Thirteen of the top 20 builders in the country, and a number of very large regional builders, build thousands of homes in Washington and Baltimore each year. For years, the supply of homes has held steady in both markets, with approximately 30,000 single-family and 9,000 multifamily units in the D.C. metroplex annually and 9,000 single-family and 2,000 multi-family units in Baltimore. Because the two markets have grown toward each other, it is difficult to discuss one without the other.

While construction levels have remained steady, the locations have changed. To analyze the region, we divided the market into four tiers based on proximity to the major employment centers. Our definitions are:

• Tier 1: The city of Baltimore; the District of Columbia; the counties of Baltimore, Montgomery, Prince George in Maryland; Arlington and Fairfax counties in Virginia; and the areas nearest the two downtowns.
• Tier 2: Anne Arundel, Carroll, Charles, Frederick, Harford and Howard counties in Maryland; and Loudon, Manassas and Prince William counties in Virginia. During the last two decades, these areas have become vibrant employment centers of their own.
• Tier 3: Calvert and Washington counties in Maryland; and King George, Stafford and Fauquier counties in Virginia.
• Tier 4: Queen Anne County in Maryland; Spotsylvania, Culpepper and Clarke counties in Virginia; and Berkeley and Jefferson counties in West Virginia.

Featured Major Market: Washington/ Baltimore
Through the mid-1980s, most of the D.C./Baltimore area's construction was concentrated near employment. However, when the area emerged from the downturn of the early 1990s, construction in suburban markets exceeded Tier 1 markets for the first time. Essentially, the Tier 1 areas had become built out, and builders and consumers were forced to Tier 2 in search of more reasonably priced housing. Construction near the cities of Washington and Baltimore continues to decline, while most of the metropolitan area's job growth is now in the Tier 2 areas, as employers relocate to be near the homes of their employees. Washington has the strongest job growth in the country, with 77,300 jobs created during the last 12 months - a phenomenal 2.8% growth rate.

Up-and-Coming Market: The outlying areas of Washington
What is most interesting during the last seven years is the rise in construction in the Tier 3 and 4 markets, primarily west of Washington. More than 9,000 homes were constructed in the Tier 3 and Tier 4 markets in 2003, which would make the Tier 3 and 4 areas a "Top 50" housing market if ranked separately. In the next decade, we expect Tier 2 construction to decline because of lack of ground, with Tier 3 and 4 construction continuing its ascent. Builders are strategically considering relocating portions of their operations - particularly land acquisition and construction operations - to these areas to be closer to where the actual building activity will be.

jburns@realestateconsulting.com