By Adam Pagnucco.
Gaithersburg Mayor Jud Ashman, writing on behalf of himself and his city council, has sent a letter to the county council opposing rent control legislation. The city council voted in favor of sending a letter of opposition last week. Ashman’s letter is reprinted below.
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July 7, 2023
Honorable Evan Glass, Esq.
President
Montgomery County Council
Stella B. Werner Council Office Building
100 Maryland Avenue
Rockville, MD 20850
Dear Council President Glass:
The Mayor and City Council of Gaithersburg, like the Montgomery County Council, are committed to finding and implementing policies and programs that foster the well-being and financial stability of people in lower income brackets who are in rental housing – as all of us face the rising cost of housing and higher levels of inflation. I am writing, however, to express our serious concerns about the potential unintended consequences of the rent stabilization bill that is currently being considered to address this.
Amended Bill 15-23, Landlord-Tenant Relations – Anti-Rent Gouging Protections, would limit allowable annual rent increases to 3% plus the Consumer Price Index (CPI), and capped at 6%. Rent control legislation, while well intended, invariably does more harm than good. Since 2020, the rate of annual rent increases has unquestionably intensified, due in part to operating costs that rose dramatically for property owners coupled with COVID-era moratoriums on rent increases implemented by municipal and county governments. Indeed, the City of Gaithersburg joined other jurisdictions in implementing a temporary moratorium on rent increases during the state of emergency.
However, as you have heard before, the average rent increase over the last 10 years in Montgomery County has been 2.1%. And in the 20-year period leading up to the pandemic, that average increase was 1.48%. That is lower than the overall region, including our neighboring, rent-stabilized Washington D.C. (OLO 2020). This is to say that, over time and without any legislatively imposed constraints, market forces have kept rental rates relatively stable in Montgomery County.
Our concerns with Bill 15-23 include the following:
- Under rent control, whenever the market rate for rentals goes up beyond that 6% allowable rent increase, the property owner has an incentive not to renew leases and, thus, we will see an increase in tenant turnover.
- The bill promises to have a chilling effect on development, limiting property owners’ ability to maintain buildings and discouraging potential investors. Our region is already suffering from an acute housing shortage. This bill will reduce the overall inventory of rental units and, in turn, drive market prices higher.
- It creates economic disincentives for maintenance and renovation projects on current properties disincentives that will negatively impact the quality of living conditions for renters as well as erode property values. We have seen this situation play out virtually everywhere that rent control has been implemented.
- With less maintenance and fewer renovations of rental properties and, as the buildings deteriorate, not only will this negatively impact the quality of life for County renters, it will lead to lower appraised values of these properties, which will then lead to lower tax revenue to support critical services provided at the municipal, county, and state levels.
- Small property owners, who are generally less capitalized than REIT and multistate investors, provide an estimated 40% of rental housing in Montgomery County. This bill will prevent many of them from being able to meet the rising costs of maintenance, higher mortgage rates, and/or rising property taxes.
- Rent control provides a powerful incentive for property owners either to convert rental units into condominiums or to demolish existing rental properties and construct new ones with fewer affordable units.
Numerous studies identify rent control policies’ adverse economic effects. Rebecca Diamond, an Associate Professor of Economics at the Stanford Graduate School of Business, states “In the long run it decreases affordability, fuels gentrification, and creates negative spillovers on the surrounding neighborhood.” Albert Saiz, Associate Professor of Urban Economics & Real Estate at the MIT Center for Real Estate, said, “The evidence is very clear that rent control doesn’t work the way it’s intended to work.” According to the Economic and Fiscal Impacts of Rent Control Legislation in Montgomery County, Maryland, prepared by the Regional Economic Studies Institute at Towson University in 2015, “Rent Control would result in reductions in the property values of existing multifamily buildings and would, in turn, significantly decrease County property tax revenues and income tax revenues paid by building owners residing in the County. Additionally, many planned multifamily and mixed-use projects would not be developed, resulting in further losses of tax revenues and jobs.”
Closer to home, the County’s own Office of Legislative Oversight (OLO) stated the following in a 2020 report:
Research indicates that rent stabilization could lead to reduced supply of rental housing and upward pressure on the prices of unregulated units (including owner-occupied units). This reduced supply could occur as a result of condominium conversion or reduced construction activity. Research also indicates that rent stabilization programs often result in disinvestment by owners, including deferred or foregone maintenance. There is evidence that rent stabilization has led to neighborhood deterioration or increased crime in some locations.
In the end, our goal is to expand people’s opportunities to secure quality housing in Montgomery County. The City Council and I are proud to support programs that will achieve that outcome. However, we are concerned that this bill will have the opposite effect, potentially doing profound damage to the housing market and the local economy – and, more importantly, diminishing the quality of life for our renter community.
We ask that you consider our concerns before proceeding any further. As always, we thank you for your consideration, your partnership, and for all you do for our County. Please do not hesitate to reach out to me directly to discuss this.
Respectfully submitted,
Jud Ashman
Mayor
