Kat Koutsantonis Chief People Officer | realtors.com
Wall Street landlords have long favored the Maryland counties of Montgomery and Prince George’s, located near Washington, D.C., due to their appeal to federal employees. However, recent legislation has altered this dynamic.
In July, both counties implemented laws capping rent increases at 6% or 3% plus inflation, whichever is lower. These regulations apply not only to occupied apartments but also to vacant units, marking them as some of the strictest in the United States.
Data from MSCI Real Assets indicates a 13% decline in multifamily transaction volume in these counties during the first three quarters of 2024 compared to the same period in 2023. "There’s no question that [the rent restrictions] had more than a chilling effect," commented Scott Melnick, president of Melnick Real Estate Advisors.
The new laws are expected to hinder apartment owners' ability to finance property redevelopment and upgrades due to uncertainties about obtaining exemptions. Christine Espenshade from Newmark stated, "There are so many unanswered questions that right now, everything is really, just truly on pause."
Institutional investors like Equity Residential and Blackstone have expressed concerns over the perceived aggressive regulatory environment. Barry Altshuler of Equity Residential argued that "Numerous studies have shown that rent control does not accomplish" the goal of creating affordable housing units.
Elected officials nationwide face pressure to address rising housing costs after pandemic-era rent moratoriums ended. President Biden's call for national rent control did not pass Congress, but local efforts continue as demand for lower housing costs persists.
Montgomery County Council member Natali Fani-González sponsored the county's new rent law after receiving numerous complaints about significant rent increases. She acknowledged attempts to balance tenant protection with development needs: "I did my best to ensure that it was a well-balanced piece of legislation."
Despite potential challenges for existing properties, new construction applications remain steady in Montgomery County according to Jason Sartori, the county’s planning director.
Some investors anticipate recovery in investment interest if property values drop and present buying opportunities. David Merkin from Eastern Union Funding noted optimism about future returns: "Absolutely, they’ll be back."
Meanwhile, northern Virginia has seen a surge in multifamily transactions by 155% over nine months compared with last year. This region is now considered a top market for institutional investment according to David Leopold from Berkadia.
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