Developers Are Battling A Rent Control Movement In Suburban Maryland
Local lawmakers in suburban Maryland are backing a fresh wave of rent control legislation that would set rent caps far below the increases the market has seen in recent years.
Last week, activists organized by CASA and other local organizations were joined by several Montgomery County Council members to rally in support of a bill to set a cap on rent increases. In neighboring Prince George's County, a bill that would set a temporary cap on rent increases at 3% for certain buildings received a favorable vote from a council committee on Tuesday, pushing it closer to adoption.
Advocates cite a hot rental market with quickly rising rents over the past three years as a sign that some limits need to be put in place to protect displacement of vulnerable renters.
“We predict it’s just going to get worse and worse,” CASA organizer Alex Vazquez said of rent hikes. “That’s why we believe the moment is now.”
But the moves have developers concerned their profits will shrink at existing properties and they may lose the ability to get financing to construct new housing altogether.
"These anecdotal stories about rent increases do not justify broad-scale limitations on rent increases. It does not justify rent control," said Dean Hunter, a real estate broker and CEO of the Small Multifamily Owners Association. "It's the low-hanging political fruit. The reality of the matter is that rents are stabilizing."
Sources differ on the severity of rent increases in suburban Maryland over the past three years. CASA volunteers surveyed 1,179 households in Montgomery County last year and found that after Montgomery County's temporary rent stabilization policy expired, the average rent increase was 22.92%.
Meanwhile, CoStar Group data shows that rents increased by 8.3% and 8.4%, respectively, in Montgomery and Prince George's counties from 2019 to 2022, compared to 1.5% in Washington, D.C., and 3.9% in Arlington County, according to a Washington Post analysis published in April.
Montgomery County has spent the past year looking into collecting data of its own on rent increases, though a report on rents from the county's Office of Legislative Oversight is still pending.
Some in the real estate industry think those spikes were a temporary correction after widespread moratoriums during the pandemic. Roger Winston, a partner and real estate attorney at law firm Ballard Spahr, said his attorneys have grown accustomed to hearing anecdotes about astronomical rent increases from witnesses at public hearings, but he doesn't believe those anecdotes tell the full story.
"Maybe the first thing you need to do is look at the facts," Winston said. "What have the actual increases been on a building-by-building basis or a county-by-county basis? That’s what Montgomery County is evaluating."
A formal bill has not been proposed in Montgomery County this year, though advocates say they nearly have the support they need after new council member Natali Fani-González joined returning council member Will Jawando at the rally to speak in favor of rent stabilization. Last year, a temporary proposal backed by County Executive Marc Elrich died in committee after council members requested more data on increases. The temporary proposal would have capped rent increases at 4.4% for up to nine months after its passage.
Winston said rent control legislation could have a chilling effect on development, limiting property owners' ability to maintain buildings and scaring off potential investors who would rather invest in new development in a less-regulated submarket elsewhere in the D.C. region.
"If you tell me I build that building and I can’t get reasonable rents to pay the mortgage, which is now going to be a higher mortgage, I’m not going to build the building, and in fact, I’m not going to get a lender to underwrite it," Winston said. "If Montgomery County and Prince George’s County say we’re going to restrict what rents you can charge, then people are going to build in other places."
The legislation may also hurt small landlords more than well-capitalized multistate investors, said Hunter, who has testified on behalf of small landlords in both counties. Small landlords include those renting out single-family units or who own portfolios under 25 units.
He said these property owners won’t be able to meet the rising costs of maintenance, higher mortgage rates or rising property taxes — none of which face the same caps on cost increases — without the ability to raise rents at their discretion.
"These restrictions on rights, these burdens placed on providers, are making it less attractive to be in the business," Hunter said. "They're selling, they're getting out."
Vazquez, a lead organizer for CASA, said his organization understands the need for more development, a key area of concern for the county's recently adopted Thrive 2050 master plan. But he considers rent stabilization laws a means of preventing further displacement while the county works to expand housing options for residents.
"We know that we need development. We want new development. If it was possible to build a lot more in a year or in a few months that would be great. The reality is that even if we invested all of our resources in the entire county budget and were less restrictive on zoning, it’s going to take a really long time," Vazquez said. "While we are addressing long-term solutions, the big question is what are we doing now to meeting the needs of renters who are put in a chokehold by the high cost of rents?"
The real estate industry has already won certain exemptions to ease the pain of rent control before the bills are passed.
In Prince George's County, the proposed Rent Stabilization Act includes a carveout for affordable housing sponsored by any public agency or a unit where a tenant is receiving rental assistance. The bill also exempts new buildings, a provision Vazquez said was under consideration in Montgomery County in order to prevent a chilling effect on new development.
His organization has also engaged with council members and other stakeholders, including landowners, to find a permanent solution to the issue that wouldn’t undermine housing production goals, Vazquez said.
He also argued that contrary to simple cost analyses, the renters who see the poorest maintenance practices are often the ones facing the steepest rent increases, with little opportunity to speak out without facing an eviction threat.
“We do a lot of work throughout the county and also in Takoma Park, which is a city that has had rent control for quite some time,” Vazquez said. “We actually see better conditions in Takoma Park or some areas that have been under stabilization for quite some time, versus some areas that are not.”
Winston’s firm also advocated for a carveout, working on behalf of a client in Prince George's County that has projects sponsored by the U.S. Department of Housing and Urban Development to ensure that such developments were excluded from the temporary rent control measure in the county.
While he appreciated that this concern was addressed in the bill, he doesn't think it addresses the underlying issue with a blanket rent control policy: that it regulates the price of a good in a way that governments wouldn't consider for any other item with price inflation.
"The more exemptions they put in, yeah, obviously that’s better," Winston said. "But the best thing to do is to let the market control what prices are, just like every other commodity."