Last month, in Montgomery County, Maryland, the County Council debated – and then ultimately passed – rent regulation. A detailed rundown of all the particulars in the final version can be found HERE, but the three most important components of it are summarized below.
— Rent increases will be limited to CPI plus 3 percent, with a hard 6-percent cap. This cap cannot be exceeded no matter how high inflation runs in the future.
— The final version also includes a kind of synthetic vacancy control whereby landlords can bank forgone rent increases but with a 10% limit. Crucially, the limit will apply across tenancies, which is the essence of vacancy control.
— New construction is exempt for 23 years, but it’s unclear whether the exemption will be automatic or discretionary.
Interestingly enough, councilmembers see the new rent regulation as a moderate, compromise measure, one that the self-styled progressives on the council feel does not go far enough. Quite simply, they are wrong. Moreover, as far as rent regulation goes, there’s nothing moderate at all about the new policy passed by the council.
First, a wave of rental properties could be converted into for-sale condos, further constricting the county’s rental housing market. This is exactly what happened when San Francisco strengthened its rent control ordinance in the mid-1990s. Researchers at Stanford who studied the effects of the policy found that rather than meekly accepting the burdens of the onerous new regulation, many landlords decided simply to get out of the rental business altogether.
In the process of selling their units, which was a predictable consequence of rent regulation, longtime tenants were displaced, and higher-income-earning owners took their place. In other words, although rent control was meant to give tenants more stability and peace of mind, it resulted in the opposite: a wave of residents forced to find new housing, a rapid increase in gentrification, and an immediate contraction in the supply of rental housing within the city. Montgomery County residents are now on notice that the same is likely to happen there as well.
Second, we can expect that applications for new housing construction will take a hit, as builders look elsewhere to bring new housing units online. This happened in St. Paul, Minnesota, after voters approved a version of rent control similar to the one approved in Montgomery County. In the first three months after the proposal took effect, applications for new construction plummeted 80 percent in St. Paul. And to be sure, that didn’t simply reflect an overreaction to a new policy. A year later, applications for new housing were still down by nearly 50 percent. In nearby Minneapolis, however, which didn’t enact rent control, applications for new housing increased year over year.
Montgomery County residents can犀利士
expect that the same could happen in their county, especially given the fact that opportunities to bring new housing online are plentiful in neighboring jurisdictions.
The DMV does have examples of how to address this shortage of housing. Arlington has been a success story for transit-oriented development, with dense high-rise housing around transit stations accounting for much of the county’s growth both in residents and in increased tax base.
Meanwhile, Montgomery County is a laggard with respect to housing production. Based on data provided by the county’s Department of Permitting Services, Montgomery County is third from the bottom among its peers in the DMV area when it comes to producing new housing.
But it’s not just rezoning and capturing those County-wide benefits. The government needs to step up and invest in effective, voluntary programs that empirical evidence shows to be effective in controlling the rent. Broad, mandatory rent regulations reflect a shirking of responsibility of the Montgomery County Council by effectively offloading the problem onto private parties – to the detriment of the broader economy and the very renters they purport to help.
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