On the multifamily front, 2024 is off to a fast start. Notwithstanding high interest rates and a challenging regulatory environment, multifamily transactions continue. As a follow-up to our most recent Alert, below are some updates on activities in the region affecting multifamily properties:
Maryland Governor Moore proposes the Housing Expansion and Affordability Act of 2024, the Housing and Community Development Financing Act of 2024, and the Renters Rights and Housing Stabilization Act of 2024.
In early January, the Moore administration indicated that it plans to address an estimated 90,000-unit affordable housing shortfall in Maryland by pushing lawmakers to pass the Housing Expansion and Affordability Act of 2024, the Housing and Community Development Financing Act of 2024, and the Renters Rights and Housing Stabilization Act of 2024. The Housing Expansion and Affordability Act would offer density bonuses to projects offering affordable units and would restrict local governments' ability to deny building permits based on an adequate public facilities ordinance that jurisdictions often use to control new development. The Housing and Community Development Financing Act of 2024 proposes the creation of a Maryland Community Investment Corp., funded through the federal New Market Tax Credit Program, to finance investments and loans in community development projects. Finally, the Renters Rights and Housing Stabilization Act of 2024 proposes establishing an Office of Tenant Rights, which would be tasked with creating a “Tenants Bill of Rights.” At this point, these are merely proposals, and if legislation is introduced in the General Assembly, we will provide updates in future Alerts.
Montgomery County Rent Control
As described in a previous Alert, Bill 15-23 was passed by the Montgomery County Council in July 2023 and signed into law in October 2023. However, the new law stipulates that rent control requirements “must not apply, and must not be enforced” until the enabling regulations take effect. The Department of Housing and Community Affairs (DHCA) issued formal guidance indicating that it does not plan to enforce the law until the regulations are adopted. DHCA may issue these proposed regulations later this month. Once proposed, the regulations will be subject to public comment and County Council approval.
Prince George’s County Rent Control
As noted in a previous Alert, last year the Prince George’s County Council passed a temporary Rent-Stabilization Act that is set to expire in April 2024. The Rent-Stabilization Act limits residential rent increases to 3% for existing tenants during this 12-month period. A Rent-Stabilization Work Group has been meeting on a monthly basis to make recommendations for new rent stabilization legislation prior to the current Act expiration. Details of the recent Work Group meeting are available online.
Rent Control Coalition Efforts
On behalf of the 32 Rent Control Coalition members we represent, Ballard Spahr continues to track updates on legislation, case law, and current events that have the potential to impact rent control and related concepts. For instance, on December 28, 2023, U.S. District Court Judge for the Middle District of Tennessee, Judge Waverly D. Crenshaw Jr, ruled in favor of renters that their claim against RealPage alleging a scheme to artificially keep prices above market rates, should not be dismissed. This case is expected to proceed through litigation based on this decision, and we note that its resolution has the potential to impact legislation regarding software used to determine rent amounts and increases in multifamily rental rates. We remain on top of this matter and others like it, in order to best advise Coalition members on strategies and options applicable to multifamily ownership.
Supreme Court of the United States (SCOTUS) Rent Control Cases
On January 8, 2024, SCOTUS released their most recent list of cases that they will or will not take up in the current term. Once again, SCOTUS did not grant or deny certiorari in either of the two NY rent control cases we have been following as part of our Rent Control Coalition efforts. The importance of these cases was discussed this month in an interview with Law360; Ballard Interview. There was one positive action by SCOTUS earlier in the term that may be helpful to the efforts to curb rent control. Oral arguments were heard this week in Sheetz v. County of Eldorado, a closely watched case regarding the appropriateness of exaction fees charged to developers. For additional background, here is a link to the Alert we wrote on this case when SCOTUS granted cert in October and a January 5, 2024 article from the Wall Street Journal. The article quotes from the 2013 Koontz case, “the government may choose whether and how a permit applicant is required to mitigate the impacts of a proposed development, but it may not leverage its legitimate interest in mitigation to pursue governmental ends that lack an essential nexus and rough proportionality to those impacts.” A similar argument could be made that there is a lack of nexus between rent control and multifamily housing. If you are not currently a Coalition member but would like to join, please contact us.
ULI Washington Executive Conversation on Rent Control
As noted above, rent control continues to be a significant concern for the multifamily industry, as existing laws are implemented and additional jurisdictions ponder rent control. As part of ULI Washington’s Executive Conversations series for Full Members, Ballard Spahr will host a program at our D.C. office (1909 K Street NW) on February 7, 2024. Breakfast will be served at 8:00 AM followed by conversation and Q&A until 10:00 AM. Our featured guest for this program will be Montgomery County Council President, Andrew Friedson. This program provides an opportunity to discuss better informed means of encouraging the production and preservation of quality affordable housing. Full Members of ULI Washington (and their guests) may register using this link. We expect this event to sell out so early registration is encouraged.
Montgomery County Expanded ROFR Bill
As discussed in prior Alerts, Expedited Bill 38-23 is intended expand the County’s ROFR law to permit the assignment of ROFR rights – similar to the current law in Prince George’s County. A memorandum submitted to the Planning, Housing, and Parks (PHP) Committee on November 29, 2023, identifies a number of issues for consideration, including the possibility of a seven-business-day initial evaluation deadline (similar to Prince George’s County law) and whether the related regulations should be adopted under Method 2 – which requires County Council approval – as opposed to under Method 3 – which may be adopted by the County Executive without County Council input. The memo also includes several technical and clarifying amendments recommended by DHCA in response to ongoing discussions with stakeholders, including Ballard Spahr. The PHP Committee, chaired by Andrew Friedson, held an initial work session on Expedited Bill 38-23 on December 11, 2023, and another work session is expected, but no date has been set.
Howard County Rent Control and ROFR Bills Likely to Lapse
On December 4, 2023, the Howard County Council tabled proposals for a new rent control law (CB44-2023) as well as an expanded ROFR program (CB43-2023). These were introduced on November 6, 2023. In Howard County, proposed legislation may only be tabled for up to 70 days and expires if no action is taken or extension approved within such 70 day period. At its January 2, 2024, legislative session, the County Council voted not to extend the life of these bills or to remove them from the table. Given that the next legislative session is scheduled for February 5, 2024, there will not be an opportunity for the Council to take action before the bills lapse next week (on January 15, 2024). Based on our discussions with County staff, we understand that there are currently no plans to introduce replacement legislation.
Anne Arundel Moderately Priced Dwelling Unit (MPDU) Bill Fails
Following up on our previous Alert, Anne Arundel County Council rejected Bill No. 78-23, which would have required developers of multifamily properties with 10 or more residential units to set aside 15% of new units for lower-income buyers and renters (with a payment-in-lieu option for properties with 10 to 19 units). The MPDU bill would have applied to both new development and redevelopment of existing multifamily properties or conversion of a rental property to a condominium. The MPDU bill was rejected by a County Council vote of 4 to 3.
Fairfax County Right of First Refusal (ROFR)
As part of a Comprehensive Plan Amendment on March 21, 2023, Fairfax County established guidelines for the preservation of affordable housing to meet the County’s housing goal of no net loss of affordable units. In implementing these guidelines, the Fairfax County Redevelopment and Housing Authority (FCRHA) recently exercised its ROFR on Coralain Gardens in Falls Church. Fairfax County does not have a statutory ROFR process like several Maryland jurisdictions. However, ROFR rights may arise in connection with the sale of properties subject to affordable covenants. In December 2022, FCRHA issued a request for qualifications (RFQ) to establish a pool of pre-approved assignees for ROFR rights when they become available. According to the FCRHA website, it is anticipated that the RFQ will be re-issued to update qualifications and to expand the current Preservation Partner Pool. Minimum preservation requirements for ROFR assignees include entering into affordable covenants that will restrict rents to 60% AMI for at least 30 years. FCRHA may also provide subordinate financing for ROFR acquisitions, subject to certain conditions set forth in FCRHA’s Term Sheet for Preservation Projects.
TOPA Reform Rumors
This week’s Urban Land Institute (ULI) Washington Future Forum included robust discussions regarding the many challenges facing the District of Columbia, as well as possible remedies to address these challenges, such as the District of Columbia Housing in Downtown Technical Amendment discussed below. The group also discussed potential changes to the onerous TOPA law in DC. The goal of reforming TOPA is to encourage investment in new and existing multifamily housing. We are engaged in this process and will provide updates in future Alerts.
D.C. Proactive Inspection Act
At the close of 2023, D.C. Council voted on a flurry of bills including Bill 25-0048, the Proactive Inspection Program Act of 2023 (the Act). The Act would require the D.C. Department of Buildings (DOB) to inspect multifamily rental housing properties and rank them using a tier system that takes into account prior housing code violations, the age of the property, unpaid property taxes, and other considerations. Tier 1 properties would be inspected every eight years; Tier 2 properties every four years; and Tier 3 properties on an annual basis. The inspection fee would be $35 per unit with a maximum cumulative fee of $6,000. By a vote of 12 to 0, D.C. Council approved the Act; however, the Act requires a second vote from Council before being sent to the Mayor. This approach is similar to the multifamily property inspection process adopted in Montgomery County several years ago.
District of Columbia Housing in Downtown (HID) Technical Amendment
On January 9, 2024, D.C. Council’s Committee on Business and Economic Development approved PR25-0602, Housing in Downtown Tax Abatement Technical Amendment Emergency Declaration Resolution of 2024, aimed at amending the Housing in Downtown (HID) program. Emergency, temporary, and permanent legislation is also expected to be approved, and will allow the Deputy Mayor of Planning and Economic Development (DMPED) to promulgate regulations for the administration of the HID program, which became effective on October 1, 2023. The HID program provides a 20-year tax abatement, an exemption of the First Source Agreement requirement for construction, and a 10-year exemption from the Tenant Opportunity to Purchase Act (TOPA), for projects that satisfy a minimum affordable housing set aside of (a) 10% of units affordable to households earning 60% or less of Median Family Income (MFI) or (b) 18% of units affordable to households earning 80% or less of MFI. We anticipate an impending release of the regulations with these technical amendments.
Prince George’s County Security Camera Mandate
The County Council recently passed Bill 66-2023, requiring 24-hour security cameras in multifamily buildings of 100 or more units. Some of the requirements include that cameras have a minimum 1080p resolution, a 180 degree field of view, and be posted at all entrances, exits, and common areas, such as parking lots. The bill also provides that the Director of the Office of Management and Budget may award a one-time rebate up to $5,000 to any multifamily facility that is subject to this new law for expenditures pertaining to the security camera requirements. We have been monitoring the status of the implementation of this law, including the rebate program. As to the rebate program, we reached out to the County’s Office of Management and Budget as well as the Office of Finance and have been advised that the procedure for seeking the rebate has yet to be determined.
Fighting Back
As evidenced by the frequency and content of these Alerts, the multifamily industry continues to be subjected to many regulatory and governmental constraints and burdens. We continue to work directly with stakeholders directly impacted to seek to mitigate the impact of these constraints and burdens. The Rent Control Coalition remains focused on seeking a means to challenge the validity of rent control, but as noted in the Alert, there are many other legal and regulatory burdens. Similar to the facts and initiatives that led to the formation of the Rent Control Coalition, several Coalition members and other clients have suggested that we consider a means of presenting a more united front to better inform policymakers and lawmakers on topic such as rent control regulations, BEPS, ROFRs, TOPA, sprinkler retrofits, and similar actions that materially impact the multifamily industry and its ability to provide quality affordable housing. We have been asked to convene a virtual meeting this month to explore more effective ways to fight back. If you are interested in attending such a meeting, please let us know.
Should you have any questions or wish to provide any input on any of these matters, please reply to this email or contact us at CondoMultifamilyTeam@ballardspahr.com.
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