Category Archives: Development

Smart Growth or Corporate Welfare? Part Three

By Adam Pagnucco.

Part Two examined the case made by supporters of Bill 29-20, which offers 15-year property tax breaks on Metro development projects, and found that they have a point: namely, that the economics of high rises at Metro stations likely deter many such projects from being built. But there are other issues with the bill that should be addressed. Some of them are:

Smart growth was supposed to make money for the county.

There are plenty of good reasons to channel economic development through smart growth principles, including transportation management, community building, agricultural preservation, environmental considerations and more. But one of the cited reasons has historically been its alleged impact on county finances. Concentrating development in existing downtowns means that new road and sewer infrastructure does not need to be built. Nor do new police or fire stations. Schools may need to be expanded but new ones are not necessarily required as they may be by remote greenfield development. And high property values in downtowns can generate lots of property tax revenues that can be allocated across the county’s many needs. That was the plan at any rate. White Flint, one of the county’s earlier smart growth plans, was projected to generate $6-7 billion in revenue over the next 20-30 years back in 2010.

That was then. Now we are being told that if we want development at Metro stations, taxpayers need to pay for it.

There is no evidence that corporate payouts have paid off for MoCo overall.

Bill 29-20 is far from the first corporate incentive proposal in county history. MoCo has handed out $67 million in incentives through its Economic Development Fund (EDF) over the last couple decades with millions more on the way. Most of this money has been expended for retention, not attraction. Four recipients alone – Fishers Lane (HHS), Meso Scale Diagnostics, Marriott and HMS Host – were allocated a combined $44 million in multi-year retention grants, of which $28 million remains to be paid. MoCo’s Democratic elected officials even gave a $500,000 subsidy to a subsidiary of Rupert Murdoch’s Fox Corporation. Despite all of these expenditures, the charts below shows how MoCo compares to its neighbors in employment growth and establishment growth since 2006, the county’s peak in the prior business cycle.

Here is the bottom line: we have been paying escalating amounts of corporate incentives for more than twenty years and it has not moved the needle on our economic competitiveness. Any time you do the same thing over and over and don’t get a positive result, you need to reconsider what you’re doing. Council members, think about it.

The county’s own actions make it a tough place for landlords.

Back in April, I wrote an article titled, “Why Would Anyone Want to Build Rental Units in MoCo?” summarizing the many deterrents to residential rental construction here. Among them were the time-consuming and expensive eviction process, the county’s moratorium policy (which does nothing to stop school crowding) and the election of a frequent development opponent as county executive. But little compares to the recent imposition of rent stabilization, which is supposed to be temporary but could always be extended. Many landlords were outraged at allegations of mass rent gouging when in fact there was little evidence to back that up. So are we now offering tax breaks in part to make up for all of this? Wouldn’t it be cheaper for taxpayers if the county simply stopped doing some or all of the above so that tax breaks aren’t necessary to get landlords to build units?

Property taxes by themselves are not the reason why MoCo can’t compete.

In waiving property taxes on Metro projects for 15 years, Bill 29-20 assumes that MoCo’s property taxes are a deterrent to development. But according to D.C.’s chief financial officer, MoCo’s effective property tax rate in 2018 was lower than in Prince George’s, Fairfax and Alexandria and not much higher than Arlington. And according to the General Assembly’s Department of Legislative Services, MoCo’s real property tax rate ranked 14th of 24 local jurisdictions in Maryland in FY20. On top of that, MoCo’s transportation impact taxes are far lower near Metro stations than they are in other parts of the county.

MoCo’s tax competitiveness challenge lies in its income tax (which is not charged by local governments in Virginia) and its energy tax. Bill 29-20 does not address either of those issues.

What are the consequences for income inequality?

High rises on top of Metro stations will be able to command some of the highest rents and/or condo prices in MoCo (and perhaps the entire region). In fact, such projects need to charge high rents and prices to pay off the costs of high rise construction and WMATA requirements. Bill 29-20 does not impose any additional affordable housing obligations beyond the 12.5-15% moderately-priced dwelling unit requirements in existing law. (Council Member Will Jawando introduced an amendment to raise the affordable housing requirement to 25% in committee but it was voted down.) So the bill in effect requires MoCo taxpayers to subsidize high-cost housing. Given the county’s long-standing problems with housing unaffordability and income inequality, that’s a hard pill to swallow.

And so Bill 29-20 presents a tough policy predicament. It’s true that high rise projects at Metro, the local Holy Grail for smart growth in the D.C. region, are not happening because of difficult project economics. It’s also true that sprawl and no growth are bad alternatives to transit-oriented development. But it’s frustrating that some of the architects and advocates of the county’s 15-year smart growth approach are now telling us it can’t happen without big tax breaks.

That said, corporate welfare can in rare cases be a necessary evil. If the county council wants to consider tax breaks for projects on a case by case basis, so be it. In doing so, the council can sort out projects that have a compelling public purpose from those that don’t. The council can also exercise leverage over a developer when public amenities like open space, child care, schools and other priorities are under consideration.

Bill 29-20 does not enable any of that. It creates an entitlement. Developers at Metro station properties will get tax breaks by right according to law. The council gives up most if not all of its leverage to influence such projects. And of course future developers might want to amend the law to get even longer tax breaks or other benefits. Developers of sites near but not on Metro stations might demand concessions too. As with the county’s Economic Development Fund, which began by handing out small grants to companies twenty years ago and eventually distributed 7-digit and 8-digit grants, the subsidies in the current bill may only be the beginning.

Metro station development was supposed to make us money. Now it seems we will have to pay for it, at least up front, to get the benefits that come later. Dear reader, this is your judgment to make. Is it worth it?

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Smart Growth or Corporate Welfare? Part Two

By Adam Pagnucco.

In making the case for Bill 29-20, which would grant developers at Metro stations 15-year property tax breaks, supporters claim that Metro high-rise development is not currently happening. And they say that’s the case for the entire region.

Is it true?

WMATA had a spate of development projects at Metro stations from 2002 through 2007, when the region’s real estate market was hot. There are much fewer proposals in the works now. They include:

Grosvenor-Strathmore, Montgomery
WMATA selected Fivesquares Development as its ground lease development partner at the Grosvenor-Strathmore station. In 2018, the Montgomery County Planning Board approved a sketch plan for 1.9 million square feet of mixed use development at the site. The original plan was supposed to include seven buildings, two of which would be 300 feet tall and another 220 feet tall. However, Fivesquares subsequently claimed that it needed tax breaks to finance the high rises, thus giving rise to Bill 29-20. Fivesquares wrote the following in its testimony about the bill:

Simply put, but for this legislation, Montgomery County’s goals to promote high density growth at transit accessible locations and, specifically, to implement the Grosvenor-Strathmore Minor Master Plan Amendment that the Montgomery County Council and Montgomery County Planning Board unanimously approved in 2017, would not be feasible due to the prohibitive economics of building high-rise projects. There is a significant gap in building high rise projects due to the gap between costs and revenue and the unique infrastructure requirements of Metro sites.

In the absence of this legislation, instead of the potential at the WMAT A property at the Grosvenor Strathmore Metro station for over 2,100 units, including over 350 Moderately Priced Dwelling Units (MPDUs), the only feasible development would be lower density, stick-built housing that would dramatically underutilize the site, resulting in less than half the number of total housing units and MPDUs.

New Carrollton, Prince George’s
WMATA plans to replace the parking on the station’s south side with hundreds of thousands of square feet of office, retail and multi-family space. At full build-out, the site could have a dozen buildings ranging in size from five to fifteen stories. Construction of a new garage is also planned for the station’s east side. Along with Grosvenor-Strathmore, this is easily the most aggressive of WMATA’s current development plans.

A rendering of development on the south side. Credit: WMATA.

College Park, Prince George’s
WMATA is planning a 5-story project at this station with more than 400 housing units.

A rendering of development at College Park. Credit: WMATA.

Capitol Heights, Prince George’s
WMATA would like to place a 6-story residential building with ground retail at its Capitol Heights station parking lot. This project was terminated in 2018 but WMATA staff asked for a new solicitation last year. KLNB is advertising the project’s retail component.

Deanwood, D.C.
In 2018, the WMATA board approved a joint development project to replace its Deanwood station parking lot with a mix of residential and retail and a garage. The project is not high-rise; rather, it envisions four-story buildings.

That’s about it. The project in D.C.’s Takoma neighborhood looks stalled as does the Greenbelt site in Prince George’s, which was once considered for the FBI. Amazon’s arrival in Northern Virginia could eventually stimulate development at Metro stations there but that seems quite a ways off.

Other than the Grosvenor-Strathmore site (which led to Bill 29-20) and New Carrollton (which might not have been viable without the relocation of the state’s housing agency), none of these projects has a high-rise component. That’s not an accident. Developers at Metro station sites have to deal with replacing existing parking (either with a garage or underground), station access issues, bus circulation issues and even possible amenities like park space. There is also WMATA’s time-consuming approval process on top of any local planning approvals. Developers of private sites don’t have to deal with these problems. Combine the construction costs of high rise as opposed to wood frame with the extra costs of building at WMATA sites and the economics of such projects get difficult, even with high rents and condo prices.

DC Urban Turf, a website that tracks residential development, lists hundreds of new residential projects that have been delivered, are under construction or are planned in the area. Many of them are high rises. High rises are being built in the region. They are just not being built, for the most part, on Metro stations.

So if high rise construction at Metro stations requires huge tax breaks to work, are the bill’s supporters right? Should Fivesquares and other developers get 15-year property tax exemptions? There are lots of other considerations to be discussed. Let’s do that in Part Three.

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Smart Growth or Corporate Welfare? Part One

By Adam Pagnucco.

For many years, MoCo has focused its land use and economic development policies on transit-oriented development. Since 2006, the county has adopted eight master plans centered on Metro stations, another four centered on Purple Line stations and one more centered on Corridor Cities Transitway stations. Another plan is in the works for Downtown Silver Spring.

The capstone for the Metro-based plans is development on top of the Metro stations themselves, which requires joint development agreements with WMATA. Placing the highest density on Metro stations, along with nearby parcels, enables the county to balance growth, transportation and environmental priorities in its march towards the future. For fifteen years, that’s what we have been told.

Now we are told that this approach won’t work without taxpayer subsidies.

The problem is that most, if not all, development on top of Metro stations is not proceeding. And that is because of economics. In order to be economically viable, Metro development projects must charge rents or condo prices sufficient to not only cover construction costs, financing and investor returns but also the unique costs associated with Metro station sites. The economics are particularly difficult with high rise projects, which have higher material and construction costs than wood-frame projects. And so the county council has proposed Bill 29-20, which would eliminate property taxes on Metro station development projects for 15 years and replace them with undefined payments in lieu of taxes to be set later.

In justifying the bill’s purpose, consider these remarks by Council Members Hans Riemer and Andrew Friedson, the lead sponsors of the bill, and Planning Board Chairman Casey Anderson at the council’s first work session.


Riemer
I want to say that this is a smart growth proposal. This is about making development feasible where decades of inactivity has demonstrated it is not feasible. If you look at Montgomery County and our Metro stations, you will almost universally see empty space on top of the Metro stations and despite efforts by WMATA over many years to support development at those stations, to solicit development on their property, there is very little that has happened. And there is very little that has happened recently, in the last ten years or so. Very little high rise, especially, and because of a shift in the market, I think which is driven by regional economic shifts and global economic shifts that have made the cost of high rise construction prohibitive except in the most high rent communities…

I think very broadly speaking, we have sought to channel all of our development, almost all of it, through a smart growth framework. We want to get housing that is high rise. We want to discourage sprawl. But the problem is we have not – the market isn’t producing the high rise that we have zoned for, that we want. And so the end result is we’re not getting much development. We’re not getting very much housing. We’re not even getting much commercial development.

Friedson
The idea that we’re forgoing revenue and that has a direct cost, that we’re leaving money on the table, we’re not leaving money on the table – the table doesn’t exist currently. That is the issue. There is no development, there is no investment. At best, the table is going somewhere else. It’s been shipped to another region of the country. It’s been shipped to another county. The whole point here is to create the opportunity. You know, the idea that we would be serious about transit-oriented development, that we would be serious about meeting our significant housing targets to address the housing crisis that we currently face but wouldn’t be willing to do anything about it is troubling. And we need a game changer. We need something to change the economic development path that we’re on, we need something to change the housing path that we’re on, that currently does not work. And I will say our housing situation, that is our version of a wall in Montgomery County. What we do with housing is a decision that we make on whether or not we want new residents here or not. That’s the local government version of whether we put up a literal or proverbial wall to say who can and who can’t live here, who we want and who we don’t want here.

Anderson
Will the development happen anyway? And I think the market is not just speaking, it’s screaming that the answer is no. Because you don’t have to take any particular real estate developer’s word for it, you can see what’s happening in the real world. It’s not just in Montgomery County, you can look at what market rents are at every Metro station in the region and you’ll see that there’s a few, particularly in Northern Virginia and in Bethesda, where rents can justify new high-rise construction there. Everywhere else, the answer is no, and that’s not just true of Grosvenor, or for that matter Forest Glen, as you mentioned, it’s also true of White Flint.


In considering these remarks, let’s remember who is saying them. It’s not County Executive Marc Elrich, who voted against numerous transit-oriented development master plans when he was on the council. It’s Casey Anderson, who has served on the Planning Board for nine years and chaired it for six; Hans Riemer, who has served on the council for ten years and is the current chair of its planning committee; and Andrew Friedson, who has emerged as the council’s principal champion of economic development during his first term in office. These are not development critics as Elrich has been. Anderson in particular, and Riemer to a lesser extent, are two of the architects of the county’s Metro-oriented land use policy and they are saying that it has failed.

They are also saying that the only way to rescue it is through what may ultimately become the biggest application of corporate tax breaks in the county’s history.

Are they right? We’ll discuss it in Part Two.

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Why Would Anyone Want to Build Rental Units in MoCo?

By Adam Pagnucco.

Left largely undiscussed during the debate over MoCo’s recently passed rent stabilization bill was the overall condition of the county’s rental market. Yes, Council Member Andrew Friedson brought up our recently published data showing that rents are declining in MoCo and are projected to continue falling for the rest of the year. But there’s a lot more to this issue, especially when considering the long-term needs of tenants and the associated implications for the county’s economy.

The bottom line is that MoCo is emerging as one of the most unattractive places in the D.C. area to build rental units.

Put yourself in the shoes of a regional developer, real estate investor or creditor and consider the following facts.

1. MoCo’s rental market is one of the slowest growing in the region.

This is the first sign that not all is right in the county. MoCo has a relatively affluent population, 11 Metrorail stations, a nationally recognized school system, a new light rail route (the Purple Line) under construction and is planning several bus rapid transit routes. Developers should want to build here, but disproportionately, they are not. If Downtown Bethesda were removed from the county’s unit statistics, one wonders how poorly the rest of the county would rank in the D.C. region.

2. Rents in MoCo are also growing slowly.

With the exception of Loudoun County, every other major jurisdiction in the region has seen more growth in average rent than MoCo. That’s good for tenants but not so good for investors looking for an adequate return. That is especially the case given the level of uncertainty in MoCo’s real estate market, which would normally demand higher returns to compensate investors for dealing with it. More on that in a bit.

Here is an interesting fact. Loudoun, Arlington and Howard have been the three fastest-growing large jurisdictions in the area in terms of renter occupied units. They are also three of the four slowest-growing jurisdictions in terms of rents. That’s how a market should work – rapidly expanding supply should keep prices down even with substantial demand, and Loudoun has been one of the fastest growing counties in the nation. But MoCo has seen slow growth in both construction and rents, making it an outlier.

3. No other major jurisdiction in the area has experienced a larger increase in rental vacancy since 2010 than MoCo.

You might think that with MoCo’s relatively stagnant construction demand for housing would push vacancy down. Instead, it’s gone up – by more than any other jurisdiction in the region. In 2010, MoCo’s rental vacancy rate was 2.7%, the second-lowest of 10 large area jurisdictions. In 2018, MoCo’s rental vacancy rate was 4.9%, tied for the third-highest rate. The vacancy rate gain (2.2 points) was the largest in the area. This is going to get worse as vacancy rates for Class A and Class B units are projected to approach 7% in coming years.

4. Evictions in MoCo are time consuming and expensive.

In 2018, the county’s Office of Legislative Oversight (OLO) studied evictions in MoCo and stated, “The Montgomery County Sheriff’s Office reports that on average it takes 12-13 weeks to evict a tenant for nonpayment of rent, though the process can sometimes be significantly longer.” OLO also found that the cost to evict a tenant can range from $5,700 to $16,600, landlords “are often unable to recover lost rent” and “costs and process delays discourage small property landlords from renting out.”

Landlords with lots of units and market power might be able to spread these costs to other tenants in the form of higher rents. Other landlords might choose to avoid the county altogether if they believe its procedures are more onerous than its neighbors.

5. The county executive is an open housing skeptic.

Before becoming executive, Marc Elrich built his political career by opposing development, voting against seven different master plans (six centered near transit stations) and famously comparing growth to a tumor. He has not changed much since then. Over the last three years, he has compared gentrification to ethnic cleansing, said he doesn’t believe in missing middle housing, said he doesn’t want to lose affordable units “to build housing for millennials” and opposed regional targets for housing construction. His opposition to accessory dwelling units even attracted criticism from his fellow socialists. The executive doesn’t control county land use policy, but he does control the Department of Housing and Community Affairs, the county’s principal regulator of landlords.

6. The county’s moratorium policy is a major source of uncertainty for residential builders.

MoCo stops new applications for housing development in school clusters that exceed certain capacity thresholds. Last year, the county imposed moratoriums on four high school clusters and 13 individual elementary school service areas that accounted for roughly 12% of the county and included parts of high-profile housing markets like Downtown Silver Spring and North Bethesda. This year, more areas could be at risk. The moratoriums do nothing to stop school crowding but they do create serious uncertainty for the real estate industry. Who wants to spend millions on design, architecture, planning reviews, public outreach and land use attorneys only to see a project stopped dead in its tracks by an arbitrary moratorium?

7. The county just passed temporary rent stabilization.

The council made major changes to Council Member Will Jawando’s rent control bill, allowing rent increases up to the county’s voluntary guidelines and extending the bill’s duration to 90 days after a catastrophic health emergency. The direct economic impact of the bill may be mild because it is temporary, allows small increases and takes effect in an environment in which rents are declining. But it could be extended at a later time, a possibility that adds to the uncertainty of investing in MoCo. It also has tremendous symbolic importance. Let’s remember that Takoma Park has had rent stabilization for decades and has suffered absolute losses of rental units.

Consider this. It’s hard to find two terms that are more hated by the residential rental industry than “moratoriums” and “rent stabilization.” At this moment, MoCo is the only jurisdiction in the Washington region that has both of them.

MoCo is still seeing residential construction from projects that were approved before the current downturn, before the current round of moratoriums, before the approval of rent stabilization and before the current executive took office. But after that wave (a rather small wave) of construction wraps up, what will come next?

Imagine that you are a regional developer, real estate investor or creditor and you are evaluating a jurisdiction that has had slow rent growth (and now falling rents), slow unit growth, rising vacancy, expensive and time consuming evictions, a moratorium policy, temporary rent stabilization that could be extended and a county executive who is an open skeptic of housing construction. Right next to that jurisdiction are several others with fewer or none of those drawbacks.

Given all of the above, why would anyone want to build rental units in MoCo?

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Improving the Accessory Dwelling Units (ADU) Bill

Councilmember Hans Riemer’s proposal to greatly ease restrictions on accessory dwelling units (ADUs) has a lot of flaws, as I have detailed in previous posts. The presentation of inaccurate information also undermines confidence that it has been well thought out. The county’s very poor enforcement of existing housing law further reduces trust. Moreover, recent legislation designed to promote ADU construction is just now going into effect.

Fortunately, two easy fixes to Hans’s proposal can assure that it will better accomplish his stated goals of increasing smart-growth oriented affordable housing and minimize any negative effects on the county finances and residents.

Fix #1: Locate ADUs Near Transit

The county wants to promote transit-oriented growth so let’s limit ADUs to within a three-quarters mile radius of Metro, MARC, and future Purple Line stations. As one can rarely walk directly in a straight line to transit from a single-family neighborhood, a three-quarter mile radius is really greater in terms of travel distance and provides a very generous zone. (This would include my Metro-walkable single-family neighborhood.)

The bus network is also largely oriented towards these nodes, so people living in these areas will have maximal public transit access. Transit accessibility will also likely reduce the share of ADU residents who have cars, or at least a second car. This simple fix will assure that we continue to promote growth where smart growthers claim to want it—away from car dependent neighborhoods.

Fix #2: Reduce, Rather than Increase, ADU Size

Hans’s zoning text amendment (ZTA) proposes to allow ADUs larger than the current 1200 square foot maximum up to the one-half of the size of main home. This is a disastrous idea as it encourages the construction of larger, and therefore less affordable units. It also incentivizes the construction of bigger homes, which also runs counter to the idea of smart growth.

While Hans has repeatedly spoken about his ZTA in terms of promoting “cottages” and as part of the “tiny house movement,” the legislation runs directly counter to this idea. According to The Tiny Life, a publication promoting tiny homes, tiny homes have a maximum of 400 square feet, and the average tiny home has just 186 square feet.

At 1200 square feet, Montgomery’s current limit is already three times the maximum size for a tiny home and over six times the average tiny home size. (Scouring the web, the most generous maximum for a tiny home was 600 but this was on a builders’ website and is still only one-half of what the county already permits.)

Instead of increasing the size limit and encouraging the construction of less affordable ADUs, we should be reducing it to 750 square feet. This smaller size would assure that new ADUs would be truly fit within the affordable, smaller home ideal, instead of large second homes or apartments out of the range of people struggling to find housing.

Additionally, it will minimize any negative impacts on neighborhoods and the county. Smaller homes mean it’s less likely that schools will face as substantial an additional burden as if we amp up the home size instead. Fewer people also usually means fewer cars. Existing units larger than 750 square feet would be grandfathered.

The smaller size also reduces any additional hardscape, especially important since the chance of the county adopting more meaningful storm water control standards is about nil. Smaller homes cut down the added burden on existing aging infrastructure not to mention on dumping water into neighboring basements.

Bottom Line: Make this an Affordable Housing Bill

These changes to Hans’s ZTA would turn it from a bill that undermines affordable housing by incentivizing big into one that would encourage the building of smaller, more affordable units in transit-accessible areas. It would retain the proposed elimination on the construction of an ADU in close proximity to another one, allowing for substantially more construction in zones near transit.

As bill proponents claim loudly that they are promoting small development and favor smart growth, adopting these amendments to gather community support ought to be easy. A special exception process could be included to accommodate unusual circumstances that require more space or location away from transit. But any such process should require real scrutiny and difficulty in order to keep the focus on affordable.

The bottom line is that adopting these changes would turn the bill into one truly focused on transit-oriented affordable housing and a genuine win for Hans. On the other hand, if self-proclaimed proponents of affordable housing continue to argue for larger rather than smaller units, it will reveal plainly that they are simply interested in promoting development rather than affordable and that this is really an effort to undermine recently adopted zoning codes and Master Plans.

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Riemer Admits ADU Error and Responds

Even if a reply on twitter isn’t quite the same as a publicly-funded email blast, this is the first time I’ve seen Hans correct the record, so that’s a positive step. Except the inaccurate 133 number has been bandied about and propagated a lot, including by Hans at his own forum on ADUs, if memory serves, and without correction by either Casey Anderson or Lisa Govoni from Planning at the meeting.

Additionally, Hans continues to underestimate the number of ADUs. As Andy Harney points out, the number on the county website arbitrarily excludes many ADUs given a different classification but that are ADUs. While 473 is over 3.5 times the figure given by Hans, the 1268 identified by Harney is over 9.5 times Hans’s inaccurate numbers.

I don’t why Hans ended up inadvertently using incredibly outdated information – there were far more than 133 ADUs even in 2012. But the existence of nearly 10 times more ADUs than he claims exists would seem to be an important difference to many, though reasonable people can disagree on this as on so many issues.

Moreover, I have had both detractors and supporters of ADUs point out that the count excludes many illegal or unregistered ADUs. As a result, the legal ADU count greatly underestimates the number of ADUs in reality. The unknown true number is well off from Hans’s erroneous representation.

ADU supporters hope that Hans’s legislation will make it easier to legalize illegal units. While perhaps so in some cases, I’d hope that units that, say, don’t meet the fire code would not be legalized. Either way, the presence of many illegal units reinforces the truth of claims regarding the total inability or unwillingness of the County to enforce its laws.

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Riemer Massively Understated Number of Existing ADUs

In his effort to push forward his zoning text amendment on accessory dwelling units (ADUs) that would radically alter building conditions and Master Plans throughout single-family neighborhoods, Councilmember Riemer has lamented the lack of existing ADUs, claiming that only 133 exist throughout Montgomery County.

Except that figure is completely false. It greatly understates the number of existing ADUs by a factor of at least 3.5 and probably more. The information showing it’s untrue is readily available on Montgomery County websites. Indeed, memos provided to the Council in the past directly contradict the claims made by Hans in his publicly funded communications.

The county’s own website says that there are 473 existing ADUs – over three times more than advertised by Hans Riemer and other advocates of his ZTA.

Look at the teeny-tiny print on the bottom left for the total count

A look at requests for ADU approvals under existing rules reveals 257 applications in recent years with only a small minority withdrawn or denied. The number of applications refutes Hans’s claim that virtually no one can legally build them under existing rules in Montgomery County. And this is before rules adopted just a few years ago to make it easier to build them have gone into effect and had a chance to have an impact.

In devastating follow-up testimony sent to Council President Nancy Navarro, Andy Leon Harney, explained in more detail that even these higher figures sorely underestimate the number of existing legal ADUs:

The figure often quoted that there are only 133 ADUs for a county of 1 million is simply false. In 2012, when the Council was considering ZTA 12-11, the Board of Appeals, which approved special exception accessory apartments said that between 1983 and 2012, they had approved 605 accessory apartments. Mr. Zyontz in memos to the Council at the time (10/8/12 p. 7 and 10/22/12 page 10) reported there were either 413 or 431 (probably a typo). At the same time, there were also 698 Residential Living Units—that is rent free accessory apartments approved for use by a relative, elderly parent or caregiver which are still legal and over time may well have been converted to rental units.  That would mean there were at least 1,111 ADUs plus guest houses which are no longer allowed but were grandfathered in with the passage of ZTA 12-11. The 133 number so often quoted is not accurate, and in fact there are 157 ADUs that have been approved since 2012, making the total ADUs closer to 1268, with others in the pipeline. If the Council is data driven, these facts should matter. If the Council allows itself to be persuade by an inaccurate number of “only 133 ADUs in a County of 1 million”, they are being misled.

Andy Harney is the Village Manager of Chevy Chase Section 3.

As I’ve previously explained, Hans’s legislation is deeply flawed for a number of reasons. In a post later this week, I hope to present a couple of easy amendments that would shift the focus back to the creation of smart-growth affordable housing and virtually eliminate most of the likely harms stemming from the misguided approach in the proposed ZTA.

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Update from Reader on Illegal AirBnB

A reader has also been curious about the illegal AirBnB that I profiled yesterday and contacted the Montgomery County office of the Maryland Department of Assessment and Taxation asking that the property be reclassified as commercial. (Note: this is a state, not a county office.) Here is the reply they received:

We have researched and found that the property is zoned R-60 for residential use and does not have any type of special use agreement with the Montgomery County Department of Permitting Services, Zoning and Site Plan Division .  Therefore we will not reclassify the account as commercial property.  Our records also show that the property is not owner occupied, so there is no further action to be taken by the State of Maryland. 

The owner doesn’t live there but continues to run a commercial youth hostel out of the house. The lack of commercial classification on the property seems woefully unfair to hotels engaged in the same business–renting out spaces in non-owner occupied structures. It is also quite different from an owner renting out a room or two in their own home, as AirBnB was originally conceived and presented.

In any case, it has been over a year since a county resident made a complaint about this illegal ADU and it’s still going strong. The use is not remotely consistent with the zoning code.

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It’s No Myth that AirBnBs arrive with ADUs

Supporters of accessory dwelling units (ADUs) claim that it’s a “myth” that they will be turned into AirBnBs or other short-term rentals.

Unfortunately, the law is not always a good guide to what happens.

Portlandia

Portland is often cited as the promised land by ADU supporters. Like Montgomery County, Portland’s ADU guidelines state that they are “designed for residential occupancy independent of the primary dwelling unit.”

But according to a survey prepared for a 2018 report prepared by the Institute for Sustainable Solutions (ISS) at Portland State University, 31% of ADUs are for short-term housing, defined as stays as less than one month. Only 56% are being used as someone’s primary residence. ISS is staunchly pro-ADU, so it’s hard to throw dirt on the statistics as part of a nefarious anti-ADU plot.

While intended as residential dwelling units, many are used as AirBnBs or the equivalent. The survey did not present statistics on what percentage were in compliance with Portland’s permitting requirements for short-term rentals.

Illegal AirBnBs

Councilmember Hans Riemer laudably wants to focus ADUs on housing rather than hotel space. In a recent email blast, he touted “the units could not be used for short-term rentals (i.e., Airbnb)” under his proposed legislation.

Unfortunately, illegal AirBnBs already exist with impunity in Montgomery County. Here is a photo of one operating in Bethesda:

A complaint was filed about this illegal AirBnB with the County last April. The complaint was “resolved” by kicking it over to the Department of Housing and Community Affairs (DHCA).

The county database shows no sign of an ongoing investigation. Apparently, they got a license after the complaint was filed but the current usage is not in compliance for these sorts of rentals. One also wonders if the county or the state is even capturing the appropriate tax from this usage since they don’t know it exists despite advertisements on AirBnB.

Increasing the burden on county enforcement authorities through the addition of hundreds of ADUs per year seems an unlikely way to solve the problem. As the County fails to keep on top of existing situations with complaints, it’s hard to have faith that a ban on AirBnBs in ADUs will be anything other than totally meaningless.

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Andy Leon Harney’s Testimony on ADU

Andy Leon Harney is the Village Manager of Chevy Chase Section 3. At the bottom of the post, you can find her testimony expressing concerns regarding Councilmember Hans Riemer’s efforts to loosen substantially the requirements for accessory dwelling units (ADUs).

Harney points out that the spread of impermeable surface due to building can cause storm water drainage problems. This may sound like some minor issue to some on the theory that it all just ends up in the drains but it’s not. When there is less land to absorb water, it has to go somewhere and that place can be your neighbor’s basement.

Unfortunately, we had experience with this problem in the Town of Chevy Chase due to people building larger homes and the county laws are very lax and don’t address the problem. We now require that people who add over a certain amount of square footage of impermeable surface must also build a water retention system to keep the water on the property until gradually absorbed into the ground.

Perhaps the County should include a similar requirement into the ADU law? After all, if most units will be small, then it won’t negatively impact building ADUs. To the extent it does, it prevents people from literally dumping a problem on their neighbors. (The Town also passed ordinances that I supported requiring greater setbacks, especially in the rear, and limiting home size more than the County.)

Proponents of the ADU changes assure us that “most” of the new homes will be small and thus not be a problem. But then why does the new legislation do away with the current limits on ADU size in favor of allowing the ADU to be 50% of the size of the house?

Harney also agrees with the county executive that the ADU proposal will not result in affordable housing. Again, if you want affordable, why allow bigger than now? Rents will be driven by the open market in any case and, as Harney points out, someone who just invested in building one will want to get their money back quickly.

Finally, and perhaps most importantly, Harney contends that the ADU plan is the thin edge of the wedge in an attack on existing single-family home neighborhoods. While I generally don’t rush to slippery slope arguments, there is some real justification in this case.

Beyond my arguments that people will circumvent the law legally or just ignore it due to lack of enforcement, this is a revision to expand ADUs when the previous legislation has just barely been implemented. Councilmember Riemer has long been a proponent of allowing higher density.

Many key proponents of this plan would like it just fine if it led to permitting multi-unit developments or apartment buildings in existing neighborhoods. (See Just Up the Pike or Greater Greater Washington for examples.) Residents are not in accord with this vision.

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