Examining DC Rent Control, Part II

In Part I of our interview on DC rent control, we covered the policy’s history and some of the arguments surrounding it. Now we shift our focus to the real-world impact of these laws and practical options for improving rent control in the District.

We are joined again by 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.

Mark, do you think rent control laws have done more harm or good for DC renters? For DC landlords?

The focus should be on maintaining and improving the availability of housing, not on tenants and housing providers. The main problem with rent control in the District of Columbia is that it does not distinguish among renters – rich renters, poor renters, old renters, young renters, renters on Connecticut Avenue and renters in poor areas of the city are all treated alike under rent control. Some tenants need rent protection and many do not. This blunderbuss, broad scale approach creates unsupportable economics and a notoriously incomprehensible rent control system. It adversely affects the quality and availability of housing in the District of Columbia and sets tenants and housing providers at odds with one another – tenants vigorously demand the lowest rent and housing providers are therefore less inclined to invest further in an aged housing stock. That does no good for the tenants who have to live in this housing, or for the housing providers who supply this housing. Rent control also allows the District Government to pass the economic responsibility for housing onto housing providers, rather than creating District Government programs which use the tax dollars of all citizens as a whole to focus on subsidizing renters who truly do need assistance.

David, what do you think?

Rent control has only been good for the politicians. Neither housing providers nor renters benefit. DC rent control generally applies to rental housing built in or before 1975. Due to this, the largest stock of affordable housing is slowing falling apart due to age. With no incentive to invest in long-term repair and maintenance many properties will eventually become uninhabitable. The politicians would argue there are “petition” avenues housing providers may take to earn a return on capital investment. However, the time, money and expertise required to successfully navigate the arcane bureaucracy is not available to vast majority of small, mom and pop, property owners who own most of the housing covered by the Act. Furthermore, the “returns” offered through the petition process are often finite, offering no longer term value appreciation beyond the mere preservation of the asset.

In addition, due to the lack of any means testing, many high quality apartment homes in desirable neighborhoods are often rented at the fraction of their market value to those who least need it, such as first year associate at law firms earning over $100,000 per year. Teachers, firefighters and police rarely get the opportunity.

Mark, is rent control likely to go away in DC anytime soon?

No. Few attorneys use the unqualified answer “no”, but I just did.

David, what are some feasible steps we could take to improve the rent control situation for DC renters and landlords in the near term?

Housing is not an entitlement. However, society has collectively agreed it has an obligation to help those in need. Because of this, government is responsible for providing affordable housing. In DC, rent control unfairly singles out a specific set of housing providers (those who own pre-1973 building) and forces them to offer below market (and often below cost) housing. Government is shirking its responsibility under the current rent control regime.

To improve DC rent control, the City Council should look no farther than New York City. For example, NYC has preserved affordable housing for seniors through its Senior Citizen Rent Increase Exemption (SCRIE) program that reduces property taxes dollar for dollar in return for keeping rents affordable. In this case, the cost is born by the government (through reduced tax income), not the housing provider. In 1997 NYC also enacted means testing and high rent exemptions.

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Read Part I of our interview on DC Rent Control.

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

Are you a local real estate expert interested in sharing insights and tips with thousands of renters, landlords, and other Urban Igloo followers? We’d love to interview you for our blog and newsletter! Contact us today at info@urbanigloo.com.

WSJ: Real estate market showing signs of recovery

The Wall Street Journal recently wrote that after five quarters of decline, apartment rents rose during the first quarter, indicating that the real estate market is finally recovering from its recession-induced slump.

"Nationally, effective rents, which include concessions such as one month of free rent, rose 0.3% during the quarter compared with a 0.7% decline in the fourth quarter of last year and a 1.1% drop in the first quarter of 2009. Vacancies are tied to unemployment, because many would-be renters move in with family members or double up during a downturn [...] Renters are also staying put longer: the average renter now stays for 19 months, up from an average of 14 months, said Mr. Friedman [chief executive of Associated Estates Realty Corp], and despite low mortgage rates and greater home affordability, fewer renters are leaving to buy homes. 'This is the first time in many, many years that it feels like even people who could afford to buy are making the investment decision not to,' Mr. Friedman said."

While the recovery will be a slow one and "landlords shouldn't expect 'galloping rental growth' until the job market firms up," this increase in rents is a positive sign if you're a condo owner or property manager--especially given that many experts were not forecasting rental growth until the third and fourth quarters of 2010.

March Rent Check

Check out the latest issue of our monthly newsletter, Rent Check. And if you don't already get it by email, sign up for it here so you can stay on top of DC neighborhoods and real estate trends.

DCRA's New Basement Rental Website

Are you considering signing a lease for a basement apartment or thinking about renting out yours? If so, check out the DCRA's recently launched site, rentmydcbasement.com. There you'll find a variety of helpful information about basement rentals, including legal issues, regulations and more.

Thanks to The Heights Life for the heads up, and to Prince of Petworth for starting the discussion.

Neighborhood Expert Interview: Penn Quarter

Pennsylvania Avenue is one of the most famous addresses in the world. And its surrounding neighborhood to the east is home to one of DC’s most popular blogs, Penn Quarter Living. We recently had the chance to talk to “gpliving,” the blog’s founder and one of its three editors.

Thanks for joining us, gpliving. First, where exactly is "Penn Quarter"? What other names do people use for this area?

Penn Quarter can be loosely defined as the Washington, DC neighborhood that resides between the White House and the Capitol building. It is officially defined as the area of downtown bounded by 3rd St NW to the east, 15th St NW to the west, Pennsylvania Ave NW to the south and Massachusetts Ave NW / New York Ave NW to the north. Several years ago, Penn Quarter only went as north as H St NW. But, as Chinatown has waned and new developments (like Gallery Place) have been completed, Penn Quarter expanded north up to Massachusetts Ave NW / New York Ave NW. Penn Quarter can be said to envelop Gallery Place and what is left of Chinatown. Other terms like Downtown and East End have been attributed to Penn Quarter.

How long have you lived in PQ? When and why did you start blogging about it?

I have lived in PQ for almost 5 years and I started blogging about the neighborhood in 2006. I started the blog because I was told that I needed a hobby. But, there were a host of other reasons to start the blog. Although, Penn Quarter had officially been a neighborhood prior to 2006, the northern part was expanding and undergoing a revitalization mostly due to the booming real estate market. That development boom brought many empty retail spaces that needed to be filled up and all of the PQ residents were gossiping about what stores would move in. The blog became a kind of public grape-vine where everyone could contribute information on retail developments and be up to date every day. I also felt compelled to share what was happening around me because the neighborhood had virtually no representation on the internet.

What types of people live in PQ today?

This is a great question because when you are walking on the sidewalks of PQ, you see a cross section of the entire DC demographic. PQ is a major transit hub with the Gallery Place and Metro Center metro stations being contained in the neighborhood. There are also several bus routes that pickup at the corner of 7th & H St NW alone. But, once you enter the various apartments and condominiums in the neighborhood, the demographic becomes skewed towards the direction of those who are most able to afford to live in this prime location. Thankfully, there have been affordable housing initiatives that have, for example, enabled artists to own condos in buildings like Mather Studios. But, in most buildings, you will find professionals, mostly single and almost no families. There is a pretty healthy range of ages, from the students attending Georgetown law to the empty-nesters who have downsized their abode.

What are the best things about living there?

The proximity to everything you could want in a neighborhood, both for work and play, and having the National Mall as a neighbor. For example, during the record setting snowstorm earlier this year, several restaurants and bars were still open and I even went to Long View Gallery for DC artists' Matt Sesow and Dana Ellyn's public wedding and to a "best of" showing of the 2009 DC Shorts festival. Meanwhile, others in suburbia were left with no power and nowhere to go.

Some people knock Penn Quarter for not having enough character or soul. On their way to a Caps game they see the chain restaurants and tourist crowds and say, 'I couldn't live here.' What do you tell these people to make them appreciate PQ more?

It would be hard to adequately discover PQ when walking the sidewalks with crowds of people 30 minutes before or after a Caps game, for sure. I am not much of a hockey fan, but one of the things that actually drew me to the neighborhood was all of the activity from events, including the Caps games. I can sit in my condo with the window open and tell you whether or not the Caps won or lost a game just by listening to the crowd as the game lets out. That kind of energy rubs off on you, and thankfully for the past few years, that has been a really positive energy when Caps games are involved!

But, the Verizon Center is just one very small piece of the puzzle that makes PQ great because PQ is the cultural center of Washington DC. The Shakespeare Theater and Smithsonian American Art and Portrait Gallery, which have been around longer than the Verizon Center, are two anchors for the cultural side of PQ. But, when combined with the 2nd Shakespeare theater (Sidney Harmon Hall), Woolly Mammoth, Goethe Institute, Spy Museum, and even the National Crime & Punishment Museum, the National Gallery of Art and all of the other museums on the National Mall, you can start to see that there is a lot more to the neighborhood than the restaurants that line one side of the 700 block of 7th Street NW or the Verizon Center which practically shuts down during the summer months.

PQ is also a transit hub as mentioned before. Not only are we living at the center of the metro system, but Union Station is just a few blocks down Massachusetts's Ave. That makes easy access to New York & Boston. You don't need to own a car around here.

Lastly, I cannot leave out PQ's popularity for non-chain and international restaurants. The list of non-chain restaurants starts with Jose Andres' three restaurants in the PQ. And PQ is also finding itself as the first neighborhood in the US that international restaurants want to explore. While those restaurants are considered chain restaurants in other countries, they are every bit as unique as an independent restaurant in the US.

What are the hot topics on your blog these days? What are your neighbors most passionate about?

The hottest topics these days are ones that affect quality of life. The retail scene (openings and closings) is a hot topic, but that scene is starting to level out because almost all of the vacant retail spaces are occupied or are spoken for.

Where do you go grocery shopping? Is a major supermarket likely to open in PQ anytime soon?

We go to the Safeway at 5th & K St NW for groceries. I think the general consensus is that PQ will not be getting a grocery store in the foreseeable future, mostly because there isn't a suitable retail space for one to open up. Factors such as loading dock size and dedicated parking were some of the more unusual requirements that grocery stores have that one doesn't normally consider. The would-be Balducci's retail space on 7th St between D & E was a very specific size and layout for Balducci's and does not work well for more traditional grocery stores like Whole Foods and Trader Joe's. But, the longer that I have lived here, the mental roadblock of having to take the metro to go farther than 5 blocks has disappeared. Now, a 7 block walk is no big deal and I've even found myself walking from PQ to other neighborhoods like Dupont Circle and Adams Morgan.

Please share some of your favorites:

- Favorite bar: Poste (courtyard - during the summer), Iron Horse (during the winter)

- Favorite Chinatown restaurant: Vapiano

- Favorite hole-in-the-wall restaurant: Burma

- Favorite restaurant if someone else is paying: while not the most pricey, I'll say that Jaleo is my old favorite, especially with a pitcher of Sangria

- Favorite museum: Smithsonian American Art Museum, 3rd floor

- Favorite (other) DC blog: The Triangle (our neighbors to the north!)

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Read last month’s interview on Logan Circle with community leader Tim Christensen. Are you a blogger or leader in your neighborhood? Share your expertise with thousands of DC area readers of our newsletter and blog. Contact us today at info@urbanigloo.com.

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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Are you a local real estate expert interested in sharing insights and tips with thousands of renters, landlords, and other Urban Igloo followers? We’d love to interview you for our blog and newsletter! Contact us today at info@urbanigloo.com.

WP on H Street NE

Yesterday's Post has a story on H Street northeast, focusing on the frustrations and hopes of the street's small business owners. A number of businesses have opened on H St. over the last few years, including bars, sandwich shops, coffee shops, gyms, and yoga studios -- "the same sort of attractions that drew young people to Adams Morgan when Georgetown grew too expensive for many of them." But prolonged, massive construction up and down the street has created major traffic and parking problems, hurting many businesses.

According to the Post, within a year "a proper boulevard is to emerge from the construction cocoon, with wide sidewalks, granite curbs, freshly paved traffic lanes and new landscaping. Tracks are being laid for six trolleys, expected to arrive in 2012, that will run from near Union Station to Benning Road and Oklahoma Avenue, in the shadow of RFK Stadium." Until that happens, most business owners seem optimistic:

There seems to be a consensus among the merchants of H Street that if they can weather the disruption, they will emerge with something a bit closer to an urban utopia than recent history has allowed.

They see the best of upscale Capitol Hill to the south merging with the middle-class sensibilities of the Trinidad neighborhood to the north, blending in the ethnic and cultural diversity of Adams Morgan but with the fabric of community woven in a tighter knit.

If that seems a rose-colored hope, there is abundant evidence that it is more than a possibility. Plans to revitalize H Street from Third to 14th streets have been discussed for years, and city planners long ago envisioned that the Capitol Hill populace would creep north to H Street. The new businesses, wedged between empty storefronts and carryout joints where a wall of protective plexiglass separates patrons from workers, reflect that the anticipated migration has occurred. So does a short stroll south on any of the numbered streets that intersect with H.

Read the full article here.