By Adam Pagnucco.
For many years, County Executive Marc Elrich has championed affordable housing, claiming that the private sector does not provide enough of it so the government must step up to produce it. As I wrote in a five-part series three years ago, his administration began deploying far more money to the county’s affordable housing production programs than his predecessors ever did. But this year, both his recommended capital and operating budgets cut funding for affordable housing production.
When combined with rent control, this is a major threat to housing supply in Montgomery County.
First, a bit of background. County funding for housing production can be found in both the capital and operating budgets. A key funding source is the county’s Housing Initiative Fund (HIF), which the planning department describes this way:
Housing Initiative Fund (HIF): The HIF is a locally funded tool that provides flexible loans—and in some cases, grants—to for-profit and nonprofit developers to build, acquire, or preserve affordable housing in the County. Administered by the Department of Housing and Community Affairs (DHCA), the HIF supports a range of housing types and prioritizes projects that serve the lowest-income households and address the most pressing housing needs. Most projects funded through the HIF must include units affordable to households earning at or below 70% AMI, with deeper affordability encouraged.
The capital budget lists four programs for building and preserving affordable housing. The largest is the Affordable Housing Acquisition and Preservation program, which is mostly funded by the HIF and also draws on loan repayment proceeds. Prior to the Great Recession, the Leggett administration funded this program at $51 million over the six-year period of FY09-14 but then cut it back by almost half. After taking office in 2018, Elrich ramped it up to $287 million over the FY25-30 period. However, in his most recent recommended capital budget, Elrich cut it back to $132 million before adjusting his recommendation to $240 million. Wherever the county council winds up in its budget process, there will be a cut.
Now here’s the thing about relying on capital budgets – they’re actually six-year spending plans, not tallies of actual spending. They can and do get adjusted over time. The operating budget contains two line items relevant to spending on affordable housing. First, the Department of Housing and Community Affairs (DHCA) has a Multi-Family Housing Programs section in its budget. DHCA describes it this way:
This program creates, preserves, and rehabilitates affordable multi-family housing units. This section provides funding to supplement rents through rental agreements, negotiates Payments In Lieu of Taxes (PILOTS), reviews and approves rental building sales through the Right of First Refusal (ROFR) program, and negotiates and completes loans to create or preserve affordable units. Loans are made to the Housing Opportunities Commission (HOC), nonprofit organizations, property owners, and for-profit developers.
Major funding for these projects is provided from the Montgomery Housing Initiative Fund and other County Funds, the Federal HOME Grant, the Federal Community Development Block Grant, and State grants. The program emphasizes the leveraging of County funds with other public and private funds in undertaking these activities.
Elrich’s recommended FY27 operating budget cuts this program from $54 million to $46 million, a 15% reduction. That’s another cut.
Second, DHCA’s operating budget lists direct expenditures from the HIF. As the planning department described it, it supports a variety of spending including loans and grants to finance affordable housing production. Elrich’s recommended FY27 operating budget cuts HIF expenditures from $60 million to $52 million, a 13% reduction. That’s a third cut.
See the pattern, folks?
Let’s go to 30,000 feet. The chart below shows annual operating spending from the HIF and on Multi-Family Housing Programs since FY04 adjusted for inflation with the local CPI-U in FY27 dollars. (2026 inflation is estimated at the average change from January and March in 2025 and 2026, which is 2.88%. 2027 inflation is estimated at the average rate of the past ten years, which is 2.55%).
The bottom line from the chart above is that after aggressively increasing spending on affordable housing production through the last couple years, the county’s expenditures appear to be stalling.
Why is this important?
Consider the state of multifamily housing production in Montgomery County. Rent control has destroyed most private multifamily housing construction. The only two sizable multifamily projects permitted in the last year were supported with public subsidies and/or tax breaks. Now public spending for housing is – at this moment – in decline.
County programs like the HIF were originally conceived as supplements to private sector housing production. The main reason for this is that despite county requirements for moderately priced dwelling units in most large housing projects, county leaders believed that the government needed to intervene more directly to ensure the production of affordable units.
However, because of rent control, the private sector has mostly withdrawn from MoCo and the county government is becoming the MAIN source of housing production. If it is to replace the private sector entirely, the county must increase its spending by many times more than it has ever spent before. Instead, current reductions to government housing funding now threaten to cut multifamily unit production even more.
There are three solutions for this.
First, the county could repeal rent control, stimulate the restoration of private housing production and then levy impact taxes and property taxes on those projects to finance affordable housing construction. This would produce a production surge across many housing price points.
Second, the county could shift spending away from other programs and into housing. Of course, that risks offending the constituents of those other programs, many of whom wield power in election years like this one.
Third, the county could raise taxes on existing residents and businesses to finance affordable housing, thereby risking resident and capital flight. (Taxpayer outmigration is already happening.) It’s noteworthy that the current recommended operating budget already contains tax increases and many fee increases and still cuts housing spending.
Or county leaders could ignore the problem, do nothing and watch our housing shortage get much worse.
What’s your bet on the outcome, readers?