Rent stabilization policy in Montgomery County has its role to play — but only if it’s done carefully

Rents are soaring across the country, including locally, and while not all increases are so dramatic, some are rising by double-digit percentages, 16, 17, 25, even as high as 50%, forcing tenants to choose between a squeezed budget and a relocation that is hardly cost-free itself.

Solutions to this issue remain complicated and contentious. Allowing more housing would indeed help. Providing more competition from more homes lessens the leverage landlords have over prospective tenants, and thus, their ability to increase rents as dramatically as we see now.

Support for more housing production has grown, with the political left leaning into the issue. But resistance, as exemplified in Montgomery County, is strong, and even blue states and jurisdictions will have difficulty relaxing harmful zoning restrictions at a scale that is needed to sufficiently address housing costs alone anytime soon.

Moreover, even if all zoning were reformed to some sort of new ideal level tomorrow, it will take years, and probably even decades for relaxed zoning to provide a dramatic number of alternatives in all but the most in-demand areas. Furthermore, while the benefits of new housing,both in the short and long term, are quite real up and down the income ladder, it is true that they help middle and upper-middle-income households more directly.

This means that families making significantly less than the area median income often need subsidized, income-restricted housing, which will require increased government spending. However, with the vast majority of residential land zoned only for detached single-family housing, this answer too, while crucial, is unlikely to achieve the needed scale on its own.

And like all solutions to the housing crisis, zoning reform and investing in more income-restricted housing are not panaceas. As emergency rent stabilization measures in Montgomery County expire, and a new one is considered, it is also worth exploring the need for a more permanent rent stabilization policy, and the pros and cons of such measures.

What exactly is rent stabilization?

Rent stabilization (often referred to as rent control, even though that can have a different meaning) is essentially the practice of placing some sort of limit on rent growth, typically expressed as the percentage rent can increase from year to year, generally applied only to a renewing tenant (as opposed to a new renter signing a lease on a unit for the first time). The temptation to use this tool to legally cap the amount rent can increase at a time when so many are struggling is understandable and somewhat intuitive, but like most parts of housing policy, things are not quite so simple.

The pros…

First, the pros of rent stabilization, primarily housing stability. Then writing for Vox, Montgomery County’s own Jerusalem Demsas noted that it may be more helpful to think of rent stabilization as an anti-displacement tool, rather than a broad affordability measure. Consistent community, children not having to frequently change schools, and just…general predictability in life all have value, among other things, and that deserves to be weighed against the supply impacts of rent control measures.

Similarly, though rent stabilization’s ability to control cost in the long term can be limited, it can also serve as an anti-gouging, consumer protection tool, limiting sudden, dramatic shocks that can displace renters and/or cause acute financial harm.

…and the cons of rent stabilization

The cons are just as real. Rent stabilization targets incumbency in controlled homes better than it does “need,” so it risks lowering costs for relatively better off, already housed people more than those looking for limited housing that aren’t already in controlled units. This problem can be compounded by the negative impact such policies likely have on supply, particularly when caps are strict, which leaves fewer homes for those in need to find.

This impact is even more pronounced if there is not a significant exemption period for new buildings, which give housing producers time to recoup their investment. Restrictions on how much you can increase rent do limit the profits that can be made off of a housing development. Like it or not, fair or unfair, that does likely lower supply of market rate housing, which has always been the most commonly provided form of housing in this country.

We can see this playing out in St. Paul, Minn., where housing construction has plummeted (while nearby Minneapolis’ has not) after a strict rent control measure with no new building exemption was passed. (While the policy has not taken effect yet, developers base their decisions to build or not based on anticipated future returns, and the bill has given them every reason to anticipate lower returns.)

Meanwhile, DC has a rent control law, and still has a strong market for new housing, but it notably exempts any building built after 1975. This means new developments are not subject to rent restrictions, unlike in St. Paul, making new supply more economically feasible.

So where does this leave us?

I remain skeptical of permanent, extremely strict rent stabilization measures because of the effects described above, and if I thought that were it not for rent stabilization we would have all the housing we need to keep things affordable, I would oppose it in all its forms, but that is simply not the world we live in.

There are any number of other drags on supply, including zoning, parking minimums, and, well, time, as described above. This doesn’t mean that we should dismiss the additional supply impact of rent stabilization, but it does mean that we should consider the benefits of the policy as well, particularly if supply impacts could be limited.

The hard truth is, that while I have been supportive of relatively strict temporary emergency measures in the past,there is probably not a permanent rent stabilization policy that would prevent mid-level single-digit percent rent hikes, even in times of low inflation, from happening that would not also limit supply to the point that in the long run, they do more harm than good. There are, however, alternatives.

Oregon recently implemented a statewide law that allows rent increases of 7% over inflation, while exempting new rentals for 15 years, and watching what happens in that state may be instructive. It could provide a path forward that may prevent many of the sudden double digit percent increases we are seeing, and that risk suddenly ripping residents away from their community, and maybe Montgomery County and the DC region altogether.

At the very least, Montgomery County should explore more permanent policy options. People are getting hurt, and we cannot ignore the moral imperative here. A home is the most important place in someone’s life, and it can uproot your entire life if you are pushed out of it due to a dramatic rent increase. Data, economics, logic, and cold hard supply impacts all have their place in this debate, but so does our obligation to help those just hoping for a stable place to rest their head at night, and we need to use every tool in the toolbox to do so.