Why D.C. Apartment Rents Are Going Up Despite Blanket Freeze On Increases
A citywide rent freeze is still in place in Washington, D.C., but landlords have different interpretations of how that law applies, and new data shows rents have begun to increase across the city.
The District instituted a freeze on rent increases as part of its coronavirus state of emergency policies in March 2020, which were some of the most restrictive and tenant-friendly in the country. This August, when Mayor Muriel Bowser ended the public health emergency, she extended the rent freeze until Dec. 31.
But effective Class-A apartment rents in the District increased 8.6% during the 12-month period ending Sept. 30, according to a report from multifamily research firm Delta Associates last week.
The report only includes buildings that had been open throughout the full-time period, and it also factors in concessions offered by landlords such as free months of rent. Delta Associates President Will Rich said he believes the pullback of those concessions has been the primary cause of the rent increases.
While landlords and tenant groups all agree that the freeze applies to existing tenants who renew their leases and to buildings subject to D.C.'s rent control law, the Bowser administration's emergency policy didn't specify how it should be applied to a unit that became vacant during the pandemic and then leased to a new tenant.
The law stated that "no housing provider may issue a rent increase to any residential tenant during a period for which a public emergency has been declared," and a separate provision prohibited "a rent increase for residential property."
Bisnow reached out to the D.C. Department of Housing and Community Development Monday to seek clarity on the city's interpretation.
"The rent increase moratorium applies to all residential rental units: market rate, vacant, and rent-stabilized," a DHCD spokesperson wrote in an email Thursday afternoon.
The spokesperson couldn't immediately answer whether the moratorium's application to vacant units had been previously made public.
The question of who enforces the rent-hike freeze is a complex one, the DHCD spokesperson said, and for tenants who don't fall under rent control, it would ultimately be up to them to file a suit with the D.C. Superior Court.
D.C. Office of the Tenant Advocate Legislative Director Joel Cohn said there has been no active monitoring or enforcement of the policy and it is up to tenants to report violations, so it is unlikely that a new tenant would be aware that their rent had been increased from what a previous tenant paid.
"Certainly in instances where the tenant is not on full notice about what the increases have been, then there’s a high likelihood that some landlords are going to take advantage of that and take the risk of being in violation," Cohn said.
The Apartment and Office Building Association of Metropolitan Washington Vice President of Government Affairs Katalin Peter said the policy hasn't been clear on how it applies to vacant units, so the organization has advised its landlord members not to raise the rent in any circumstance to avoid risking a violation.
"There is still too much of a question on whether a brand-new lease can be considered an increase, so we would still take a conservative approach," Peter said. "If the vacancy occurred during the moratorium and a new lease was executed during this time when the increase moratorium exists, we’d say no, you wouldn’t take any sort of increases, even on a new lease."
The moratorium lifts in less than two months, but D.C. law also requires a 30-day notice on rent increases that can't be initiated until that date, meaning landlords won't be allowed to raise rents until February. Several housing experts told Bisnow they expect to see a noticeable marketwide rent increase after the freeze is lifted, but in some cases rents have already begun to rise.
Roadside Development principal Richard Lake, who stepped down as chair of Washington D.C. Economic Development Partnership in January after nearly a decade, said his real estate firm has raised rents on vacant units based on the advice of its attorneys, who interpreted that the law doesn't apply in those situations. He said there is agreement on this point among many D.C. landlords.
"It is confusing, but I think it’s a pretty widespread understanding that the rent freeze ties to the tenancy not to the unit," Lake said. "So it’s not about vacant units, it’s about allowing that tenant to be able to stay without feeling pressures about increase of rent. It’s about the tenant, not the unit itself."
WC Smith Vice President Samantha Branchaud, who works on the management team for the firm that owns and manages over 11,000 apartments in the District, said that the application of the rent freeze varies depending on the situation of the property. She said WC Smith has a large number of rent-controlled units where it hasn't increased rents, and it has new apartment buildings that are signing on their first tenants where the new rents have been able to rise as demand has increased over the course of this year.
In the situation of non-rent-controlled apartments that had previous tenants and became vacant, she said the weak market forced WC Smith to lower many rents last year, and it has now been able to raise them back to their pre-pandemic levels.
"Rents had come down, and so I’d say they have returned in a nice way, but we should always be mindful of the D.C. policies with regard to what we’re allowed to do with rent increases," Branchaud said. "We’ve certainly seen where we had to take a discount before, we’re able to get back to where we were, not saying that they’re well above where they were, but it’s nice to be able to see them return to what we were seeing in the past."
MRP Realty principal Matt Robinson said the company has been able to raise rents for units that became vacant during the coronavirus pandemic and signed leases with new tenants.
"On a brand-new lease, it can be at a market rent, whatever the market is at that point in time. But anybody with existing leases, we’ve had a rent freeze on tenants," Robinson said. "We're seeing rents return to pre-Covid levels, and in some cases above pre-Covid levels, for any new leases, and then obviously renewals are much lower than that because some tenants only locked in low."
Madison Investments CEO Barry Madani said his interpretation of the law is that landlords aren't allowed to raise rents on vacant units. He said his firm has been following this interpretation on its D.C. portfolio, and it has been especially harmful in hot neighborhoods where vacancies are near zero.
"The 14th Street Corridor is fully leased, so a landlord would typically have the option to increase rents to manage occupancy," he said. "A lot of buildings are at 100% occupancy but not allowed to raise rents ... Construction costs are up, labor costs are up, materials are delayed or up, everything is taking longer or costing more, yet we’re up against a brick wall in terms of rents."
Small Multifamily Owners Association CEO Dean Hunter said his understanding is that the law prevents all rent increases across the board, including on vacant units.
"It’s been particularly devastating to small housing providers who aren’t as well-capitalized to withstand this rent freeze," Hunter said. "It has small providers who endured record vacancies, record delinquencies, and when they had the opportunity to raise rent to recover a little bit of their losses, the D.C. government bars them from doing it."
Hunter said he is considering filing a lawsuit to recover lost income for small landlords that the city has prevented from raising rents.
"It’s excessive. It’s over broad. It was not narrowly tailored to anything. It was done regardless of an individual’s ability to pay," Hunter said. "We are aggressively exploring litigation to recover for this gross taking of private property on behalf of individual owners."
The courts would be the ultimate adjudicator of how the law should be interpreted in the situation of vacant units, but no cases on the rent freeze have been heard.
Jennifer Berger serves as the chief supervising attorney for the social justice section of the D.C. Office of the Attorney General and handles housing policy enforcement, and she said the office has received 15 complaints from tenants regarding the rent freeze.
Those 15 complaints were all from tenants whose landlords tried to increase rent on a lease renewal, and Berger said she hasn't seen any complaints related to rent increases on vacant units. She said all 15 of the cases were settled with landlords before going to court, but OAG was preparing to file legal complaints for two cases before landlords relented at the last minute.
Because the situation of a rent increase on a vacant unit hasn't been litigated in court, she said there has been no decisive interpretation of the law, but it is her belief that the freeze wouldn't apply to vacant apartments.
"The ban on rent increases was really more designed to deal with situations where the tenant is in place so they don’t get displaced by a higher rent increase," Berger said.
After publication of this story, an OAG spokesperson emailed Bisnow a new statement with the agency's revised interpretation of the law.
“Emergency and temporary legislation intended to protect District residents during the COVID-19 pandemic prohibited all rent increases, including vacancy increases, for the duration of the public health emergency and for 30 days afterward," the OAG spokesperson wrote. "However, the Office of the Attorney General did not receive any complaints about rent increases on vacant units and this issue has not been litigated by OAG in court.”
The question of increasing rents on vacant units has become a more pressing one in recent months as rising demand for apartments in the District shifted the market dynamics in the landlords' favor, a dynamic that typically gives them the ability to hike rents.
In its last two quarterly reports, Delta Associates has found that the D.C. Metro area has posted new records for Class-A apartment absorption during the prior 12-month periods. In the 12 months ending Sept. 30, 7,055 more units were leased than were vacated, a 201% increase from the prior year, according to Delta Associates.
"There is some pent-up demand for housing, whereas in 2020 there was not much leasing activity occurring, not just in the city, but in other parts of the region," Rich said. "A lot of that lack of leasing activity is catching up in 2021."
Experts predict this strong demand will translate into more rent increases next year, especially once landlords can hike rents on lease renewals. The potential for rent increases could be exacerbated by a slowdown in new supply, with Delta Associates finding that the District's 36-month construction pipeline is 15% lower than it was a year ago.
"Given the development pipeline and the level of anticipated demand for Class-A apartments, we expect rent growth will moderate back to a more normal level of 3% to 4% per year over next three-year period," Rich said. "We were starting to see rents increase close to that level prior to [the] pandemic, and so we’re expecting that trend to resume once all of the fluctuations in market sort themselves out."
Branchaud said that WC Smith has seen growing leasing demand since the start of the summer, especially at its new buildings. She said the 419-unit Avec building on H Street reached a pace of 23 leases per month, and the Garrett building in Capitol Riverfront signed 29 leases per month.
Because these buildings didn't have prior tenants and aren't subject to the rent freeze, she said they have been able to achieve higher rents as the market has improved compared to the rents they were able to charge earlier this year.
"We’re certainly seeing with our new units at Garrett and Avec, we have been able to see rents return in a healthy way," Branchaud said. "For a new unit where we were having to take discounts, we were able to get back to where we had hoped to be this summer."
Hunter said he expects small landlords will begin to raise rents as soon as they are clear that the law allows them to do so.
"When individuals are again allowed to exercise their right to increase the rent in response to market demand, yeah, we’re going to see increases," Hunter said. "People haven’t been legally allowed to raise the rent for 18 months."
AOBA's Peter said many landlords have been waiting until after the end of this year to raise rents.
"I think they’re all looking toward that Dec. 31 date," Peter said. "I don't expect to see any out of the line increases. I think they’re going to be pretty slow. It’s going to take them a while to get things back on track."
CORRECTION, OCT. 28, 5 P.M. ET: A previous version of this story incorrectly stated that Richard Lake is the chair of WDCEP. He previously served as chair but stepped down in January after nearly a decade.
UPDATE, OCT. 29, 10 A.M. ET: This story has been updated to include an additional provision of the emergency rent-freeze law.
UPDATE, Nov. 1, 9:30 A.M. ET: This story has been updated with a new statement from the Office of the Attorney General revising its interpretation of the rent freeze law.