Anyone who has lived in some of the larger cities across the US understands that affordable housing is not always easy to find. It may surprise some landlords and tenants that over 180 cities in the US enforce some type of rent control or rent stabilization. One of these locations is the nation’s capital, Washington DC. That said, understanding the laws that apply to landlords is an important part of success in the DC rental industry. So, find out the history of these laws, how rent control in Washington DC works, and the implications for landlords below.
Are Rent Control and Rent Stabilization the Same?
Essentially, both rent control and rent stabilization are aimed at helping keep tenants in affordable housing. Rent stabilization is the lesser-known but more common of the two terms. Stabilization means that rent increases in qualified units are subject to a set percentage rate. That said, these rates get determined by several factors, including market rates, location, and local economy.
On the flip side, rent control refers to the rental rate becoming capped at a certain price.
The Beginnings of Rent Control in Washington DC
Rent control in Washington DC got its start in the 1970s when the government tried to address a serious need for affordable housing. However, over the years, the number of units affordable units have steadily dwindled. Meanwhile, rents across the city have continued to rise.
The Rental Housing Act of 1985 was a turning point for rent control in Washington DC. Administered by RAD or The Rental Accommodations Division, the act applies to all DC rental housing. While it also covers topics such as eviction protection, the section on rent stabilization is particularly vital for landlords.
The act states that landlords must register all rental units with the RAD. This is true whether the units are subject to rent control regulations or are exempt. If the landlord fails to register, rent control automatically applies. The only way around this is through certain exemptions; let’s review those below –
- The unit(s) are Federally or District-subsidized
- Rental units were built after 1975
- The property is owned by a person, not a corporation, that owns fewer than four rental units.
- Any rental units that were vacant when the Act went into effect on July 17, 1985
- The units are under a building improvement plan and receiving rehabilitation assistance through DCHD.
The Pros and Cons of Rent Control in Washington DC
The subject of rent control has become increasingly popular over the last couple of decades. As rent prices continue to skyrocket across the country, more and more tenants get priced out of their homes and neighborhoods. This is why the majority of tenants are in favor of stricter rent control laws being passed.
But how do rent control laws affect landlords? To put it bluntly, the passage of these laws would dictate what landlords can charge for rent on their properties. It can be limited by an annual increase percentage or a flat rate based on the number of bedrooms, depending on the law passed. This fact scares many landlords and investors. So far, these types of laws have only impacted properties owned by corporations or older properties. This article will discuss what rent control is now, where it’s headed, and the advantages and disadvantages of these laws being passed.
Pros of Rent Control
- Stable rent prices for tenants in some of the most cost-prohibitive areas
- Predictable and regulated annual rent increases
- Less financial burden on tenants encourages timely payments
- Tenants have a guaranteed right to renewal of the lease
- Lower turnover rates as tenants want to keep the security of rent-stabilized housing
Cons of Rent Control
- Discourages new construction as developers cannot compete with the low rent in stabilized buildings.
- Lower profits for landlords and property owners compared to market properties.
- Discourages investing in upgrades or renovation which the owner could not recoup by raising the rent
- Bad tenants stay put as added provisions make it harder to evict them from rent-controlled units.
Understanding the Impact of Rent Control Laws in Washington DC
Following along with the rules and regulations in any part of the rental industry can be a challenge. Landlords rely on rental income and the ability to increase it to maintain a healthy profit level. So, rent control in Washington DC could hit landlords where it hurts the worst – their bottom line. However, to better understand the process of rent increases under these regulations, let’s examine the rules further. When a unit is subject to rent control laws, a landlord may still increase the rent if –
- The property/unit is registered through RAD.
- Landlords provide a 30-day written notice.
- Any previous increase was at least 1 year ago.
- The unit and building comply with all applicable housing regulations
- Increasing the rent does not violate any terms of the lease
Other Provisions Under Rent Control Law
The Rental Housing Commission uses data from the Consumer Price Index to determine how much rent can increase each year. Typically, that percentage is around 2% to 5% but never more than 10%. That said, if landlords are not getting a return rate of at least 12%, they can ask the RAD for the ability to raise the rent by a greater percentage than that set forth by the Commission. Furthermore, if you make improvements that increase the property’s value, it is possible to ask for special permission to raise rent and help recoup the cost. Although not guaranteed, it is worth looking into.
- Rent Increase Information – You should contact the Rental Housing Commission at (202) 442-8949 to determine how much you can raise the rent.
- Hardship Petitions for Landlords – To plead your case to raise the rent further, contact the Rental Accommodation Division at (202) 442-9505.
- Capital Improvements – Made some great improvements? See if you can recoup the cost by contacting the Rental Accommodation Division at (202) 442-9505.
Another important aspect of the law addresses increases for vacant units. Therefore, when a unit becomes vacant, the landlord may increase the advertised rent. However, this is capped at no more than 10% over the previous tenant’s rental rate. Furthermore, owners can also choose to raise the rate to match a comparable unit. That said, this method of increase is limited to 30%. Either way, owners may not increase the rent more than once in a 12-month period.
The Future of Rent Control in Washington DC
Many may not realize that the original 1985 Act had a time limit attached – and it has run its course. So, in 2020 and now 2021, Washington DC lawmakers are taking a hard look at the state of the rent control system across the city.
New bills aim to protect and expand affordable housing. In particular, the Rent Stabilization Program Reform and Expansion Amendment of 2020 (B23-0873) would make substantial changes to the original Rental Housing Act of 1985. The COVID-19 pandemic, along with unemployment rates and financial hardship, has spotlighted the growing affordability issues DC faces.
The Rent Stabilization Program Reform and Expansion Amendment Proposed Changes
- Rent control laws would automatically apply to rental units 15 years after construction.
- Limited exemptions for newly constructed rental units.
- Apartment buildings with three or fewer rental units would be exempt.
- Rent increase restrictions of 1 per year would apply to all rental units in DC, regardless of whether rent control applies to the property.
- Eliminate rent increases or adjustments when a unit becomes vacant.
- Rate increase percentages capped at the Consumer Price Index for all tenants.
- Eliminates the voluntary increase agreements currently allowed.
The reform amendment also addresses and clarifies some additional provisions. So, for any landlords seeking special permission for increases, check out the proposed changes below –
- Hardship Petitions – Changes will help ensure that owners and landlords can recover a minimum profit rate. This would stem from the current yield rate for 10-year U.S. Treasury notes. However, it would cap hardship rent surcharges at 5% annually.
- Capital Improvements – Stipulates that any proposed capital improvement must be depreciable by IRS standards. Additionally, the Act clarifies that costs need to be recovered within the useful life of the improvement.
These are just a few of the ways lawmakers hope to improve rent control in Washington DC. However, many housing and community activists think the current bill falls short of what communities truly need. As 2021 continues, landlords and tenants alike will be watching these changes unfold.
How to Navigate Rent Control Laws in DC
It is not always easy to keep up with the laws and regulations that govern the rental property industry. Whether you own property in DC or beyond, professional property management can help. Hiring a qualified property manager in Washington DC can give owners the peace of mind that their interests are looked after and their property remains compliant. Bay Property Management Group helps owners maximize their investment and grow their rental business through full-service rental management services. Our team handles day-to-day operations, accounting, leasing, marketing, maintenance, and more. So, if you want to see how you can take your investment to the next level, give us a call today!
