Ask Joseph F. Horning Jr. ("builders of a new way of life thru quality housing") about the District of Columbia's embattled rent control system and, sooner or later, he will start talking about what he has not built.
Horning Brothers, his 19-year-old real estate development firm, has not erected a garden complex with 180 rental apartments north of Catholic University in Northeast Washington. Nor has it constructed a 180-apartment rental building on Connecticut Avenue NW. The key factor in the firm's decision not to put up these buildings, Horning says, is the city's rent control program.
Horning's views and those of many other developers, lenders, landlords and tenants are a mixture of hardheaded economic, subjective business judgments and undisguised emotion. He is proud of what Horning Brothers has built since 1958. He is angry about the city's 3-year-old rent control law, "its a political football," he said.
Yet Horning's attitudes and his firm's real estate decisions shed considerable light on one aspect of the city's rent control controversy. Since the start of the rent control program here, its proponents and critics have debated whether rent controls would impede the development of sorely needed, new rental apartments.
Horning's contention - one shared by a number of other developers, but disputed by some rent control advocates - is that rent controls have stymied construction of conventionally financed, rental housing for moderateand upper-income families in the city.
Rent control has been a controversial issue in the Washington area and other American cities for years. It has been studied by economists and housing specialists, debated by politicians, denounced by real estate and other business organizations and advocated by tenant groups. The District of Columbia's rent control law will expire in January, and the D.C. City Council is considering rent control for three more years.
While the economic debate about rent control is highly complex, its proponents generally urge it as a stopgap measured designed to protect tenants - especially those with moderate and fixed incomes - from skyrocketing housing costs. Opponents describe rent control as an unrealistic technique that will lead to decay of urban housing because developers and owners, they say, inevitably will find it unprofitable to build and maintain rental buildings.
In the District of Columbia, the debate about whether rent control impedes construction of new rental housing - one of numerous issues in the over-all controversy - entails some political and economic subtleties.
Since 1976, most newly built rental housing has been exempt from the city's rent control ceilings. Many real estate developers and lenders contend, nevertheless, that new rental construction has been hindered because of the city's rent control climate. They say they fear the city government someday may reverse itself and reimpose controls on newly built housing. Some rent control advocates have termed this argument erroneous, citing the apparent absence of any pressure for a change in the new-construction exemption.
Economic studies published by the Urban Land Institute and by a consulting firm, the Development Economics Group, have described the city rent control system as a deterrent to new rental projects. The ULI research report was prepared, however, before the city exempted newly built projects from rent control.
Rental housing is of enormous significance in the city, where more than 400,000 residents are estimated to live in rented apartments and homes. The city's supply of available rental apartments has remained extremely tight, with housing specialists putting the vacancy rate at only about 3 per cent.
While postponing plans for major conventionally financed rental apartment projects because of the rent control system. Horning Brothers, like other developers here, has continued to build some federally subsidized rental housing, partly in urban renewal areas. Federally subsidized housing apparently has escaped the rent control controversy. Federal housing regulations prohibit state and local government from imposing rent controls on federally subsidized projects.
Horning's attitude toward the rent control program differs in some respects from the views of other developers. Interviews with a variety of real estate men recently turned up a range of opinions. Some said they would not build as long as rent control remains in effect. Others said they have embarked on new rental projects here and plan additional undertakings soon.
Horning, nonetheless, is a builder who has earned considerable respect among city housing officials, including some rent control advocates. His plans illuminate at least one part of a complex picture. Horning's account of what his firm has decided not to build because of rent control begins, by a twist of real estate logic, with his evaluation of a tiny rental project his firm recently built.
The Arbor, a modest, stylish, garden apartment project ends at 3232 7th St. NE near the southern edge of the Catholic University campus. Its two small, beige brick buildings with bronzed window frames and tilted stairway windows are surrounded by trees, wooden benches, a neatly kept lawn, a small parking lot and its own white-globed street lamps. Its 30 one-and two-room apartments rent for $230 to $300 a month.
Horning saps his firm built The Arbor last year as "a test-tube thing." It was intended, he said, as a test of the rental housing market and, he added, his $700,000 experiment paid off. He found what he regards as "tremendous" demand for The Arbor's apartments. One surprising characteristic of the demand for rental housing, he noted, was The Arbor's ability to lure at least a few tenants away from nearby apartment buildings where they had been paying considerably less right.
The Arbor's apparent success paradoxically did not persuade Horning to embark on the larger projects he had been considering - his two proposed 180 department ventures near Catholic University and on Connecticut Avenue. Neither rental project, by Horning's account, will soon be built.
"If we didn't have rent control, I would have gone ahead. The market has been proven by this test tube," he said in an interview outside The Arbor. Instead of errecting rental apartment buildings on his two available sites. Horning added, he already is considering making some other use of the land, perhaps for condominium complexes. "At this point, we're just treading water," he said.
Horning's worries about rent control reflect an uneasiness about the city's political outlook, the policies of its three-year-old home-rule government and the city's business climate. Since newly built housing is exempt, the current rent control law has no direct effect on The Arbor and would have none on either of the two conventionally financed, rental projects Horning has contemplated building.
What Horning fears is what he views as a "threat" that the city government someday may imposed rent control on newly constructed apartment projects. "You've got to look to the climate to get a reading on that and today's climate is just so negative," Horning said.
He cited Mayor Walter E. Washington's recent veto of an emergency bill that would have authorized rent increases ranging from 2 to 10 per cent. Then he noted that New York City had moved to discontrol rents in 1971 but reversed itself three years later. He complained about the D.C. City Council. "The climate indicates that they're likely to become more stringent rather than less," Horning said.
In addition to the small Arbor project, only a few rental apartment buildings have been constructed here in recent years. According to data compiled by the Metropolitan Washington Council of Governments, only three major, conventionally financed rental projects have been completed in the city since its rent control system began. They are the Connecticut Heights at 4849 and 4850 Connecticut Ave. NW. the West Park at 22nd and P Streets NW. and the Consulate, which was scheduled to open this weekend at 2950 Van Ness St. NW.
To what extent rent control has been a factor in the dearth of conventionally financed rental construction here during the past few years is a matter of debate. The nation's and recession, spiraling utilities and construction costs and other economic trends in themselves had considerable impact on the housing industry.
Not only in the city, but throughout the Washington area, a small amount of conventionally financed, rental housing was built. In addition to national economic trends, the housing industry in some parts of the suburban Washington area also was hampered by such local factors as sewer moratoriums.
Rent control never was imposed in northern Virginia. A rent control program in Prince George's County was lifted in early 1976. Montgomery County's rent control law still is in effect, but key housing officials there contend that rent control had no discernible effect on rental construction. Virtually none would have been built even if there were no rent control law, they argue, because of other economic factor.
Developers of the few conventionally financed rental projects built in the city in recent years express divergent views about the impact of the city's rent control system.
Jack Y. Matthews, executive vice president of Construction General, Inc., which built the 269 apartment Consulate project on Van Ness Street, said the company already is planning a 139 apartment rental project in Georgetown and is studying two other possible rental ventures on Connecticut Avenue NW.
"I don't think that the District of Columbia is going to turn around and double-cross us," he said, "and if they do. I'm going to sue the hell out of them."
Charles Matincheck, property manager for Quadrangle Development Corp., the developer of the West Park, said in contrast, "We will not develop any rental projects in the District under rent control." He noted that the West Park had been planned before rent control began.
Terry Eakin, vice president of The Holladay Corp., which built the Connecticut Heights Apartments, spoke more cautiously. He said the project's earnings already had been slightly reduced because of rent control and added, "We're very nervous about the (rent control system's) impact."
Amid the city's rent control controversy, several other rental projects already are under consideration, and their prospective developers, in interviews, expressed similarly divergent views.
A partly commercial complex, including 205 luxury apartments is planned at Thomas Circle. A 525 apartment high-rent project had been proposed for a site off Massachussets Avenue near Ward Circle. Another prospective rental project near Ward Circle, however, fell through early this year because, the developers said, lenders refused to finance it with rent control still in effect.
Several developers noted that they have used various techniques to help offset what they regard as the risks of rent control. One method has been to obtain mortgage insurance from the Federal Housing Administration. While FHA-insured projects are not exempt from rent control, the federal government has the power to set aside local rent control laws if the financial soundness of an FHA insured building appears to be jeopardized.
Another technique, increasingly employed, is installation of separate utilities meters in every apartment, rather than using one meter for an entire building. Separate meters, which require tenants to pay their own utility bills, relieve landlords of one of their most rapidly rising expenses. Such metering, some developers say, also may lessen what they fear may be an economic squeeze caused by rent control.