How can the rent be so high in DC when almost two-thirds of all rental units in the District are subject to rent control? A small number of “spoiler “units with high turnover may be the reason.

The District, along with a few other housing major markets in the nation, has rent control laws that were enacted to protect tenants against unreasonable rent increases. The laws governing rent control in these markets generally stipulate that rent increases are bound by the Consumer Price Index or other cost of living measures. These laws also allow for larger increases when units become vacant (we will return to this point later).

If rent increases are generally constrained by the cost of living, how could the median rent in the District over the 2005-2014 period have grown by 65 percent, or nearly 6 percent annually, when the DC consumer price index over the same period grew by only 30 percent, or just under 3 percent per year? In addition, as shown below, growth in median rents in DC has outpaced other markets where rent control laws are also in place.

Median Contract Rent: 2005-2014

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Source: U.S Census Bureau, American Community Survey, DISTRICTMEASURED.COM

One possibility is that most units are not subject to rent control and must pay what the market will bear. To analyze this, we looked at data on the number of rental units subject to rent control in the District. Under DC laws most rental units with more than 5 units and built prior to 1975 are subject to rent control.

Here’s what we found in terms of the number of units subject to rent control

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Source DC Office of Tax and Revenue, DC ORA, DISTRICTMEASURED.COM

This is what the data looks like by Ward

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Source: DC Office of Tax and Revenue, DC ORA, DISTRICTMEASURED.COM

Highlights

  • Almost two thirds of all rental units are potentially subject to rent control or other restrictions. This is a significant share of the entire rental stock.
  • The highest concentration of rent control units was located in Wards 3 and 4 with over 80 percent of all units potentially subject to rent control.
  • Wards 5, 6 and 7 had the lowest overall share of rent controlled units. In Ward 6, less than a third of all units are subject to rent control.
  • These overall findings are largely consistent with the results of a prior study from the Urban Institute, “A Rent Control Report for the District of Columbia” by Peter A. Tatian, Ashley Williams, June 17, 2011 which can be accessed by clicking here

 

To put these statistics further into perspective we looked at the share of rent regulated apartments in New York City.

This is what we found for New York City’s Boroughs

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 Source: 2014 New York City Housing Vacancy Survey, U.S. Census Bureau

DC ‘s overall share of rent regulated units is comparable to New York City’s, although certain DC Wards have an even higher share of regulated units than in the Bronx or Manhattan.

So what accounts for the large increases in rents given that two thirds of DC rental units are subject to rent control?

Two provisions of the law are likely to account for this:

When a DC tenant vacates a rental unit the amount of rent charged may, at the election of the housing provider, be increased:

(1) By 10% of the current allowable amount of rent charged for the vacant unit; or

(2) To the amount of rent charged for a substantially identical rental unit in the same housing accommodation; provided that the increase shall not exceed 30% of the current rent charged for the vacant unit.

It is easy to see how the combination of these two provisions can result in substantial price increases. This is what could happen to rents in a building where one unit (Unit 1) has a relatively high turnover. We assumed a turnover of once every three years for this unit, which is not unusual given DC’s high mobility. The other units have no or limited turnover. We assumed all comparable units started with a rent of $1,000 in 2004.

Rent simulation given turnover

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Source: DC Office of Revenue Analysis, Cells highlighted in orange indicate a vacancy rent increase of 10%, and red denotes up to a 30% percent increase based on a comparable unit

Turnover in one “spoiler” unit can cause rents to increase for all comparable units in the building.

Even the third unit in this hypothetical building, which turns over only once in ten years, has seen its potential rent increase by 58 percent. Only the fourth unit, that has seen no turnover, has a rent that remains below $1500.

As shown above, given allowable vacancy increases and comparability under DC law, even one comparable unit with a high turnover can cause rents to increase substantially for many units. Higher turnover, which may be due to changing demographics (more married couples and fewer singles remaining in the same unit for many years) or a spoiler unit, which may be the substantially identical unit on the same floor but close to the garbage room or near the garage exit, could cause rents to increase significantly even with rent control.

What exactly is the data?

To determine units potentially subject to rent control we looked at the year built and number of units for the following building codes for rental properties (21, 22, 25, 28,216 and 217) from the DC Office of Tax and Revenue Real Property Tax Database. The New York City Housing and Vacancy Survey (NYCHVS), sponsored by the New York City Department of Housing Preservation and Development, is conducted every 3 years to comply with New York state and New York City’s rent regulation laws. The Census Bureau has conducted the survey for the City since 1965. The 2014 NYCHVS is the 16th such survey. No similar study exists for DC.

Bob Zuraski contributed to this post

7 thoughts on “How can the rent be so high in DC when almost two-thirds of all rental units in the District are subject to rent control? A small number of “spoiler “units with high turnover may be the reason.

  1. It is worth reflecting on what rent controls would do if prices were prevented from rising.
    With almost all apartments brought down to an ‘affordable’ level for everyone, everyone would flood the city and the apartments that everyone wants. Impossibly large queues would form, and a shortage would occur.

    This is Economics 101. Price controls cause shortages.

    It is also possible to see exactly this in real life: Sweden has rent control across the entire country. In the capital, queues for a first-hand rental contract can be 10, 20 or 30 years long. Single vacant apartments can attract hundreds or thousands of applicants. And this isn’t even a hard price cap – rents in Sweden rise every year, often above inflation.

    The Guardian: Rent Control in Sweden
    http://www.theguardian.com/world/2015/aug/19/why-stockholm-housing-rules-rent-control-flat

    Rent Control in Stockholm, by Alex Tabarrok
    http://marginalrevolution.com/marginalrevolution/2015/07/rent-control.html

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  2. I appreciate the above comments. The article doesn’t include information re: expenses. Acknowledging the example presented could be real, what is the expense implication over the ten years and what are the costs associated with a long term tenant verses a new tenant every three years. Turning an apartment can costs $3,000 – $10,000 or more. Smaller capital improvements need to be made to buildings and apartments every year. What has the increase in taxes and utilities been over the last ten years. Water and sewer has increased more than 58% in the last decade. Why pit the Resident and the city and the housing provider against each other?

    The bigger question is, why isn’t rent control “need based”?. New development must provide “affordable” housing – a whopping 8% – 10% (that was sarcasm) and there are some bonuses associated with that, but there is no rent control on new development). Apartments built prior to 1980 are subject to rent control in most cases and these are the buildings in need of the most capital improvements – new electric, plumbing and heating/cooling systems. How does a owner pay for this?

    Rent Control has petitions owners can file, like a Capital Improvement Petition or a Substantial Rehabilitation Petition, even a “hardship” petition (if you are not making a 12% + return on your equity (as defined by the code). And Tenants can challenge those petitions and make them expensive (lawyers) and long (18 months or more). Petitions, again, pit the owner against the Residents. And, in DC, there is legislation that is attempting to eliminate some of the smaller annual increases, the increase allowed upon vacancy, and, do away with the Tenants rights to negotiate agreements with housing providers, allowing for significant improvements and rent protections for those current Residents (with the approval of the rent administrator), one of the most pragmatic pieces of the Rent Control law in DC.

    Other studies have shown that rent control is not as effective as presented. We all know people or stories about people who can easily afford “market rent”, paying an absurdly low amount,because of rent control. There are renters in rent controlled apartments renting on AIRBNB, renting to roommates, subletting.

    I am all for affordable housing and providing housing for working class families. I am a proponent of rent control as long as the rules allow for reasonable improvements and rent increases that support the cost of operating – short and log term. I do not think that affordability should rest on the backs of housing providers, unless the government is willing to pay the difference.

    That said, I think that the demographic is changing in many cities and there is less tolerance for programs that pit one group against another. If the government wants to promote a system of rent controls, they should pay for it. My Residents are my clients (not my tenants) and I hope and plan to treat them as customers, not entitlements. I want Residents to stay because they love their apartment and their landlord, not because they have to. A need based system would be portable among so many other benefits. But that is another article, indeed.

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