Cashing in on capital city real estate

Investment qualities that make these areas good buys

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Investment qualities that make these areas good buys

Steve Bergsman
Inman News

Anyone lucky enough to be living in or near the national capitals in the U.S. or Canada over the last four years lived through something few other homeowners in those countries experienced: home-price stability.

Sure, in certain sections of city metros surrounding national capitals, home values softened, but for the most part homeowners saw little price deflation. That's because capital cities boast a very stable workforce of government bureaucrats and a panoply of private-sector consultants, lobbyists and contractors that feed the federal bureaucracies.

In addition, in recent years, a number of companies have shifted major operations to capital city areas just to be closer to their government paymasters.

"The largest movement of people occurs with the shadow government, which relates to government contractors," said Pauline Thompson, president and founder of Tysons Realty Inc., in the Washington, D.C., suburb of Tyson's Corner, Va.

"Northrop Grumman, Hilton and Volkswagen International have moved headquarters or key operations to the D.C. area. And there are so many computer companies coming here because they are getting huge contracts. The computer firms are looking to hire thousands of employees."

She added, "We are still in a war so military contractors are being awarded billions of dollar in contracts, and they bring in 200 to 400 subcontractors. They all need a place to live."

The salubrious capital city home markets occupied my attention because in early summer I had the opportunity to visit Ottawa, Canada's lovely, but often overlooked, capital.

Americans who travel often to Canada end up having favorite places -- usually it's Vancouver, Toronto or Old Quebec. Those with a yearning for the great outdoors go to the Canadian Rockies.

No one ever chooses Ottawa, the country's capital. It's a prejudice probably felt more strongly among Canadians, themselves. In the U.S., almost all Americans will at some point in their lives make the hegira to Washington, D.C. Canadians fly over Ottawa on their way to somewhere else.

However, ask Ottawans where they prefer to live, and nine out of 10 would choose their home city, which mixes cultured urbanity with an accessibility to the great outdoors. It also has good politics.

The Ottawa housing market resembles, but not too closely, that of Washington, D.C.

The global recession also hit Canada, but Ottawa suffered less than other big Canadian cities. In Ottawa, six of 10 workers are employed by the federal government, education (four universities) and health care.

Changes in administrations generally cause minor housing-market tremors. In Ottawa, incoming politicians rent. In Washington, D.C., the Republicans of the Bush administration were buyers of homes, but the Democrats arriving with the Obama administration have been renters.

The population of District of Columbia proper stands at about 600,000, with the metro area at 5.3 million. The population of Ottawa city now totals 900,000, but the metro is much smaller than D.C. at 1.4 million.

The average cost of a home in the Washington, D.C., metro is around $500,000, Thompson said. In Ottawa, the average home is $333,000, reported Chris Rhodes of Coldwell Banker Rhodes in that city.

Although, Rhodes adds, the "average" home price is misleading. Unlike Washington, D.C., Ottawa is not surrounded by vast suburbs but by a large rural area where homes are much cheaper. The city of Ottawa boasts a good population density and, as Rhodes points out, finding a home in the $333,000 range is "a challenge."

At the high end, homes are still cheaper in Ottawa.

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