Montgomery County just passed rent stabilization. Now what?

Montgomery County has had a big last six months: In that time the county has passed an increase to the recordation tax, a property tax increase, and, most recently, passed a (pretty good!) permanent rent stabilization law. So…now what? How can we make sure that Montgomery County can become a more affordable place to live in the future and stay that way?

Here are the housing things Montgomery County did this year

Faced with a tight budget and rising home prices, the County Council has looked for ways to increase tax revenue while reducing burdens on tenants, who make up over one-third of the county’s households.

One is the recordation tax, collected when a property is bought or sold. This allows the county to collect revenue from, for example, a house that a retired couple sells to a younger family with children, a leading driver of public school enrollment in the county. It also financed a significant increase in rental assistance funding above the state of Maryland’s welcome, but more meager assistance.

Officials also increased property taxes about 4%, bringing the county in line with other local jurisdictions on that measure. I personally think an income tax increase would be better here, as we could apply a progressive tax rate and income taxes generally speaking are less regressive but the county cannot raise that tax without state action. The council had to play the cards it was dealt.

And in July, Montgomery County brought back rent stabilization for the first time in 40 years. The new law caps rent increases at 6% each year, or 3% over the rate of inflation (whichever is lower), and allows landlords to “bank” any rent increases they don’t take advantage of for the following year. Buildings aren’t covered for their first 23 years after construction, an approach that’s shown to not discourage new construction while providing more predictable rents and guarding tenants against major shocks. If you are very bored I talk more extensively about the bill here. But the long and short of it is that, while we’re all guessing, in a world full of barriers to new housing, I think this bill does a lot more good than harm.

All of these moves have real downsides, and have attracted their fair number of critics, but I am not among them. That said, vibes matter even if I wish they didn’t. These bills taken together don’t exactly send a warm and fuzzy signal to people looking to build new homes and open new businesses in the county. That doesn’t mean we shouldn’t do them, but we need to start sending better signals by passing reforms that will help directly, but also help counter the (partially fair, partially unfair) perception that Montgomery County is hostile to growth and investment.

What needs to happen after rent stabilization

We can start by building on our approved general plan, Thrive 2050, and passing the zoning changes it recommends, chiefly upzoning for more homes near transit. It’s also worth changing zoning in many more places to allow up to four homes (a quadplex) where you can only build single-family homes today, which is the majority of residential land in the county.

Even if it pushes land values up moderately, upzoning helps by allowing that cost to be split among multiple homes instead of one, ultimately reducing construction costs and home prices. The more area that is upzoned, the more pressure is taken off of one space to meet all our housing needs. It means that smaller, more affordable homes would be built, and would mean those homes have more places to go, meaning change in any given neighborhood would be more gradual. We need all those little chances to add housing to add up, not expect every chance to pan out.

Some neighborhoods could go even further. In areas around downtown Silver Spring, Bethesda, Wheaton, and other built-up areas near transit, you can cross the street and go from big apartment buildings to stand-alone houses because of zoning. Why not allow mid-rise apartment buildings on both sides of the street? There is absolutely no reason why a divide like this should exist.

More ways to make homes more affordable

Zoning is not destiny: things have to pencil out for them to get built. While the county cannot directly lower material costs or command parcels to be built to the maximum capacity allowed, it can do a few things to make new construction more feasible and the resulting housing more affordable:

Get rid of parking requirements. In most of Montgomery County, builders must include parking with new homes, even in areas near transit where car ownership is not a given. This adds tens of thousands of dollars in construction costs for a new home, makes construction more complicated, and increases the cost for home buyers and renters. There are some exceptions: in fact, my own condo building has no parking, and it’s one of the reasons I could afford it, but this requirement adds unpredictability, time, and thus cost, where we could easily avoid it.

Removing parking mandates would not ban parking, it just means that developers would be allowed to build as much, or as little parking as they feel is needed for the project.

Reform taxes on new homes. The idea behind impact fees sounds inoffensive enough: have new developments pay taxes to pay for infrastructure and schools and the like. But turnover in older homes can have a bigger impact on county spending than new homes. Impact taxes treat new people as pollution when more people coming to the county can instead grow our tax base and reduce the need for tax increases, or generate more money to expand rental assistance and/or affordable housing.

Encourage smaller homes by discouraging bigger ones. Montgomery County’s housing needs assessment notes we need more lower cost homes, including much more multifamily housing. Under current zoning laws, older homes in some neighborhoods are expanded or replaced with larger, more expensive homes over time, reducing affordability.

In 2019, Councilmember Evan Glass proposed a tax on replacing older homes with new ones. Targeting it to high-square footage single-family homes, while not applying it to apartments, condos, townhomes, or plexes would help make more of those smaller, cheaper houses attractive to build. Reducing setback requirements so that buildings can occupy more space on a given lot would also help, by making it easier to build multiple units instead of standalone houses.

What we do sends a message

This list of recommendations is far from complete. The laws themselves can help, but more important might be the message they send. The county should try other things, as long as it makes it more feasible to build the smaller, more affordable homes we need, balance our books, protect the vulnerable, and make it clear we are ready and willing to welcome more people and more investment.