Two years into Montgomery County’s rent stabilization law, housing developers are feeling the impact. 

The law, which took effect in July 2024, is having a chilling effect on conventional ground-up multifamily development, panelists said at Bisnow’s Montgomery County State of the Market last week. While some construction is underway, those projects are few and far between and only appear possible with tax abatements or other alternative financial solutions.

“It's OK to say, you know what, we messed up with rent control,” EYA Head of Multifamily, Land Acquisition and Development Robin Bettarel said onstage at the Bethesda North Marriott Hotel & Conference Center. “We need to fix it.” 

The county limits rent increases on buildings that are 23 years or older to the consumer price index plus 3%. For this year, the maximum allowable increase is 5.2%.

Between January and August of last year, only 54 multifamily building permits were issued in Montgomery County — all for two-over-two structures, according to the county’s residential development pipeline analysis released in October. That’s compared to 1,713 in Fairfax County, 1,085 in Arlington County and 965 in Washington, D.C.

“What's not working well is rent control and the stigma that comes with it,” Cohn Property Group CEO Mychael Cohn said. “We are actively selling high-profile deals on the other side of the river in Virginia. The proof's in the pudding. All the data and analytics show that it doesn't work.” 

The law hasn’t meant a complete stop to large-scale multifamily development, however, and there are some big projects in the pipeline.

In March, EYA broke ground on a 413-unit mixed-income multifamily project in the county, next to the Shady Grove Metro station. Earlier this month, the developer and its partners received approval for its more than 500-unit redevelopment of the former Geico headquarters in Friendship Heights, which is set to reserve at least 17.5% of the units as moderately priced dwelling units. 

The reason those are moving forward is added financial support from the county, Bettarel said.

“Why are those working? It's public-private partnerships,” she said. “Housing Opportunities Commission of Montgomery County … providing public financing and also availing themselves of a long-term tax abatement, property tax abatement.” 

Cohn, whose firm brokered the sale of the 600K SF Bethesda Towers to Roadside Development and Hudson Bay Capital in June, also said the county's 20-year tax abatement for office-to-residential conversions is helping to get deals done. The brokerage is now in the midst of selling 4405 East West Highway for another office-to-residential conversion, he said.

“That is what's helping make deals work,” Cohn said. “That's been a huge positive and incentive from local leaders.” 

Also in downtown Bethesda, MRP Realty and Prime Finance are using the 20-year tax abatement for their 420-unit multifamily project via an office-to-residential conversion.

But even with the help of the abatement, the development team is concerned about how the rent stabilization law will impact its exit, MRP Vice President Nick Gordon said. And that’s pushing the team to build as quickly as possible so it can get a good value on the property despite the looming rent cap. 

“It sets up an interesting dynamic on the back end because you have rent control coming in at 23 years, and you have the tax abatement burning off in 20,” Gordon said. “And so we're really incentivized to almost merchant-build it and go as fast as you can to maximize the value of the abatement and sell before the rent control kicks in.”