Charles County Property Values Study

 

Prepared For

The County Commissioners of Charles County, Maryland

 

By

 

Stephen S. Fuller, Ph.D.

and

Dean D. Bellas

Urban Analytics, Inc.

Alexandria, Virginia

 

 

July 1998

 

 

Introduction

The performance of the housing market in Charles County has not reflected the area's broad-based economic expansion following the 1990-1991 recession. Rather than gaining strength with resultant price stability and appreciation, the County's housing market has softened following its initial recovery in 1992 and 1993. Both the number of transactions and the median value of units sold have declined. While this same market pattern has been experienced in many of the Washington area's other counties in both Suburban Maryland and Northern Virginia, the reasons underlying these local market performances are not entirely identical. In Charles County, there appear to be fundamental economic forces and conditions that are shaping its housing market's recent performance whose origins date back several decades but also reflect the typical economic evolution of a county whose economy is shifting from a rural to urban structure. Understanding these economic conditions will help to explain local pricing trends within the housing market that have often been attributed to less fundamental factors.

Housing values change in response to supply and demand factors. A surplus supply can undercut the value of the existing housing stock. Prices can also weaken when new housing units are being delivered at prices falling below the values of the existing stock. These and other supply conditions are important determinants of housing price stability.

Housing demand factors, however, are fundamental in shaping the housing market. If the local economy is generating increasing household income and the job base is expanding, these positive conditions will be reflected in rising housing prices. The growth of the local economy--its ability to generate jobs at a rate faster than the local population is growing and in sectors reflecting an upward trend in income--will underpin housing values and generate increasing demand for more expensive housing. Households will be attracted to the County to participate in its growing economy rather than because housing is priced lower than in competing jurisdictions. This will result in price appreciation across the full range of housing values.

While many factors contribute to maintaining and building housing value, the vitality of the market depends on a fundamentally strong local economy. Consequently, the focus of this analysis is on the Charles County's economy--its performance over the past decade and its outlook into the next decade. How the Charles County economy has performed, what types of jobs have been created, and the pattern of income growth are fundamental determinants of the County's current and future market conditions. The analysis of these demand-shaping economic conditions will establish the framework for understanding the market's recent performance and provide a sound basis for formulating public policies aimed at re-shaping these market forces.

 

Charles County's Economy

 

The Charles County economy, as measured by the total values of goods and services it produces--its Gross County Product (GCP), is small. The County's Gross County Product accounted for just 1.19 percent of the overall Washington metropolitan area's economy in 1997 while its population represented 2.5 percent of the area's total population. Still, the County’s GCP has been growing substantially faster than the overall Suburban Maryland economy and has sustained growth rates similar to those of Calvert County and Prince William County in Virginia (Table 1).

While the County’s economy has been growing rapidly since the 1990-1991 recession and is projected to continue growing rapidly into the next decade, this pace of growth is not all that is important and can be explained in several ways. First, modest gains in a small economy will produce a much larger percentage gain than the same absolute increase in a larger economy; that is, percentages can be misleading. Secondly, and more important, GCP measures economic growth in the aggregate and does not indicate how many jobs, what levels of income, or how productive the County’s job base is; rather GCP represents the accumulated value of money generated and spent in the County's economy.

While a rapidly growing GCP is a positive measure of the economy's health, the sources of this growth and how it is distributed among the resident households are important factors in shaping the local housing market. An important measure of the economy's ability to support a growing standard living is the balance between the growth of the County’s population and the growth of its employment base. In addition to the number of jobs in the County, the types of jobs and their compensation levels provide basic price and value boundaries for the residential market.

 

C The population of Charles County is projected to increase by 22,000 during the current decade while the County’s employment base is expected to gain 11,900 net new jobs (Table 2), approximately 1 new job for each 2 new residents.

C During the 2000-2005 period the County's resident population is projected to increase by 13,500 while the employment base is gaining 3,800 new jobs, or 1 new job for each 3.5 new residents.

Normally, as a county economy develops and matures, its ratio between jobs and residents increases. Ratios of jobs to population above 0.4 imply that the county’s employment base has jobs serving regional and national markets. Ratios below 0.4 suggest an employment base skewed towards residential services and retail activities. Jurisdictions with higher ratios have a mix of jobs that support higher incomes and also tend to experience greater gains in income over time as the better jobs tend to drive the local economy’s growth.

Table 3 arrays the employment/population ratios for Charles and the other Suburban Maryland Counties, for Prince William County in Virginia, and for the Washington metropolitan area. Charles County’s ratio has increased slowly over the current decade indicating that it is attracting businesses, especially in retail trade, that serve a non-local population. This trend suggests that the County’s economic base is on the verge of shifting from being predominately local serving to a more regional market with the emergence of export retailing and personal services during the nineties. In order to grow economically, this favorable trend needs to continue and keep pace with competing counties in the region.

 

The Changing Structure of the County's Employment Base

 

During the 1985-1997 period, Charles County's economy generated 19,760 net new jobs, a gain of 71.75 percent (Table 4). This job growth far exceeded the growth rate of the metropolitan area (26.58%) for this same period. However, while job growth in Charles County was out-pacing the region's gain, its distribution across the basic economic sectors was less favorable than for the regional economy with sectors characterized by lower wages and part-time employment accounting for a far higher proportion of the County’s new jobs.

Two sectors, construction and retail trade, accounted for 48.0 percent of the County's job growth; regionally, these two sectors generated just 20.1 percent of the new jobs. In contrast, the service sector generated 37.6 percent of the County's new jobs while in the Washington region, the service sector accounted for 64.5 percent of the new jobs. This difference is even more important as most of the higher wage technology-based business jobs that have helped to accelerate the region’s job growth are in the service sector.

The employment growth in Charles County over the past 12 years has shifted its sectoral mix towards local serving businesses (Table 5).

C The share of Charles County's job base accounted for by non-farm jobs increased to 98.8 percent in 1997, up from 96.2 percent in 1985.

C 96.6 percent of all new jobs were generated in the private sector over the last 12 years and the private sector now accounts for 81.3 percent of all jobs in the County.

C Construction employment in the County represents almost two times the percentage (10.4%) of the job base that it does regionally (5.3%).

C Trade (retail and wholesale) jobs accounted for 29.7 percent of all jobs in 1997, up from 23.9 percent in 1985; this compares to the trade sector's 17.4 percent within the regional employment base.

C Service sector jobs increased their share of the County's employment base from 20.6 to 27.7 percent from 1985 to 1997 but has not significantly closed the gap with the region whose service sector share increased from 32.1 to 38.0 percent.

C Government jobs declined as a percentage of the County's total more than they did regionally, dropping 10 percentage points in the County compared to 5 points regionally; this reflects the above-average growth rates achieved by the County’s private sector.

C The County’s current employment base is over-specialized in retail trade (29.7% versus 17.4% for the region) and construction (10.4% versus 5.3% for the region) sectors that tend to have a lower salary structure and are more negatively impacted by the economy’s cyclical variations. The sectors that are driving the regional economy’s growth are under-represented in the County’s economy.

The employment base that is emerging in Charles County, while generating new jobs at a much faster rate than many of the more urban counties in the Washington region, is not generating corresponding levels of income growth. The income productivity of the County's employment base is a key variable in the housing demand structure that has evolved in the County this decade.

Income Trends in Charles County

Income growth in Charles County has lagged the regional trend over the past twelve years. This is due to a local mix of jobs that increasingly tends towards lower salaries, a decline in the share of resident income earned from (higher paying) jobs located outside of the County, and a slower growth rate for household income that, as a result, has fallen further behind the regional average. This relative decline in disposable income has weakened the County's position in the regional housing market (Tables 6-9).

C Real (inflation adjusted) salaries for jobs in Charles County grew just 1.1 percent between 1985 and 1997 compared to a regionwide gain of 10.2 percent (Table 6).

C Real salaries in Charles County's dominant sectors (construction and trade) decreased widening the compensation gap with similar type jobs elsewhere in the Washington area.

C Even for those sectors in the County experiencing real wage gains, total annual salaries fall well below respective regional averages; overall, the average salary in the County was 34 percent below the regional average.

C Historically, workers commuting to jobs outside the County were a major source of disposable income within the County; since 1990, these outside earnings (on a net basis) as a percentage of total earnings of the County's residents have declined from 39.8 to 34.9 percent in 1997 and are projected to decline to 33.3 percent by 2005 (Table 7 and Attachment A).

C These outside earnings were found to be significantly cyclically sensitive actually declining in real value during the recession and are growing much more slowly than earnings generated from jobs located in the County. This downward trend in net earnings generated outside of the County has resulted from a declining share of County residents working outside the County (in combination with in-commuters taking their earnings out of the County) while more residents are holding local jobs in a job base characterized by a salary structure that is weaker than the Region’s averages (Table 6).

C Per capita income in Charles County is 25.6 percent below the regional average and has not significantly narrowed this gap in recent years (24.9% below in 1990).

 

C With more dependents per household and lower average salaries, the gap between Charles County household income and their regional counterparts is widening (Table 9).

C Per capita and household income of County residents declined sharply during the recession and has seen little or no growth in the post-recession period up until 1997; estimates for 1997 and 1998, show the first continuing significant income gain of the nineties. This slower local income growth in the mid-1990s weakened the demand for housing among County residents.

Charles County's residents have become more dependent on county-based jobs and locally generated income. This shift towards locally based jobs and the reduced contribution of imported income (commuters) to the local economy have resulted in slower household income growth and a relative decline in disposable income.

This trend has undercut the existing housing market in the County as well as has weakened the County's position in the regional housing market. As the County's household income declines relative to the regional trend and residents become increasingly dependent on local jobs as their primary income source (local jobs have long been important sources of secondary income especially in two-income households), the housing price levels that can be supported have decreased. This pattern has been evident over the last several years in response to an actual decline in average household income in 1995 (-0.25%) followed by only a marginal gain in 1996 (0.10%). The record of recent housing transactions reflects this recent weakening in household income.

 

Performance of the County's Housing Market

 

Housing sales in Charles County over the past several years have steadily declined in number and value. From 1994, when a total of 2,191 transactions were reported, the number of sales have dropped 45.7 percent to an estimated 1,189 sales in 1997. At the same time, the average value of the units sold has declined from $157,200 to $134,400, a decrease of 14.5 percent. This pattern is not unique to Charles County. The number of sales in Prince George's County declined 28.5 percent over the same period but the average value in 1994 was the same as in 1997. In Montgomery County, transactions declined 24.4 percent while the average sale value dropped 17.9 percent. The house market has not been as soft in Northern Virginia although many areas within local jurisdictions have experienced fewer sales at lower prices (Table 10).

The downward trend in housing value, based on actual market transactions, is consistent with the slower household income growth experienced by County residents. While there have been many factors contributing to this market decline, weak indigenous demand due to slow household income growth must be recognized as a major force in shaping the County's residential housing market. With job growth focused on lower paying jobs, many of which are seasonally sensitive, the County's economy has not been attractive to in-migration of households with higher incomes. Consequently, the County's external sources of housing demand also have weakened. With a declining position in the regional housing market combined with income-constrained internal (county-based) demand, Charles County's housing values have softened and will remain weak until these demand conditions are strengthened.

 

Conclusions

Demand for housing in Charles County has been undercut by fundamental weaknesses in the local economy. The County’s economy has become increasingly dependent on an employment base that is over-specialized in lower paying jobs. As a result, the growth of disposable household income in the County has not kept pace with household income trends in competing markets.

C Even though the County has enjoyed substantial gains in Gross County Product and jobs over the past decade, this growth has been dominated by construction and retail trade and other sectors having a lower wage structure.

C The above-average rate of economic growth experienced in the County has not resulted from a shift to higher paying jobs.

C Earnings generated by County residents from jobs located outside the County (less the earnings of in-commuters to the County) is accounting for a declining share of Gross County Product; consequently, the housing market is becoming more dependent on the local economy’s ability to generate higher paying jobs to support the growth of housing demand and higher prices.

C The slow growth of household income in Charles County and its widening gap in comparison with competing jurisdictions has contributed to lower levels of sales and falling prices.

The key to strengthening the housing market in Charles County is the accelerated development of the local economy by: (1) shifting the County’s employment structure to higher paying jobs; (2) establishing an identifiable County image and comparative advantage for the attraction of businesses having regional and national markets; (3) linking the County’s economic future more strongly to the Washington region’s dynamic sectors; and (4) continuing to enhance the County’s qualities of life and its urban infrastructure to provide a competitive environment for residential and business development.

The economic trends reflected in the near-term forecasts presented in this report are not set in stone; these can be altered by continued economic development efforts. Aggressive promotion of the County’s economic development to build a stronger and more productive employment base will go a long way to resolving the current weakness in the County’s housing market.

Table 1

Gross County Product

1990 - 2005

Charles County, MD

(in billions of 1992 dollars)

Charles County, MD

Suburban MD

Region

Calvert

Prince William

Year

GCP

% Change

% Change

% Change

County

County

1.464

1990

1.522

4.00

0.12

-0.38

2.86

-1.00

1991

1.526

0.25

-1.87

-0.61

-0.19

-1.44

1992

1.558

2.08

-0.28

1.08

3.00

2.39

1993

1.652

6.00

3.07

3.51

7.98

5.77

1994

1.725

4.41

3.38

2.28

6.24

4.45

1995

1.789

4.41

3.54

2.02

3.20

3.17

1996

1.860

4.00

2.98

2.26

3.94

4.62

1997

1.950

4.83

1.79

1.55

5.39

5.53

1998

2.046

4.93

2.23

2.00

5.09

5.61

1999

2.151

5.13

2.10

1.93

4.95

5.33

2000

2.252

4.70

2.48

2.30

5.07

5.47

2001

2.355

4.57

2.32

2.41

4.69

5.36

2002

2.473

5.02

2.65

2.36

4.85

5.24

2003

2.570

3.93

2.45

2.33

4.70

5.09

2004

2.686

4.50

2.68

2.45

4.57

5.02

2005

2.797

4.12

2.37

2.36

4.45

4.88

Source:

Center for Regional Analysis, George Mason University, Fairfax, VA



Table 2

Employment and Population Trends

1990 - 2005

Charles County, MD

(in thousands)

Employment

Population

# D

% D

# D

% D

Year

Number

5-Year

5-Year

Number

5-Year

5-Year

1990

38.7

101.2

1995

44.6

5.9

15.2

111.1

9.9

9.8

2000

50.6

6.0

13.4

123.2

12.1

10.9

2005

54.4

3.8

7.5

136.7

13.5

11.0

Note:

D =

change

Source:

Metropolitan Washington Council of Governments Round 6a Cooperative Forecast



Table 3

Employment to Populations Ratios

1995 - 2005

Selected Counties in the Washington Metropolitan Region

Suburban Maryland

Virginia

Overall

Prince

Prince

Year

Charles

Calvert

Frederick

Montgomery

George's

William

Region

1990

0.38

0.35

0.36

0.61

0.42

0.35

0.63

1995

0.40

0.34

0.39

0.57

0.39

0.34

0.61

2000

0.41

0.33

0.42

0.58

0.40

0.34

0.62

2005

0.40

0.32

0.44

0.59

0.42

0.36

0.63

Note:

Prince William County includes independent cites

Source:

Metropolitan Washington Council of Governments Round 6a Cooperative Forecast



Table 4

Employment Change

1985 - 1997

Charles County, MD and the Washington Area*

(in thousands of jobs)

Charles County, MD

Washington Area*

Sector

# D

% D

% D

Construction

2.02

69.42

15.61

Manufacturing

0.93

136.76

1.93

TCPU

0.58

46.40

35.02

Trade

7.47

113.99

25.17

FIRE

0.86

54.80

17.80

Services

7.43

30.81

53.48

Government

0.67

8.76

2.84

Federal

-0.16

-5.33

-4.68

State & Local

0.88

23.85

21.66

Total**

19.76

71.75

26.58

Note:

D

means change

*

Washington Area means the PMSA

**

includes self-employed and proprietorships and farms. Not all sectors shown separately.

Source:

NPA Data Services, Inc.; U.S. Bureau of Economic Analysis



Table 5

Employment Structure

1985 and 1997

Charles County, MD and the Washington Area*

(percent distribution)

Charles County, MD

Washington Area*

Sector

1985

1997

1985

1997

Total Number of Jobs**

27,540

47,300

2,496,280

3,159,790

Total Percentage

100.00

100.00

100.00

100.00

Farm

3.78

1.18

0.66

0.37

Non-Farm

96.22

98.82

99.34

99.63

Private

68.48

81.27

72.44

77.77

Construction

10.57

10.42

5.85

5.34

Manufacturing

2.47

3.40

4.09

3.29

TCPU

4.54

3.87

4.18

4.46

Trade

23.86

29.68

17.62

17.43

FIRE

5.70

5.14

7.69

7.16

Services

20.62

27.72

32.08

38.9

Government

27.74

17.57

26.90

21.85

Federal

10.89

6.00

14.82

11.16

Military

3.45

1.90

3.73

2.67

State & Local

13.40

9.66

8.34

8.02

Note:

* Washington Area means the PMSA

** actual number including self-employed and proprietorships.

TCPU = Transportation, Communications and Public Utilities

FIRE = Finance, Insurance and Real Estate

Source:

NPA Data Services, Inc.; U.S. Bureau of Economic Analysis



Table 6

Average Earnings for Selected Sectors

1985 and 1997

Charles County, MD and the Washington Area*

(in constant 1992 dollars)

Charles County, MD

Washington Area*

Sector

1985

1997

% D

1985

1997

% D

All Jobs**

$21,726

$21,957

1.1

$30,155

$33,218

10.2

Construction

$29,478

$27,834

-5.6

$32,525

$30,676

-5.7

Manufacturing

$24,500

$32,404

32.3

$38,376

$43,836

14.2

TCPU

$29,184

$29,180

0.0

$44,477

$43,373

-2.5

Trade

$19,788

$15,069

-23.8

$22,530

$21,596

-4.1

FIRE

$10,815

$19,918

84.2

$18,677

$30,157

61.5

Services

$16,343

$19,246

17.8

$28,978

$33,436

15.4

Government

$26,862

$32,386

20.6

$36,507

$41,140

12.7

Federal

$36,750

$44,077

19.9

$42,712

$50,803

18.9

State & Local

$21,141

$27,823

31.6

$29,013

$31,344

8.0

Note:

D

means change

*

Washington Area means the PMSA

**

All Jobs include other employment sectors not listed in table

TCPU

means Transportation, Communications and Public Utilities

FIRE

means Finance, Insurance and Real Estate

Source:

NPA Data Services, Inc.; U.S. Bureau of Economic Analysis



Table 7

Total Personal Income

Charles County, MD

1990 - 2005

(in millions of 1992 dollars)

Earned

Total

Earned Outside County

Inside County

Year

Income

$ Income

% of Total

% D

% D

1990

$2,135.84

$850.15

39.8

2.26

5.30

1991

$2,118.37

$824.86

38.9

-2.97

0.61

1992

$2,146.87

$819.69

38.2

-0.63

2.60

1993

$2,211.07

$815.79

36.9

-0.48

5.13

1994

$2,301.68

$844.13

36.7

3.47

4.46

1995

$2,369.37

$854.22

36.0

1.20

3.95

1996

$2,439.46

$862.32

35.3

0.95

4.09

1997

$2,545.74

$888.55

34.9

3.04

5.08

1998

$2,668.94

$924.07

34.6

4.00

5.29

1999

$2,798.96

$957.57

34.2

3.62

5.53

2000

$2,922.54

$993.32

34.0

3.73

4.77

2001

$3,055.34

$1,038.07

34.0

4.50

4.56

2002

$3,184.47

$1,075.81

33.8

3.64

5.03

2003

$3,315.98

$1,114.42

33.6

3.59

3.90

2004

$3,453.46

$1,152.70

33.4

3.43

4.50

2005

$3,593.66

$1,197.96

33.3

3.93

4.13

Note:

D

means change

Source:

NPA Data Services, Inc., and the U.S. Bureau of Economic Analysis



Table 8

Per Capita and Houshold Income

Charles County, MD

1985 - 1998

(in constant 1992 dollars)

Per Capita

Household

Year

$ Income

% D

$ Income

% D

1985

$18,602

5.75

$59,014

4.17

1986

$19,287

3.68

$60,510

2.53

1987

$19,481

1.00

$60,746

0.39

1988

$20,480

5.13

$63,350

4.29

1989

$20,741

1.27

$63,724

0.59

1990

$20,980

1.15

$64,604

1.38

1991

$20,362

-2.94

$62,542

-3.19

1992

$20,302

-0.29

$62,073

-0.75

1993

$20,578

1.36

$62,663

0.95

1994

$21,059

2.34

$63,959

2.07

1995

$21,226

0.79

$63,796

-0.25

1996

$21,313

0.41

$63,857

0.10

1997

$21,713

1.88

$64,590

1.15

1998

$22,189

2.19

$65,840

1.94

Note:

D

means change

Source:

NPA Data Services, Inc.



Table 9

Household Income

1985 - 1998

Charles County, MD and the Washington Area*

(in constant 1992 dollars)

Charles

% D

% D

Year

County

% of Area

Charles County

Area

1985

$59,014

0.87

4.17

2.89

1986

$60,510

0.87

2.53

3.14

1987

$60,746

0.85

0.39

3.00

1988

$63,350

0.85

4.29

3.30

1989

$63,724

0.84

0.59

1.67

1990

$64,604

0.86

1.38

0.05

1991

$62,542

0.84

-3.19

-1.70

1992

$62,073

0.84

-0.75

-0.29

1993

$62,663

0.83

0.95

1.68

1994

$63,959

0.84

2.07

1.38

1995

$63,796

0.83

-0.25

1.13

1996

$63,857

0.82

0.10

1.36

1997

$64,590

0.82

1.15

0.43

1998

$65,840

0.83

1.94

1.08

Note:

*

Area means PMSA

D

means change

Source:

NPA Data Services, Inc.



Table 10

Average Area Home Sales

Selected Suburban Maryland Counties versus the Metro Area

1994 - 1997

(average value in thousands of dollars)

1994

1995

1996

1997*

County

# of Sales

Avg. Value

# of Sales

Avg. Value

# of Sales

Avg. Value

# of Sales

Avg. Value

Charles

2,191

157.2

1,872

140.1

1,141

137.9

1,189

134.4

% D

NA

NA

-14.6

-10.9

-39.0

-1.6

4.2

-2.5

Prince George's

12,234

134.9

10,261

139.5

10,343

138.0

8,744

134.9

% D

4.8

0.4

-16.1

3.4

0.8

-1.1

-15.4

-2.2

Montgomery

12,258

227.3

9,980

188.0

9,759

191.2

9,260

186.5

% D

3.4

4.2

-18.6

-17.3

-2.2

1.7

-5.1

-2.4

Metro Area

73,181

194.9

56,487

181.4

51,465

178.5

NA

NA

% D

-0.8

1.6

-22.8

-6.9

-8.9

-1.6

Note:

D

means change

*

estimated based on eleven months sales in 1997

Source:

Lusk/TRW REDI



Attachment A

Changing Patterns of Total Personal Income

1990 - 2000

Charles County, MD

(in millions of 1992 dollars)

Source

1990

2000

% D

1

In County

$803.90

$1,127.20

40.2

2

Commuter

$850.15

$993.32

16.8

3

Investment

$235.13

$361.86

53.9

4

Transfers

$246.66

$440.15

78.4

5

Total

$2,135.84

$2,922.54

36.8

Note:

1

Wage earnings of County residents working in County

2

Net wage earnings of commuters (earnings of County residents working

outside of County minus earnings of non-County residents working in Charles County)

3

Resident income from dividends, rents, and interest payments

4

Resident income from transfers including retirement benefits, social security and

income supplements

5

Total personal income in Charles County

D

means change

Wage Earnings

1990

Charles County, MD

(in millions of 1992 dollars)

Source

Number

2000

% D

Residents Working in County*

29,680

$803.90

48.6

Net Commuters (31,264 out - 9,020 in)

22,244

$850.15

51.4

Total

$1,654.05

100.0

Average wage of resident in-county worker

$27,086

Average wage of commuter

$38,213

Note:

*

1990 In-County employment including self-employed

38,700

less in-commuters

9,020

County jobs held by County residents

29,680

Source:

NPA Data Services, Inc., and the U.S. Bureau of Economic Analysis