Montgomery County is figuring out how rent stabilization will actually work

Rent stabilization will return to Montgomery County for the first time in 40 years. But first, the Montgomery County Council needs to approve regulations for how it’ll actually work. They aren’t perfect, but advocates want them to move forward with what’s on the table now.

Montgomery County’s Department of Housing and Community Affairs (DHCA), which will enforce the rent stabilization law the county passed last year, wrote the regulations and sent them to the County Council in June. That comes after a public comment period where industry and activist groups, as well as individual advocates (including myself) submitted suggested tweaks to the regulations. Councilmembers can’t make any changes: they have 60 days to approve or reject the amendments or extend the deadline, or they become law by default.

These are good regulations

Much like the county’s rent stabilization law itself, I think these regulations to implement it are good and the council should approve them. Together, they provide a reasonable path forward, balancing the needs to make new housing construction financially viable while preventing large, quick shocks to rents. For example: the law exempts new construction for 23 years, which mitigates the impact on project financing by allowing landlords to raise rent uncapped during the period of time investors are most concerned with turning a profit. Meanwhile, the regulations have reasonable accommodations for fees and other non rent charges while still restricting how much landlords can increase them.

DHCA director Scott Bruton and his staff also deserve credit for taking seriously the comments, suggestions, and concerns communicated to them when the original regulations came out. They made significant adjustments to provisions about troubled or at risk properties, the fair return process, and exemptions for landlords who do substantial renovations.

Another big change involves parking fees. The initial regulations capped parking at 2% of base rent (e.g. $40 dollars on a $2,000 a month apartment) for uncovered parking and 4% of base rent for “secured, covered parking.” Many commenters were concerned that this was too low, making it hard for projects to pencil out financially, would effectively subsidize residents with cars, and created another incentive for landlords to raise the rent as much as possible because their ability to charge fees was so limited. Now the regulations limit parking fee increases by tying them to inflation, and set tighter caps on creating new parking fees. There are more tweaks I could suggest, like making the “fair return” exemption where landlords can ask to raise rents past the cap less dependent on case by case review. But it’s not enough that we need to start the process over.

Rent stabilization isn’t enough

With rent stabilization close to becoming reality, it’s important to think about where we go from here. I previously talked about how signals matter, and how after passing tenant protections, the county needed to send other signals more friendly to development. To its credit the County Council has taken multiple measures on that front, including abolishing parking minimums near transit and passing a zoning text amendment that allows nonprofits significant flexibility to build affordable housing on their land.

That said, challenges remain. Developers have given mixed signals about the viability of rental construction in the county since the law’s passage. At the Montgomery County Affordable Housing Conference in May, Matt Hopkins of real estate investment company Aimco reported that the cap rate (essentially the premium investors demand to invest in a project) spiked after the law passed. While it has started to come down, it remains elevated. That may have as much to do with vibes and signals as the substance of the law. The county still needs to make reforms that both substantively make housing easier to build and send the signals to builders and investors that we want to make housing easier to build.

One example is Attainable Housing Strategies, the Planning Board’s recommendation to relax single-family zoning in much of Montgomery County, which the County Council is now reviewing. Other reforms the county could make are streamlining the permitting process and reducing setback requirements, allowing more of a lot to be used for housing rather than leaving expensive land empty. Reducing minimum lot sizes and allowing property owners to split their lots would enable smaller, cheaper plots of land on which to build smaller, cheaper detached houses.

Vibes matter

Any proposal to build housing in Montgomery County competes with other investments, or housing projects in other jurisdictions, for investors’ backing. Market and investor sentiment does matter. We can’t act like we can extract a never-ending series of concessions from developers and assume that they will proceed to build everything we want. Responsible rent stabilization can give renters protection and leverage, but they also have leverage and protection when landlords compete for their rent. That only happens if we address our continuing housing shortage.

Montgomery County’s rent stabilization regulations are reasonable and respond to the suggestions of numerous stakeholders. Renters and landlords alike don’t benefit from the uncertainty of not having a firm policy in place, and the delay prevents renters from enjoying the protections that the council voted to enact. It’s time for the County Council to pass these regs as soon as possible.