Subject
title
Rent Stabilization Presentation and Discussion
end
Department
Housing and Community Development
Recommendation
Receive briefing and discuss rent stabilization. The information presented in this report is intended to inform and provide a general overview of rent stabilization.
Discussion
In response to a request from the Mayor and Council, this report provides preliminary information on rent stabilization to generate a discussion on whether staff should do a deeper dive into crafting a new policy on rent stabilization. This report provides background on and a general overview of rent stabilization systems.
To guide this report, it is important to identify the problem that a rent stabilization policy would aim to address: housing cost-burden (defined as a household paying more than 30% of their income on rent) and instability due to price increases for renters. Incomes have largely not matched pace with rents. This, in addition to other factors in the housing market such as low housing supply, has disproportionately impacted the bottom quartile of income-earners and Hispanic, Black, mixed-race, and other renters from historically excluded backgrounds.
As discussed at the June 3 briefing on affordable housing, rent stabilization is one tool in a municipality’s toolbox to address housing affordability and stability. In the three categories presented at that meeting, it falls into the “stability” leg of the stool. A strong housing strategy will pursue policies in all three categories: stability, supply, and subsidy.
The discussion is organized into the following parts:
• 1 - Rockville Rental Data
• 2 - Background on Rent Stabilization
• 3 - Components of a Rent Stabilization Law
• 4 - Research Findings
• 5 - Summary of Benefits and Limitations
• 6 - Regional Case Studies
• 7 - National Case Studies
• 8 - Conclusion
1. Rockville Rental Data
According to the 2020 Census, 45% of Rockville residents are renters. Figure 1 breaks down the characteristics of occupied housing units in Rockville. The vast majority (73.6%) of renter-occupied units are in multi-family buildings with 10 or more apartments. Most renters live in rental housing built between 2010-2019 (25%), 2000-2009 (23.1%), or 1960-1979 (30.6%). Over 60% of renter-occupied units have two or three bedrooms and 29.5% have one bedroom.
Figure 1. Occupied Housing Units in Rockville (2022)
|
Unit Characteristics |
Renter-Occupied Units |
Owner-Occupied Units |
|
|
# |
% |
# |
% |
|
Total occupied housing units: 26,559 |
12,936 |
48.7% |
13,623 |
51.3% |
|
Units in structure |
|
|
1, detached |
1,366 |
10.6% |
9,135 |
67.1% |
|
1, attached |
1,286 |
9.9% |
2,745 |
20.1% |
|
2 apartments |
53 |
0.4% |
0 |
0% |
|
3 or 4 apartments |
334 |
2.6% |
0 |
0% |
|
5 to 9 apartments |
333 |
2.6% |
0 |
0% |
|
10 or more apartments |
9,520 |
73.6% |
1,743 |
12.8% |
|
Mobile home or other |
44 |
0.3% |
0 |
0% |
|
Year Structure Built |
|
|
2020 or later |
0 |
0% |
190 |
1.4% |
|
2010 to 2019 |
3,239 |
25% |
401 |
2.9% |
|
2000 to 2009 |
2,985 |
23.1% |
3,024 |
22.2% |
|
1980 to 1999 |
1,570 |
12.1% |
1,543 |
11.3% |
|
1960 to 1979 |
3,959 |
30.6% |
5,464 |
40.1% |
|
1940 to 1959 |
1,090 |
8.4% |
2,836 |
20.8% |
|
1939 or earlier |
93 |
0.7% |
165 |
1.2% |
|
Bedrooms |
|
|
No bedroom |
920 |
7.1% |
0 |
0% |
|
1 bedroom |
3,814 |
29.5% |
313 |
2.3% |
|
2 or 3 bedrooms |
7,454 |
57.6% |
6,172 |
45.3% |
|
4 or more bedrooms |
748 |
5.8% |
7,138 |
52.4% |
Source: U.S. Census 2022 ACS 1-Year Estimates, Table S2504
The median renter pays $2,101 per month and needs an income of $84,040 to afford such a rent. This has increased 34% from $1,568 in 2010 and is on par with rents in North Bethesda, Silver Spring, and Wheaton (Figure 2). Bethesda, which typically has the highest rents in the market, has a much higher average rent at $2,659, whereas Takoma Park has a much lower average rent at $1,285, due to its longstanding rent stabilization policy and lack of new multi-family housing construction, which has kept rents lower than they otherwise would be.
Figure 2. Average Asking Monthly Rents in Montgomery County (2nd Quarter, 2022)
|
Submarkets as Defined by CoStar |
Average Asking Monthly Rents |
|
Bethesda |
$2,659 |
|
North Bethesda |
$2,283 |
|
Rockville |
$2,090 |
|
Montgomery County |
$1,980 |
|
Silver Spring |
$1,960 |
|
Northern Unincorporated Montgomery County |
$1,925 |
|
Wheaton |
$1,906 |
|
Germantown-Gaithersburg |
$1,889 |
|
Takoma Park |
$1,285 |
Source: Rockville 2020 Census Results, CoStar Q2 2022; p. 24
As a result of high housing costs and comparatively low wages, in 2022, over 55% of Rockville renters are considered housing cost-burdened, paying more than 30% of their income for housing, and over 20% are considered severely housing cost-burdened, paying more than 50% of their income for housing. Hispanic or Latino, “Some Other Race,” mixed-race, and Black households are disproportionately housing cost burdened (Figure 3). Figure 4 shows how Rockville compares with other jurisdictions in the region, as of 2020. Generally, Rockville renters’ cost burden is on par with other nearby jurisdictions.
Figure 3. Gross Rent as a Percentage of Household Income, By Race (2021)
Source: U.S. Census, 2021 American Community Survey
Figure 4. Percent of Cost-Burdened Renter-Occupied Households in Rockville and Nearby Jurisdictions (2020)
|
Jurisdiction |
Percent of gross household income paid by renter-occupied households |
|
|
More than 50% |
More than 40% |
More than 30% |
|
United States |
22.70% |
31.00% |
45.70% |
|
State of Maryland |
23.10% |
31.70% |
46.60% |
|
District of Columbia |
20.90% |
27.40% |
43.00% |
|
Frederick County |
22.20% |
29.30% |
46.30% |
|
City of Frederick |
21.70% |
29.10% |
51.00% |
|
Montgomery County |
23.60% |
32.40% |
48.30% |
|
City of Gaithersburg |
24.70% |
35.10% |
47.90% |
|
City of Rockville |
19.10% |
26.40% |
43.30% |
|
Prince George’s County |
23.30% |
32.70% |
48.90% |
|
City of Bowie |
28.40% |
34.80% |
47.30% |
|
Arlington County |
16.70% |
23.60% |
37.10% |
|
Fairfax County |
20.70% |
28.70% |
44.10% |
|
Loudoun County |
19.60% |
28.00% |
42.00% |
|
Prince William County |
21.50% |
29.60% |
47.30% |
|
City of Alexandria |
18.80% |
27.20% |
42.10% |
|
City of Fairfax |
27.50% |
36.00% |
41.70% |
|
Source: U.S. Census Bureau, American Community Survey 5-year Estimate, 2020, Table B25070; Rockville 2020 Census Results, p. 24 Note: Data is inclusive across categories - e.g., households that pay more than 50% and 40% is included in the more than 30% category. |
Figure 5 shows that although many households are cost burdened by rent, generally, the average multi-family annual rent in Rockville has been between 27% to 32% of the median household income of renters. The year 2015 is a notable outlier due to an especially low estimated median household income of renters that year.
Figure 5. Annual Average Multi-Family Rent as a Percentage of Median Household Income of Renters
Source: U.S. Census, ACS 1-Year Estimates; CoStar (CPDS)
Figures 6 and 7 below show how multi-family rental rates have changed since 2000. Rents have mostly steadily increased, apart from the years 2003 and 2004 where rents decreased 3.1% and 0.7%. Between 2008 and 2020, rents, on average, did not grow more than 3.7%. Except for six years between 2001 and 2023, effective multi-family rent growth has been equal to or less than the Voluntary Rent Guideline established by Montgomery County and the City of Rockville. Rent growth has almost always been below 6% except for in 2001 (6.3%) and 2022 (7.3%). The comparatively large increases in rent in 2021 (5.6%) and 2022 (7.3%) can be attributed primarily to pandemic-related rent freezes in 2020 and recent economy-wide inflation.
Figure 6. Multi-family Rent Growth Graph (2000-2023)
Source: CoStar (CPDS)
Figure 7. Multi-family Rent Growth Table (2000-2023)
|
Year |
Effective Rent Per Unit |
Effective Rent per SF |
Effective Rent Growth |
Voluntary Rent Guideline |
Difference in Effective Rent Growth and VRG |
|
2000 |
$1,318 |
$1.42 |
- |
3.2% |
- |
|
2001 |
$1,400 |
$1.51 |
6.3% |
5.1% |
1.2% |
|
2002 |
$1,411 |
$1.52 |
0.7% |
4.7% |
-4% |
|
2003 |
$1,367 |
$1.47 |
-3.1% |
5.4% |
-8.5% |
|
2004 |
$1,357 |
$1.46 |
-0.7% |
4.5% |
-5.3% |
|
2005 |
$1,373 |
$1.48 |
1.2% |
3.7% |
-2.5% |
|
2006 |
$1,432 |
$1.54 |
4.2% |
4.4% |
-0.2% |
|
2007 |
$1,516 |
$1.63 |
5.8% |
5.8% |
0% |
|
2008 |
$1,551 |
$1.67 |
2.5% |
3.1% |
-0.6% |
|
2009 |
$1,578 |
$1.70 |
1.5% |
4.4% |
-2.9% |
|
2010 |
$1,631 |
$1.76 |
3.5% |
2.8% |
0.7% |
|
2011 |
$1,664 |
$1.79 |
2.0% |
2.0% |
0% |
|
2012 |
$1,691 |
$1.82 |
1.7% |
2.8% |
-1.1% |
|
2013 |
$1,704 |
$1.84 |
0.8% |
4.0% |
-3.2% |
|
2014 |
$1,735 |
$1.87 |
1.6% |
1.5% |
0.1% |
|
2015 |
$1,740 |
$1.87 |
0.3% |
2.3% |
-2% |
|
2016 |
$1,761 |
$1.90 |
1.3% |
2.1% |
-0.8% |
|
2017 |
$1,789 |
$1.93 |
1.4% |
1.8% |
-0.4% |
|
2018 |
$1,824 |
$1.96 |
1.9% |
3.1% |
-1.2% |
|
2019 |
$1,891 |
$2.04 |
3.7% |
1.5% |
2.2% |
|
2020 |
$1,903 |
$2.05 |
0.7% |
2.6% |
-1.9% |
|
2021 |
$2,012 |
$2.17 |
5.6% |
1.4% |
4.2% |
|
2022 |
$2,159 |
$2.32 |
7.3% |
0.4% |
6.9% |
|
2023 |
$2,237 |
$2.41 |
3.8% |
5.8% |
-2% |
Source: CoStar (CPDS)
Although large percentage rent increases have happened infrequently on average, staff has received individually reported cases of rents being increased over 6%. In FY 2023, 106 residents reached out to the city’s Department of Housing and Community Development (HCD) formally and informally to complain about rent increases. These increases ranged from 5.8% to 40%. Thus far in FY 2024, 140 residents issued formal and informal complaints of rent increases, ranging from 9% to 40%. This data is self-reported, but it shows that there are residents who have received very steep rent increases from their landlords, even if the exact number of cases is impossible to quantify with current data sources. There are many reasons a landlord may propose a rent increase over 6%, including but not limited to major capital improvements, changing market conditions, new amenities, or increasing labor costs.
When looking at real multi-family rent growth (Figure 8), rents have largely remained flat and slightly decreased from the year 2000. Real values, adjusted for inflation, are helpful to better compare prices. However, it should be noted that “housing represents about one-third of the value of the market basket of goods and services that the Bureau of Labor Statistics uses to track inflation in the Consumer Price Index.”
Figure 8. Real vs. Nominal Multi-family Rent Growth in Rockville (2000-2023)
Source: CoStar; Federal Reserve Bank of Minneapolis Inflation Calculator
When examining how incomes have kept pace with multi-family rents, Figure 9 shows that, nominally, the median household income of renters has primarily steadily increased since 2010, although real incomes are now lower than they were in 2010, despite real average rents essentially remaining the same. This is also reflected in Figure 5, which shows that the average multi-family rent as a percentage of renters’ median household income increased in 2021 and 2022.
Overall, the nominal median household income of renters increased 21% between 2010 and 2022, meanwhile nominal average rents increased 32%. Real average rents have decreased by 1.4% and real median incomes have decreased by 9.6%.
Figure 9. Median Household Income of Renters vs. Annual Multi-Family Rent (2010-2022)
Source: CoStar; U.S. Census ACS 1-Year Estimates; Federal Reserve Bank of Minneapolis Inflation Calculator
2. Background on Rent Stabilization
Rent regulations establish by how much a landlord may increase rents. Rent regulation policies generally have two related goals: to maintain existing affordable housing and to provide protection from rapid rent increases. Many of these policies have included features to ensure landlords receive enough compensation to maintain their properties and earn a reasonable profit. These policies may also include other goals of protecting tenants from unjust eviction, creating mixed-income neighborhoods, and decreasing tenant turnover. Although definitions vary and are sometimes used interchangeably, there are generally considered to be three types of rent regulation policies:
• Rent control - The strictest type of rent regulation; locks in rental rates at a specific amount and may only apply to a narrow set of buildings. Rent control is typically considered a “first generation” rent regulation due to its emergence in the World War II era and lack of popularity after the 1970s.
• Rent stabilization - Applies to a larger number of units and may cover an entire city; typically allows for increases of a fixed amount.
• Anti-rent gouging - Broad-based regulation that set a relatively high cap on rent increases.
For the purposes of this discussion, staff will generally use the term rent stabilization when discussing the type of policy the Mayor and Council may consider pursuing.
Rent regulation policies in the United States first gained prominence in the World War II era due to wartime housing shortages and economic instability. As mentioned above, these strict “first generation” rent control policies were phased out in the 1950s and more moderate “second generation” rent stabilization and anti-gouging measures arose in the 1970s as a response to high levels of inflation. Today’s rent regulation policies continue to be overwhelming characteristic of the second generation and are considered as such. The two generations have been found to have significantly different outcomes due to variances in their leniency.
Currently, around 200 localities, two states (California and Oregon), and the District of Columbia have enacted some kind of rent regulation policy. Thirty-three states preempt local rent regulations, meaning that localities are banned from enacting such policies. Eight other states do not have rent control or preemption. Case studies from St. Paul, Minnesota; Newark, New Jersey; Portland, Maine; and Los Angeles County, California are provided later in this report.
3. Components of a Rent Stabilization Law
There are many possible components to a rent stabilization law. The following section reviews the most common components, as well as discusses some of their potential impacts.
Rent Increase Restrictions
• Allowable annual increase: This is the amount by which the landlord is allowed to increase rents each year. Most jurisdictions with rent stabilization allow rents to increase by a measure of the Consumer Price Index (CPI), such as:
o A percentage of CPI (e.g., 75% of CPI);
o The CPI;
o The CPI with a limit (e.g., up to the CPI, with a maximum of 5%, whichever is lower); or
o A set amount above the CPI (e.g., CPI + 5%).
For example, Montgomery County’s rent stabilization policy will allow rent to increase by CPI plus 3%, at a maximum of 6%.
• Fees: Many rent stabilization policies create a set of rules for what types of fees may be charged and by how much those fees can be increased in each lease term. There is a concern that if rents are regulated but fees are not, landlords may use fees to make up for lost rent.
Exceptions
• Vacancy control/decontrol: Vacancy controls place a limit on how much a landlord can increase rents between tenants, while a vacancy decontrol allows a landlord to increase rents back to market rate between tenants. Proponents of vacancy controls argue that vacancy decontrols create an incentive for landlords to evict tenants so that they may increase rents beyond what would otherwise be allowed. “Research indicates that systems with vacancy controls may keep rents lower than systems with no vacancy control or areas with no rent regulations. One study, however, found that vacancy controls led to a decline in the supply of rental units while similar jurisdictions with no vacancy control saw an increase in the rental housing supply.”
When allowing vacancy decontrol, a jurisdiction may want to consider certain eviction protections, such as “good cause” or “just cause” eviction where a landlord cannot evict or choose not to renew the lease of a tenant who has not violated the lease, except under certain circumstances. Maryland does not currently allow localities to enact good or just case eviction laws.
• Fair return: A fair return provision allows the landlord to increase rents to an amount that ensures that they can meet operating expenses and receive a return on their investment comparable to investments in other enterprises with similar risks. Landlords must prove that they meet these criteria, usually by submitting a petition to be reviewed and approved by the locality.
• Capital improvements: This provision allows a landlord to increase rents above the allowable annual increase if they have incurred expenses to enhance the value of the property outside of ordinary repair or maintenance. Similarly, some jurisdictions may offer an exception for substantial renovations. In both cases, a petition must be submitted and approved by the locality to authorize the rent increase exception.
• Rent banking: If a landlord does not increase rents by the maximum allowable amount, some systems will allow a landlord to save up or “bank” the amount of the allowable rent increase not utilized to use it in the future. The amount that rent may be increased using rent banking can also be regulated to a maximum percentage increase, such as 10% in Montgomery County’s policy. Below is an example provided by Montgomery County:
o The allowable rent increase for July 2025 - July 2026 is 5%. Rent is currently $1,000 per month. Tenant received a rent increase notice informing that rent will increase 5%. Tenant asks the landlord to reduce the rent increase to 3% because they are on a fixed income and cannot afford the full increase, however next year they will receive supplemental income. The landlord agrees and only increases the rent by 3%. Therefore, instead of increasing the rent to $1,050, the rent is only increased to $1,030. The landlord can "bank” the $20 difference to use in a future annual rent increase. The following year, allowable rent increase for July 2026 - July 2027 is 4%. The rent is $1,030 per month. The landlord can now lawfully increase the rent $41.20 (4%) + $20 for a total of $61.20.
Exemptions
Most rent stabilization policies provide exemptions for certain types of properties in order to meet certain policy goals, such as encouraging new housing construction or protecting smaller “mom-and-pop” landlords. Examples of exemptions include:
• Newly constructed rental housing:
o Sometimes excluded indefinitely from rent regulations or sometimes excluded for a fixed period of time (e.g., 10, 15, or 20 years). This allows the developer an opportunity to pay off their construction loan and minimize risk of default;
• Multi-family properties (typically smaller) where the property owner resides in a unit;
• Single-family homes;
• Condominiums;
• Smaller buildings (e.g., with 2-4 rental units); and
• Accessory dwelling units.
Limits on Condominium Conversions
“Some landlords may try to convert their properties into condominiums rather than keep them as rental properties. Some jurisdictions have enacted laws that establish requirements for converting rental property to condominiums, such as requiring regulatory approval, providing existing renters initial rights to purchase their units, and/or requiring landlords to provide relocation assistance to renters.”
Reporting Requirements
Without proper reporting and data collection, enforcing rent stabilization requirements and measuring the program’s effectiveness is inherently labor intensive. Despite this, few jurisdictions have robust reporting requirements and many struggle with data collection.
In California, nearly two dozen localities require landlords to report residential leases to some degree, but the data collected varies widely and no jurisdiction collects the data needed to monitor compliance with state law. In 2015, the Washington, D.C. Council mandated the creation of a rental housing database that “would allow residents to search for rent regulated units and allow landlords to file registration paperwork electronically.” The database was delayed and the request unfulfilled until 2022, although it is not very user friendly, according to interviews conducted by Montgomery County’s Office of Legislative Oversight with staff at Montgomery County Department of Housing and Community Affairs.
Montgomery County has required the collection of rental housing data since the 1970s. Multi-family properties located in Rockville are also required to comply with this county requirement and failure to do so can result in a civil penalty of $1,000, although, in practice, the county does not impose fines. Examples of the type of data landlords are required to annually submit include rent charged for each rental unit, rent charged for each re-rented unit prior to vacancy, and new turnover rent charged for each re-rented unit. Certain aggregate data is available upon request.
Program Management
Most jurisdictions implement and enforce rent stabilization programs via a government agency. This often requires the creation of a new office to ensure that landlords and tenants have access to information and to manage program components such as a rental registry. Many jurisdictions also appoint or elect a board or commission to set allowable rent increases and review petitions. Legislative bodies regularly review and amend their rent stabilization program to meet policy goals and adjust to changing economic conditions.
Enforcement Actions
Jurisdictions may impose fines, reverse illegal rent increases, and/or allow imprisonment. Some jurisdictions will also allow tenants to pay rent at a discounted rate if there are substantial code violations.
4. Research Findings
In the short period of time to complete this report, staff has not completed an exhaustive review of the academic literature related to rent stabilization. So far, staff has discovered that most of the academic studies on the impact of rent control were completed more than 20 years ago. Because second generation rent-control policies usually have different features, it has been difficult to assess the impacts.
Staff has copied following sections from the most recent study from Montgomery County’s Office of Legislative Oversight’s (OLO’s) 2023 report, Rent Regulations and the Montgomery County Rental Housing Market. Non-partisan OLO staff completed an in-depth academic literature review of second generation rent regulation systems and summarized their findings as listed below. However, the study points out that there are significant limitations to current academic research on rent regulations given the small body of research and data, a limited number of jurisdictions to study, variations between rent stabilization systems and local housing markets, and a lack of recent research. Therefore, the OLO staff advised caution on extrapolating the findings to other jurisdictions with different economics, housing markets, and/or rent regulation systems.
For example, the OLO study states that rent stabilization generally does not have an impact on construction if there are exemptions for new construction. As mentioned above, there are other jurisdictions where rent stabilization may have an impact depending upon their unique characteristics, such as St. Paul, Minnesota. In addition, staff has received feedback from three development community representatives that have concerns regarding the impact rent stabilization would have on new residential construction in Rockville. This feedback was limited from three representatives and the information cannot be quantified.
• Impact on Housing Stability: Researchers have consistently found that renters living in rent regulated units live in the units longer compared to renters living in non-regulated units - a key measure of housing stability. A vast body of research shows that housing stability improves economic well-being; physical, emotional, and mental health; and educational outcomes for students. Additionally, most rent regulation systems include regulations limiting evictions to disallow landlords from evicting tenants to raise rents.
• Impact on Rent Levels: Research has shown that rent regulation systems keep rents lower in regulated units compared to non-regulated units. Conversely, research findings vary on whether rent regulations cause rents in non-regulated units to increase or decrease.
• Program Reach: Many researchers have found that rent regulation programs benefit renters at higher risk for housing instability (e.g., People of Color, lower-income residents, seniors). However, rent regulation systems are not targeted only to low-income renters. High-income renters and renters who are not at risk for housing instability also benefit. At the same time, rent regulations can typically benefit significantly more people than low-income housing programs. The number of rent regulated units in areas with rent regulations generally far exceeds the availability of spots in low-income housing programs in those areas.
• Impact on New Construction: Research findings generally show that rent regulation systems do not negatively impact new construction, especially if the regulations exempt new construction from the regulations for a specified time (e.g., 15 years) so the developer can recoup construction costs. Examples include:
o Research from the Boston area found that the peak of multifamily building occurred five to 10 years before rent regulations were ended in Massachusetts: “[M]ultifamily building construction permits in [Boston, Cambridge, and Brookline, MA] reached their height in the mid to late 1980s-a time when rent stabilization policies were in full effect.”
o “A comprehensive report by Berkeley’s Planning and Development Department considers the effect of rent [regulations] from 1978 to 1994 and concludes that ‘the best available evidence shows that rent [regulations] had little or no effect on the construction of new housing.’”
o Research of rent regulations in over 70 New Jersey jurisdictions found no significant difference in new construction in cities with rent regulations compared to cities without rent regulations.
• Impact on Existing Rental Properties: Researchers have found that rent regulation systems may entice property owners to convert rental properties to other uses not subject to rent regulations (e.g., condominiums, owner-occupied housing, other non-rental uses, replacing existing buildings with new construction), and some cities with rent regulations have seen reductions in the supply of rental units. Rent regulation systems require design features to lessen the possibility of this impact.
• Impact on Maintenance and Capital Improvements: Some research findings showed that rent regulated units had higher levels of aesthetic maintenance problems (e.g., peeling paint). Research findings have been mixed of whether rent regulated units had higher levels of major maintenance problems. One study found that rent regulated units did not have increased levels of significant problems with major maintenance or capital improvements (e.g., sewer, water, etc.). A different study found that rent regulated units had higher levels of plumbing problems. Again, rent regulation systems require design features to lessen the possibility of this impact.
• Impact on Property Values: There is mixed evidence on whether rent regulation systems impact property values of non-regulated properties in the same area.
Figure 10. Summary of Rent Regulation Systems’ Impact on Residential Rental Markets
Source: Rent Regulations and the Montgomery County Rental Housing Market, Montgomery County Office of Legislative Oversight, 2023
5. Summary of Potential Benefits and Limitations
Rent stabilization has both costs and benefits, which can vary widely depending on how strict or lenient the law is crafted, as well as on local housing market conditions. The following section breaks down the common costs and benefits of rent stabilization to tenants, landlords, and the jurisdiction which enacts the law, as well as the impacts on racial equity and social justice. This section is not intended to be exhaustive.
To Tenants
The primary benefit of rent stabilization is price stability and affordability for existing tenants. Rent stabilization allows a household to be more secure in their current residence, which can lead to a variety of social and health benefits, such as for children to stay in the same school. If rent stabilization results in a household paying less than they otherwise would on housing costs, as it typically does, that household may be able to afford other goods or services more easily, as well as may be able to put more money towards their savings. These benefits would be especially impactful to cost-burdened and lower-income tenants, who tend to be disproportionately Black and Hispanic.
Rent stabilization could also harm existing tenants by resulting in poorer housing conditions if landlords are discouraged to invest in their property’s maintenance and improvement. Tenants may also be disincentivized to move if their housing needs change. For example, someone might decide not to pursue an opportunity that would require them to move away from a rent stabilized unit if they are unlikely to find similarly priced-stable housing elsewhere, leading to lost opportunities. Or a family whose children have gone off to college may decide to stay in a home that is significantly larger than they need, leading to a misallocation of rental housing. In addition, rent stabilization policies that lack vacancy controls can increase tenants’ risk of eviction.
Potential renters who are interested in moving to a place with rent stabilization can also be negatively impacted if 1) home builders are discouraged from developing more rental housing, 2) landlords decide to convert apartments into condominiums, and/or 3) there is less turnover in existing units because existing tenants do not want to give up a rent stabilized unit. These factors would decrease the amount of available rental housing and make finding a place to live harder for potential renters. As mentioned, previously, these impacts to the rental markets are highly dependent on how the rent stabilization system is designed.
To Landlords
Rent stabilization may benefit landlords by resulting in lower tenant turnover and thus fewer associated costs with marketing and turning over apartments. More predictable rents may also make meeting payments on time easier for tenants who struggle with affording large rent increases, resulting in more predictable revenue for landlords. Additionally, if a rent stabilization policy results in less development, there would be less competition, making it easier to attract tenants and keep a low vacancy rate.
The primary cost of rent stabilization to landlords is less potential profit and higher risk. Because rent stabilization sets an artificial price ceiling, this can reduce the amount of money a landlord can make. Even if a landlord does not plan to increase rents beyond the rent cap, this increases financial risk since there may be future cost increases that necessitate rent increases above the price ceiling to secure profit. This is why many rent stabilization policies include an exception for capital improvements, hardship, and/or new construction. It is especially important for new buildings to be able to meet profit expectations to pay off the project’s construction loan, which can last anywhere from 10 to 30 years. Without the ability to increase prices as needed to pay off the loan and other costs, development may be deemed too risky to receive funding.
To Jurisdictions
Rent stabilization can make jurisdictions more attractive to tenants by being a place where renters, especially those of a low- or moderate-income or from historically excluded backgrounds, can feel comfortable placing down roots to thrive. The longer residents stay in the same community, the more likely they are to become civically engaged. Furthermore, the local economy may strengthen by having a housing stock that is comparatively more affordable than other nearby jurisdictions and thus a more balanced workforce across the economic spectrum.
However, rent stabilization may make a locality less attractive to investment, causing stagnation or decline in the economy. Rent stabilization can also lower property values of properties not impacted by rent stabilization. Without economic growth, existing residents are often faced with a higher tax burden.
Additionally, rent stabilization policies need implementation and ongoing enforcement, which requires the funding of staff positions by the locality. For example, to implement its rent stabilization policy, Montgomery County issued a special appropriation of $1,347,470 and has created a new office with eight FTEs.
On Racial Equity and Social Justice
Rent stabilization would be expected to, on net, improve equity between historically excluded and historically included groups. As has been mentioned, the primary beneficiaries of rent stabilization would be tenants, especially those tenants who struggle to keep up with rent increases. In Rockville, renters and low-income households tend to disproportionately be Black, Hispanic, or mixed-race due to a long national history of intentional exclusion from housing opportunities and fostering racial and economic segregation. Rent stabilization could improve housing security for these groups, although it would not be anticipated to break down barriers to homeownership or alter the geographic of residential segregation in the City of Rockville.
6. Regional Case Studies
Montgomery County
Federal rent control ended in 1973, but inflation, including in the rental housing sector, persisted. Montgomery County also had a housing shortage that could not be easily responded to due to an ongoing sewer moratorium. In response to these factors, the Montgomery County Council declared a public emergency and enacted a 90-day rent cap. This policy was extended and significantly revised before ultimately being revoked in 1981. The county continued its policy of publishing annual Voluntary Rent Guidelines.
In that era, the county lost 9,700 apartments to condo conversions, leading the council to enact a 90-day moratorium on conversions. The county also saw a stall in new construction, which was driven by a myriad of factors, including rent control, land use policies, the national energy shortage, high interest rates, cost of labor and materials, and the aforementioned sewer moratorium. The county’s rent control measures did not provide any significant exemptions for new construction.
Montgomery County did not reinstate rent regulations until the COVID-19 pandemic in 2020. The temporary rent caps put in place as a part of the public health emergency led to a conversation about a permanent rent stabilization policy. The council ultimately adopted a rent stabilization law in July 2023. The law went into effect in October 2023, but enforcement will not begin until the County Council approves the law’s regulations. The Montgomery County Department of Housing and Community Affairs (DHCA) transmitted the finalized regulations to the council on June 14, 2024 and the council now has 60 days to review, approve, or reject the regulations.
“Additionally, DHCA staff have been working with the County’s Technology Enterprise Business Solutions department to develop a new rental housing portal for landlords, tenants, and the public. The new DHCA Rental Housing Portal and supplemental education and training for using the portal will be launched soon after the County Council approves the final regulations.”
Montgomery County’s 2023 rent stabilization law sets an annual allowable increase at CPI plus 3%, with a maximum of 6%. DHCA will issue and publish the annual allowable increase by July 1 of each year and the increase will be applicable from July 1 to June 30 of the following year. The law also allows rent banking, to a maximum of 10% and regulates certain fees. It does not allow for vacancy decontrol.
Notable exemptions include new construction for 23 years, housing owned by non-profits, accessory dwelling units, duplexes occupied by the owner as a principal residence, certain affordable housing, units in substantially renovated buildings, and rent units owned by a landlord who owns two or fewer rental units in the county. There are exceptions for capital improvements and fair return.
Given that Montgomery County’s rent stabilization law is so new, it is difficult to assess the impact, positive or negative. However, the law was crafted by the Montgomery County Council with a goal of striking a balance between shielding tenants from predatory increases while still promoting development. Despite this, MoCo360 has reported that developers halted a project in Germantown due to rent stabilization and that other developers are shifting their investments to other areas without rent stabilization policies. Researchers will be able to better evaluate the policy’s impacts and effectiveness as time goes on.
Washington, D.C.
Washington, D.C. has had rent control law since 1985. It has since been amended, but currently provides exemptions including but not limited to rental units built after 1975, subsidized rental units, and rental units owned by a natural person who owns no more than four rental units. The allowable rent increase is based on the CPI and, for most tenants, is CPI plus 2%, with a maximum of 10%. For tenants who are elderly or disabled, the allowable rent increase is the CPI percentage only, but not more than 5%. When a unit becomes vacant, the landlord may raise the rent to either 1) 10% more than was charged to the former tenant, or 2) rent for a comparable rental unit, but not more than 30% more. There are additional exceptions for hardship, capital improvements, substantial rehabilitation, or agreement with 70% of the tenants.
Given high inflation in 2023, the D.C. Council passed an emergency bill in June 2023 capping most rent increases in rent-controlled apartment by 6%. Without this action from the D.C. Council, the allowable rent increase beginning May 2023, as approved by the Rental Housing Commission, would have been 8.9% - the highest increase in the program’s history.
As previously discussed, although the D.C. rent control program is longstanding, it has mostly gone without a comprehensive rent control database. Due to this, there is no firm number available on how many apartments are rent controlled. Enforcement has also been a challenge, with many landlords finding ways to get around rent control requirements, as reported by Washington City Paper.
Currently, researchers at Howard University’s Center of Excellence in Housing and Urban Research and Policy (CHURP) are creating a database after receiving a $111,000 grant from the D.C. Association of Realtors. The CHURP database will allow researchers to better determine winners and losers of D.C.’s rent control system. For example, since most of the older housing stock that is rent-controlled is largely owned by the Black community, this may have impacted Black wealth generation. Additionally, as D.C. has experienced gentrifications, the beneficiaries of rent control may no longer be those who the law originally intended to protect.
City of Takoma Park
Rent stabilization was originally passed in Takoma Park in 1981, when Montgomery County ended its rent control. The allowable rent increase, published by the city each spring, is equal to the CPI for the Washington/Baltimore region, although a landlord may apply for an additional rent increase “in situations where the net operating income generated by the rental facility has not been maintained due to escalating operating expenses.” The law applies to all condominiums and multi-family homes, however, there is a carveout specifically for single-family homes, accessory dwellings, and duplexes where the landlord uses it as a primary residence. Additionally, new buildings are exempt from rent stabilization for the first five years after their construction. This restriction could be one of the reasons that no new multi-family housing has been built, since certain rent stabilization policies have been shown to deter new construction, such as St. Paul, Minnesota, which is discussed later as a case study.
A 2017 report by the Cloudburst Group, on behalf of the city, comprehensively analyzes the state of housing and the local economy in Takoma Park, given nearly 40 years of rent stabilization. Some of the key findings are as follows:
• Median gross rent in Takoma Park was $1,094 in 2015, compared to $1,627 in Montgomery County and $1,333 in the Comparison Tracts. As shown in Figure 11, the rental rate in rent stabilized apartments in Takoma Park is 54% to 63% lower than the rents in market-rate apartments, showing that the program has been successful in its goal of improving housing affordability.
• Rent stabilized and subsidized properties are not dispersed evenly throughout the City. The largest clusters are in the Long Branch/Sligo Creek (Ward 5) area and along Maple Avenue (Ward 4).
• The city’s senior population grew 24.7% between 2000 and 2015. Meanwhile, the young adult population has shrunk by 7.1%. The young adult population in Montgomery County and Washington, D.C. have grown by 17.4% and 30.7%, respectively, in the same time period. “Given the City’s proximity to transportation, higher education, jobs, and the amenities in the D.C. region, this could indicate that young adults struggle to find suitable or attractive housing in Takoma Park.”
• There is very little new residential construction in Takoma Park. No new multifamily rental buildings have been constructed in Takoma Park since the 1970s. Several multifamily buildings, however, have been constructed or are planned just outside City limits in D.C. and in Silver Spring. Twelve new construction permits were issued or finalized in Takoma Park between 2012 and 2017, including three demolition/rebuild projects and four new single-family homes on vacant lots. The report attributes the lack of construction to the city being “built out,” despite surrounding areas having a higher residential density. Furthermore, whereas 32.7% of Chevy Chase’s and 29.3% of Silver Spring’s housing units were built in 1980 or later, only 9.7% of Takoma Park’s housing units have been constructed since 1980. As a whole, nearly half of Montgomery County’s homes were built after 1980.
• Housing tenure in Takoma Park has shifted towards homeownership over the past decade. In fact, Takoma Park has lost rental units. An analysis from housing economist Salim Furth found that approximately 15% of rental buildings have been converted to condominiums.
Figure 11. Market Rent Rate vs. Rent Stabilized Rent Rate in the City of Takoma Park
Source: HUD 2017 Fair Market Rent; City of Takoma Park, 2017
Prince George’s County
In February 2023, the Prince George’s County Council passed a temporary rent stabilization bill preventing landlords from increasing rents above 3%. The cap applies to all dwelling units and provides few exemptions or exceptions, aside from an exemption for certain affordable housing units and for dwelling units that received an occupancy permit in the last five years before April 2023. The legislation is planned to expire in October 2024.
The Office of the County Executive and the County Council formed a Rent Stabilization Workgroup in May 2023, made up of various stakeholders to study and offer recommendations for a permanent rent stabilization bill. The workgroup began meeting in July 2023 and will conclude in June 2024. It is jointly convened by the Prince George’s Department of Housing and Community Development (DHCD) and the Prince George’s County Council. As this effort was launched, three virtual sessions were held to inform residents about rent stabilization policies and its impact on both landlords and tenants in communities throughout the country.
In June 2024, councilmembers introduced a permanent rent stabilization bill modeled after Montgomery County’s policy. It will be considered through the regular legislative process.
7. National Case Studies
The following case studies provide a national perspective and further insight into other cities’ implementation of second generation rent stabilization policies. Please note that certain localities refer to their policies as rent control and as such have been referred to in this section as rent control.
St. Paul, Minnesota
In May 2022, a voter-approved rent stabilization ballot initiative went into effect for St. Paul, requiring landlords to limit residential rent increases to 3% with no exemptions for new construction or other property type exemptions. As a result, multi-family building permits plummeted nearly 82% between November 2021 and January 2022 compared with the same period a year prior. The Mercatus Center compared St. Paul building permitting from 2022 in the five months after the passage of the policy and found permitting was down 55%.
St. Paul City Council adopted amendments to the rent stabilization ordinance in September 2022, although did not significantly alter the 3% cap. The updated ordinance, which went into effect in January 2023, allows partial vacancy decontrol where landlords can increase rents by up to 8% plus CPI after a just cause vacancy, a self-certified fair return increase exception up to 8%, and an exemption for new construction up to 20 years and for low-income housing. Landlords quickly submitted 362 just cause vacancy increase requests in the first four months of the new rule. As a result of this and other exemptions, a third of St. Paul is now exempt from rent stabilization.
Newark, New Jersey
Newark enacted rent control in 1973. Originally, the ordinance capped rent increases at 4% for
buildings of 50 units or more and 5% for buildings with fewer than 50 units. Since 2014, rent increases have been capped at an amount equivalent to the percentage change in the CPI from 15 months to three months before the date of the proposed increase. There is a 30-year exemption for most new multi-family buildings and five-year exemption for substantially renovated buildings, as well as for public housing units and owner-occupied properties with one to four units. Exceptions are provided for vacancies, fair return, capital improvements, rehabilitation/renovation, property taxes, and utility costs.
The program is administered by the city’s Office of Rent Control and the appointed Newark Rent Control Board. Landlords are required to submit to a rental registry. “In recent years the city has increased efforts at unit registration and compliance. Historically, less than half of the eligible rental units have been registered. In 2018, only 584 properties were registered. However, the city conducted a pilot program in 2019 to increase enforcement. Over 7,900 letters were mailed to landlords notifying them of their obligation to register their units. The city reported a 454% increase in registered properties, a total of 2,885. Additionally, increased enforcement led to a total over $65,000 in rebates being issued to tenants who were overcharged rent, an increase of 323% from 2018.”
Portland, Maine
Portland’s rent control ordinance was approved by voters in November 2020 and went into effect January 1, 2021. The ordinance establishes a base rent for most rental units to the rent charged in June 2020 and caps the amount by which landlords may increase that rent annually to 70% of the change in the CPI for the Greater Boston Metro Area for the preceding 12 months, with a maximum cap of 10%. For example, the allowable increase percentage was 7% in 2023 and is 2% in 2024.
In addition, the ordinance provides various protections to tenants, including notice of rent increases, additional notice or payments before evicting certain tenants, prohibiting discrimination on source of income, and notice of tenants’ rights to new tenants.
There are no exemptions for new construction, although certain building types are exempt, such as small owner-occupied buildings and accessory dwelling units. A landlord may increase rents above the allowable increase percentage if there is a new tenancy, if they have banked rent increases, or if the Rent Board approves an application to ensure a fair rate of return.
The ordinance has been successful in keeping rents lower than they otherwise would have been. Portland’s appointed rent board released in its first annual report that prices of rent controlled units increase an average of 1.5% from January 2021 to November 2021, compared to 2.5% in exempt units. This trend continued, as reported in the board’s 2024 report.
In response to the rent control ordinance, landlords have been reported to seek out high-earning or subsidized tenants. Since the initial ordinance was passed, there have been multiple ballot initiatives to amend the law. All initiatives to weaken the ordinance have been rejected. One of the initiatives that has passed requires landlords to give tenants a 90-day advance notice of rent increases.
Since the ordinance went into effect and January 2024, the city has mandated 150 cases of remedial action and issued 37 violations but has levied no fines. Instead, the city has opted to work with landlords to find a solution. There were “nearly 2,500 cases where landlords reported rental increases that surpassed specific caps set from June 2020 to November 2022.”
Los Angeles County, California
In January 2024, Los Angeles (LA) County enacted the Rent Stabilization and Tenant Protections Ordinance (RSTPO), placing limits on annual rent increases based on changes in CPI and providing tenants protections from evictions without just cause. The RSTPO’s rent restrictions apply to: 1) all units located in unincorporated LA County, 2) those with a Certificate of Occupancy issued on or before February 1, 1995, 3) residential units on a property with two or more units, and 4) mobile homes offered for rent by the owner.
The annual allowable increase is determined as explained in Figure 12. There are exceptions for vacancies, fair return, capital improvements, rehabilitation/renovation, and updated code compliance.
Figure 12. Los Angeles County Rent Increases
|
Change in CPI |
Max Rent Increase Percent |
|
8% or greater |
8% |
|
3% to 8% |
Equal to the change in CPI |
|
1% to 3% |
3% |
|
-2% to 1% |
Change in CPI + 2% |
|
Less than -2% |
No increase permitted |
Source: Los Angeles County Ordinance Rent Regulations and the Montgomery County Rental Housing Market, Montgomery County Office of Legislative Oversight, 2023
The RSTPO is implemented by the county government and overseen by the Rental Housing Oversight Commission. It also established the creation of a rent registry that “allows landlords to provide required rental housing information in compliance with the county ordinances, such as changes in tenancy, rental rates, and amenities, as well as pay annual registration fees to administer and enforce the program.”
Los Angeles County initially began regulating rents in 1979 with an annual increase of 7% and initially altered the program in 1985 to allow increases between 3% and 8%, even with CPI was lower. The gap between CPI and the annual allowable rent increase compounded for more than a decade, resulting in renters (especially long-time tenants) paying more due to the 3% minimum exceeding inflation rates.
Case Studies Summary
Figure 13 provides a high-level summary of the components of the rent stabilization ordinances discussed in this staff report. These eight cases display the variety of systems that exist. Most base the allowable rent increase on CPI and almost all provide a maximum cap. Many have rental registry requirements and use a board or commission to assist with program implementation, primarily in the review of petitions. Most programs offer exemptions for new construction, although vary greatly in their allowances, and provide exceptions to the annual allowable rent increase for vacancies and fair return.
Figure 13. Summary of Regional and National Case Studies Rent Stabilization Policies
|
|
Year First Adopted |
Allowable Rent Increase |
Cap |
Banked Rent |
Rental Registry |
Board/ Commission |
New Construction Exemption |
Vacancy Decontrol |
Fair Return |
|
Montgomery County, MD |
2023 |
3% + CPI |
6% |
✓ |
✓ |
|
23 years |
|
✓ |
|
Washington, DC |
1973 |
2% + CPI |
5% for elderly/disabled tenants; 10% for all others |
|
✓ |
✓ |
After 1975 |
✓ |
✓ |
|
Takoma Park, MD |
1981 |
CPI |
Depends on exceptions |
✓ |
✓ |
✓ |
5 years |
✓ |
✓ |
|
Prince George’s County, MD |
2023 |
3% |
3% |
|
|
|
5 years |
|
|
|
St. Paul, MN |
2021 |
3% |
3% |
|
|
|
20 years |
✓ |
✓ |
|
Newark, NJ |
1973 |
CPI published monthly |
4% |
|
✓ |
✓ |
5 years (only substantially renovated units) |
✓ |
✓ |
|
Portland, ME |
2020 |
CPI |
10% |
✓ |
|
✓ |
None |
✓ |
✓ |
|
Los Angeles County, CA |
1979 |
Based on percentage change in CPI |
8% |
|
✓ |
✓ |
None |
✓ |
✓ |
Conclusion
As discussed, rent stabilization is one tool to consider for addressing housing affordability and stability. Rent stabilization systems are complicated and have significant advantages and disadvantages. Presently, staff does not have a recommendation on the use of this policy tool, as this briefing is intended to be purely educational.
If the Mayor and Council decides at the tentatively scheduled August follow-up discussion on housing priorities to pursue rent stabilization as a short-term priority, the body would provide staff with guidance on the desired outcomes of the policy. This will allow staff to conduct further research and outreach to determine how to design a rent stabilization policy that might best achieve the results desired by the Mayor and Council. Should the body move forward with a rent stabilization system, it should also ensure that HCD staff has the authority, data, and resources to implement it.
Mayor and Council History
Rockville currently establishes a Voluntary Rent Guideline (VRG) once a year based on the Consumer Price Index for rent of primary residence for the Washington-Arlington-Alexandria, DC-VA-MD-WV Metropolitan Statistical Area. These guidelines are not enforceable. For 2024, the VRG is 2.6%, as approved by the Mayor and Council via resolution on March 18, 2024.
On July 18, 2023, the Mayor and Council sent a letter to the Montgomery County Council regarding the rent stabilization law it was considering at the time. The letter expressed concern for potential unintended consequences that could “serve to delay the creation of new affordable housing, challenge property owners to perform regular care, cause inadvertent tenant turnover, and may encourage landlords to increase rents by 6 percent every year.” The Mayor and Council recommended that renters be provided with opportunities for transparency on properties that repeatedly increase rent by double digits, expressed support for the continued use of the Voluntary Rent Guideline, and advocated for additional funding for rental assistance and subsidy.
Public Notification and Engagement
No public engagement has been held on this topic. In total, 67 residents have reached out about rent stabilization in 2024, with 64 in favor and 3 opposed. Between the end of February and June 13, 2024, the city has received 43 emails related to rent stabilization. Of these, 40 were supportive of rent stabilization and 3 were opposed. There have also been 25 people who have spoken at community forums, all whom spoke in support.
Next Steps
There will be a follow-up discussion on housing priorities, tentatively scheduled for August. At this meeting, the Mayor and Council will be asked to provide staff with direction on short-term housing initiatives that can be completed within the next two years. Should Mayor and Council be interested in pursuing a policy on rent stabilization and providing desired outcomes, then staff can draft a policy to be introduced for further discussion, review, and possible approval.