Wednesday, March 17, 2010

Examining DC Rent Control, Part I

Many DC tenants are covered by rent control laws. To fully understand this practice and its implications, it is helpful to see it through the eyes of both real estate and legal experts. In this interview, we share with you the perspectives of two longtime DC rent control experts: K. David Meit, CPM, principal at Oculus Realty, LLC, and Mark Policy, attorney at Greenstein DeLorme & Luchs, P.C. In Part I of our interview, David and Mark examine the history and pros and cons of DC’s rent control laws.

David, give us an overview of the rent control situation in the DC area today. How has it changed over the last 10-20 years?

Rent Control started in Washington, DC in the 1970s during the period of the Nixon price controls. The current law is the Rental Housing Act of 1985. Since 1985 the Act has been modified a number of times, most recently by the Rent Control Reform Act of 2006. Prior to 2006, the rent control regime produced rent “charged” and rent “ceilings”. Rents could be increased every 180 days (subject to lease terms) utilizing perfected increases up to the “ceiling”. It also allowed rents to be increased to highest comparable unit rents upon vacancy. Because comparable unit rents often reached market value, this provided significant rent increases, offering a reasonable return for investment in unit renovations upon turnover of long occupied units. However, since 2006 law limits turnover increases to 30%, greatly reducing an owner’s incentive to invest capital renovating an apartment. Under the new regime annual increases for occupied units is limited to CPI + 2%, but no more than 10% (limited to 5% for senior and disabled). Other changes include additional disclosure and filing requirements. For a summary of the law, see DHCD’s “What You Should Know About Rent Control in the District of Columbia” [links to PDF].

Mark, what are main arguments in favor of rent control?
There are no valid societal or economic arguments which support the overly broad and grossly inefficient rent control system in the District of Columbia. The arguments are political and have been for decades. The traditional argument in favor of rent control in the District of Columbia is that there is a “housing shortage”, and that with this lack of supply housing providers will charge more rent for housing than low and moderate income tenants or elderly tenants can bear. The cause of this housing shortage (and whether it in fact exists) has not been explored. The sweeping breadth of the District of Columbia’s rent control law loses sight of protection of low and moderate income tenants, and the elderly, and undermines the ability of housing providers and the District of Columbia government to provide that protection.

David, what are the main arguments against rent control?

Nearly all economists agree that any form of price control is detrimental to the preservation and advancement of goods and services. In housing, rent control erodes the long-term condition of multifamily buildings because there is no incentive for capital investment. This ultimately reduces available quality housing and lowers assessed value, lowering the tax base used by government to provide services such as schools and police. In addition, in many rent control jurisdictions, like Washington DC, there are no means testing which results in a scarcity of affordable housing for those who need it the most. One of the best studies of rent control was performed by the CATO Institute in 1997, “How Rent Control Drives Out Affordable Housing”. Another informative report was written in 1996 by NMHC, “The High Cost of Rent Control”.

Join us next month for Part II of our interview with David and Mark, where we examine the impact of rent control on local renters and landlords and explore how to improve the rent control situation in the District.

Have questions for our experts? Contact David here and contact Mark here.


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