Tag Archives: economy

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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Elrich to Hogan: Let the Music Play

By Adam Pagnucco.

In a retort to County Executive Marc Elrich’s decision to not follow the state’s phase 3 reopening of businesses, Governor Larry Hogan’s office has released a letter written by Elrich asking the governor to relax restrictions on live entertainment. Specifically, Elrich asked Hogan to allow live entertainment, which was at that time prohibited, in front of audiences of 50 or less people. Hogan’s phase 3 reopening, which is scheduled to take effect tomorrow, allows live performances with audiences of 50% capacity or 100 people indoors and 50% capacity or 250 people outdoors, whichever is less.

Elrich’s defense of the live entertainment industry will be appreciated by musicians, comedians, actors and other performers. But those in other industries that are affected by the county’s refusal to follow the state into Phase 3, such as retail and religious establishments, will inevitably ask: what about us?

Elrich’s letter to Hogan appears below.

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Elrich Sets June 19 for Phase 2 Reopening

By Adam Pagnucco.

Montgomery County Executive Marc Elrich has announced that the county’s Phase 2 reopening will begin on Friday, June 19 at 5 PM. His press release appears below.


Montgomery County Executive Marc Elrich Announces Phase 2 Reopening Date
For Immediate Release: Monday, June 15, 2020

Montgomery County Executive Marc Elrich and County Health Officer Dr. Travis Gayles today announced the County has achieved its benchmarks and will officially enter Phase 2 of reopening on Friday, June 19 at 5 p.m.

The County plans to continue with an incremental reopening, based on public health data. Phase 2 allows additional businesses and activities to start and/or increase modified operations under specified guidelines. The guidelines include:

Retail – curbside and limited in-store; one patron per 200 sq. ft. of sales space;
Restaurants – outdoor/patio seating and limited indoor dining with requirements; up to 50 percent capacity maximum indoors if social distancing can be maintained;
Childcare – childcare programs can reopen with a maximum of 15 individuals per classroom;
Gyms – fitness centers, and other indoor physical activities; open with requirements; one patron per 200 sq. ft. of fitness space;
Houses of Worship – virtual, drive-in, and limited indoor and outdoor services with requirements – one congregant/family unit per 200 sq. ft. of service space;
Indoor and Outdoor Gatherings – limited to a maximum of 50 or one person/family unit per 200 sq. ft., whichever is lower
Salons/Barbers/Nails – all personal services allowed by appointment only; one patron per 200 sq. ft. of service delivery space;
Car Washes – open for internal and external cleaning with requirements;
Office Spaces and Multi-tenant Commercial Buildings – limited use for nonessential personnel with requirements; telework strongly encouraged where applicable;
Indoor and Outdoor pools (public and private) – open with capacity restrictions;
Outdoor Day Camps – expanded opening with requirements;
Outdoor Youth Sports – expanded for low-contact sports with requirements;
Parks & Playgrounds – parks open for personal fitness and fitness classes with requirements; playgrounds open with requirements; only low-contact sports allowed; and
Ride On Bus Service – expanded schedule; expanded routes.
Certain outdoor recreation activities and facilities are already permitted: golf courses, archery, shooting ranges, marinas, campgrounds, horseback riding facilities and tennis courts.

The following businesses and services will remain closed in Phase 2:

Concerts and theaters;
Senior centers;
Libraries; and
Recreation facilities.
Protective measures such as maintaining physical distancing, careful cleaning and disinfecting, and face coverings being worn by employees and customers, are just some of the measures being required of businesses that are in this second phase of recovery.

Activities allowed in this phase of reopening are based on metrics the County established with progress overall in decreasing daily numbers of new cases, increasing testing capacity, implementing a large-scale contact tracing effort with the State, decreasing hospitalizations and use of the emergency room by patients with COVID-19 related symptoms, and positive trends in the death rate and test positivity. The COVID-19 Data Dashboard can be viewed on the County’s website.

For the latest COVID-19 updates, visit the County’s COVID-19 website as well as the County’s data dashboard or follow Montgomery County on Facebook @MontgomeryCountyInfo and Twitter @MontgomeryCountyMD.

Put the “count” in Montgomery County! Be sure to complete the Census online, by phone, or by mail. It’s safe, confidential, easy, and important. #2020Census #EveryoneCountsMCMD

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Unemployment Triples in Maryland

By Adam Pagnucco.

Today, the U.S. Bureau of Labor Statistics (BLS) released its preliminary state-level unemployment numbers for April. In March, BLS estimated Maryland’s unemployment rate at 3.3%. In April, BLS estimated Maryland’s unemployment rate at 9.9%.

That’s a tripling of Maryland’s unemployment rate in one month.

Here are BLS’s estimates for the components of the unemployment rate in March and April, as well as in 2019.

Perhaps the most interesting estimate from BLS is that of the 415,359 people who lost their jobs in April, more than half (220,230) left the labor force entirely. That means they are without jobs and, according to BLS, not currently seeking work. In contrast, BLS defines unemployed people as having “no employment during the reference week, were available for work, except for temporary illness, and had made specific efforts to find employment sometime during the 4-week period ending with the reference week.”

As high as the April unemployment rate may be, it’s bound to be lower than the state’s unemployment rate today. That’s because BLS’s reference week for a monthly estimate is the week containing the 12th day of the month. State data indicates that 296,842 unemployment insurance claims were filed in the four weeks ending on April 11 while 310,946 more were filed in the five weeks thereafter. That means that May’s unemployment rate will be significantly higher than April’s.

Maryland’s labor force is not the only casualty of the COVID-19 crisis. BLS reports that D.C.’s unemployment rate rose from 6.0% in March to 11.1% in April. In Virginia, unemployment rose from 3.3% in March to 10.6% in April. Nationally, unemployment rose from 4.4% in March to 14.7% in April. The bright side for Maryland, D.C. and Virginia is that they all have unemployment rates significantly below most other states.

To put April’s unemployment rate in perspective, I pulled Maryland’s annual unemployment rate numbers from 1976 to 2019 and charted them below. Unemployment varies with the business cycle and peaked in 8.3% in 1982, 6.8% in 1992 and 7.7% in 2010. In each of those instances, the unemployment rate took three years to reach its peak. This time, the acceleration of unemployment took one month. What will next month look like?

BLS has not yet released county-level data for April. When it’s available, I will post it.

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How MoCo Can Balance Public Health and the Economy

By Adam Pagnucco.

When Governor Larry Hogan announced a phase 1 reopening of Maryland’s economy on Friday night, several local jurisdictions (including MoCo) declined to go along. County Executive Marc Elrich said, “If there’s an uptick in cases, our hospitals can’t withstand an uptick… We will change the rules as soon as the science says we can change the rules. When that happens, we will start down the road of reopening things.” Elrich issued an executive order maintaining the current shutdown at the county level and the council approved it.

Elrich’s interest in protecting public health is understandable and commendable but there is a problem: the economy. Everyone understands that the economy has taken and will take collateral damage from COVID-19 restrictions. That said, the chief enemy of job creation is uncertainty and there is tons of that now. June 1 is coming and with it will be rent and mortgage payment deadlines. Many tenants and property owners will miss those deadlines in whole or in part just like they did in the prior two months. Worse yet, it’s hard for tenants and owners to work out flexible payment arrangements when no one knows when reopening will occur. That may cause many businesses to throw in the towel and cease operations permanently.

Given the above, how can the county reconcile the competing objectives of protecting public health and restarting the economy?

The executive has not set a date to ease restrictions. Instead, he has proposed the following 12 criteria that would guide any phased-in reopening:

  1. Sustained (14 days) decreases (rolling average) in:
    i. The number of new cases in the setting of increased testing;
    ii. COVID-19 related hospitalization rate;
    iii. COVID-19 related ICU rate;
    iv. COVID-19 related fatalities;
    v. COVID-19 like and influenza like illnesses presenting to the health care system;
    vi. Percentage of Acute bed usage by COVID-19 related patients;
    vii. Percentage of ICU bed usage by COVID-19 related patients;
    viii. Percentage of emergency/critical care equipment by COVID-19 related patients (e.g. ventilators);
  2. A sustained capacity to test 5% of population per month;
  3. A sustained flattening or decrease in test positivity;
  4. Sustained, robust system in place to contact initial interviews within 24 hours, and initiate contact tracing process within 48 hours of initial lab notification; and
  5. Initiated and created meaningful infrastructure to identify and begin addressing demonstrated COVID related inequities in health outcomes, access to social support services

Let’s assume for the sake of discussion that these are the right criteria. (I may revisit that.) At the moment, only one of them – the number of cases – appears on the county’s COVID-19 page. The state’s COVID-19 page has more data, including cases, fatalities and hospital bed usage, but even the state’s page has nowhere near the data referenced by the county executive’s criteria.

At present, the public has no way to judge how close the county is to reaching the criteria the executive considers key to reopening. That must change.

The county should publish data series on every one of its criteria on its website. Each series should include an easy-to-understand chart explaining what the series is and what its trend is. Here is one example I constructed for new cases, which is the only series currently published by the county.

At the end of the 12 data series, the county should state how many of the executive’s 12 criteria are trending up, trending down or are stable. The county should also clearly indicate how many of the criteria need to be trending down or remaining stable for phase 1 reopening to begin.

Furthermore, the county should update the public via blast email and social media every day on this data.

Implementing this system accomplishes a number of criteria simultaneously. First, it bases the decision to reopen on science. Second, it makes the decision transparent to the public. And third, it provides real guidance to businesses, tenants and property owners on how close the county is getting to reopening. That will help everyone make the decisions they need to make on the basis of real information, not rumor and fear.

The county must implement this as soon as possible. The alternative is to leave residents and employers in the dark on how long the shutdown will last, thereby risking further permanent destruction of jobs and businesses.

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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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Huge Demand for COVID-19 Applications

By Adam Pagnucco.

Montgomery County’s COVID-19 assistance application went live today around 3 PM and demand was both immediate and heavy.

One applicant who completed the county’s form described the process to me as lasting less than 10 minutes. She encountered no problems and said she was “very impressed.”

Another applicant tweeted that he applied roughly 45 minutes after the application went live and was assigned application number 721.

That’s important because, according to the county’s regulations, the first tranche of $10 million will include individual awards of $10,000 each. That implies that only the first qualifying 1,000 applicants will get initial assistance awards. Conceivably, the county could get 1,000 qualifying applications in just a couple hours – or less.

One glitch in the rollout involved an email signup shown on an earlier version of the website. (It’s no longer available.) I signed up a couple days ago and received notification of the application at 4:30 PM. By that point, the queue may have filled up.

Intense interest in assistance will result in the county’s initial funding being claimed RAPIDLY. Those who waited for email notification or other official notice from the county will no doubt raise process protests if they indeed lose out because of application timing.

The process has been far from perfect as I have previously written. But let’s also acknowledge that even with a perfect process, this was going to be very tough sledding.

Expect more of the same!

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Elrich Administration Releases COVID-19 Small Business Assistance Regs

By Adam Pagnucco.

At 9:09 PM last night, I published a post on the county’s $20 million COVID-19 small business assistance program noting that no regulations governing its disbursements had yet been sent to the county council or published for the public. Roughly 20 minutes later, the regulations were sent to the council and forwarded to me by multiple sources almost immediately. The regulations appear below.

There are many details of interest to applicants, who should read every word of these regulations. The provisions that stand out to me are the ones setting aside $10 million for near-term disbursement and reserving $10 million for later. Consider these specific provisions.

Section 4 (b). $10,000,000.00 of funds appropriated for this Program are reserved for businesses or nonprofit organizations that demonstrate Significant Financial Loss. The initial grant award disbursed under this component of the Program is $10,000. The remaining amount of Significant Financial Loss demonstrated by these businesses and non-profit organizations may be disbursed subsequently, subject to the availability of funds.

Section 5(e)(B)(6). Business that have suffered Significant Financial Loss will be eligible for an immediate disbursement of up to $10,000. If the Percentage Decline is 50% or greater, Subtract the Adjusted PHE Revenue from the relevant historical average (Monthly Historical Average for monthly Adjusted PHE Revenue, Quarterly Historical Average for quarterly Adjusted PHE Revenue) to get the Recommended Grant Amount, up to a maximum of $10,000.

Section 5(e)(B)(7). Subtract the Adjusted PHE Revenue from the relevant historical average (Monthly Historical Average for monthly Adjusted PHE Revenue, Quarterly Historical Average for quarterly Adjusted PHE Revenue) to get the Recommended Grant Amount, up to a maximum of $75,000.

Section 5(e)(B)(8). Subject to the availability of funds, once the initial $10,000,000 reserve has been committed, applicants who qualified for more than an initial disbursement of $10,000 and applicants who qualify for a grant that have not received funding will be evaluated and the remaining balance will be disbursed.

And so $10 million will be disbursed sooner and $10 million will be disbursed later. Instead of the full $75,000 maximum grant provided in the legislation passed by the council, applicants will get a maximum of $10,000 in the first round and may get a chance for more money later. When will the second $10 million go out? That’s not clear, but the caveat of “subject to the availability of funds” in Sections 4(b) and 5(e)(B)(8) is not encouraging. Given the volume of paperwork required in the application process, it could take a while.

None of this appears in the legislation creating the program. The council prioritized speed in disbursing the full $20 million it allocated for assistance. The executive branch took twice as long as the District of Columbia to get its assistance program going and now plans to hold back half the money. The council just introduced a new appropriation of $5 million for restaurants and retailers. Given these regulations, what will happen to that money?

The executive branch is not implementing this program in accordance with the legislative intent of the council. The council must take additional action to enforce its will. NOW.

The regulations appear below.

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