National Housing Market OutlookNortheast

Housing—It’s a Matter of Life or Defense (Spending)

April 25, 2017

Under President Trump’s proposed federal budget, the DC region could lose $1.2 billion in federal procurement dollars, mostly in Maryland and the District of Columbia. However, while the region will suffer, Virginia’s suburbs could experience an increase in federal defense spending of $500 million to $800 million[1].

What does this mean for housing? While all areas of the Washington, DC, metro would be affected, new home builders and apartment investors should focus on the submarkets that are more closely aligned with defense-related industries because of the likely increase in the defense budget.

Using USASpending.gov, we evaluated FY2016 federal procurement and grant spending for each county in the DC metro area and determined the ratio of Departments of Defense (DoD) plus Homeland Security (DHS) spending to all federal spending in each county (“defense ratio”).

The following submarkets are closely aligned with defense spending and have a high ratio:

  • Fairfax County, with $23B in federal contracts and procurement, is the largest recipient of federal spending outside of the District. Of that spending, $15B, or 65%, is for DoD and DHS.
  • Tysons Corner and the Dulles Toll Road Corridor (both in Fairfax County) are home to many of the largest defense contractors. Many employees who work there live in Western Fairfax County or Loudoun County.
  • The I-95 South Corridor will benefit from a military personnel buildup at the Pentagon, Fort Belvoir, and Quantico Marine Corp. Base. Affected counties include Prince William (83% ratio), Stafford (82% ratio), and Spotsylvania (63% ratio).
  • In Maryland, certain submarkets near Fort Meade and the National Security Agency are benefiting from the increased investment in the U.S. Cyber Command, but many of those procurement dollars are not released publically.

However, builders and investors should be more cautious when investing in the following counties:

  • Spending cuts in the District of Columbia (24% ratio), which is already saturated with new multifamily units (including over 3,400 to hit the market in 2nd quarter 2017), could put downward pressure on rents and occupancies for rental homes as well as the demand for new housing due to the projected job cuts.
  • Montgomery County (28% ratio), which will be affected by cuts at the National Institutes of Health in Bethesda and the Food and Drug Administration in White Oak.
  • Prince George’s County (18% ratio) also has 30% of its workforce commuting to the District of Columbia—nearly double that of Fairfax County.

The following map shows the areas affected by the defense budget in blue and non-defense in red. The ratio = Federal procurement for DoD and DHS as a percentage of all federal spending within each county.

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