Apartment construction in the Washington suburbs has been primarily affected by the availability of land, government subsidies and interest rates, rather than the presence or absence of rent control.
In the past six years, both during and after rent control in Montgomery County, twice as many apartments have been built there as in Fairfax County, where there has been no rent control. Rents in the two counties have remained comparable, although Montgomery still imposes an informal version of rent control on newly built units.
In the year after rent control, nearly 40 percent of the rent increases in Montgomery exceeded the "voluntary guidelines" of 10 percent. Last year, more than 45 percent exceeded the guidelines, which were set at 7.1 percent. The average rent rise, however, was 7.6 percent, close to the guidelines and less than the 8.4 percent average rent increase in Fairfax.
Prince George's County lifted rent control in 1976, but only 1,306 new units have been built, mostly for the elderly. County officials made a conscious decision to discourage multifamily housing and spur building of single-family homes, following the surge of garden apartment construction in the county during the 1960s, County Executive Parris Glendening said.
"As it happened, we lifted rent control at a time when we also decided the county didn't need more apartments," said Glendening, who had been a member of the County Council that ended rent control.
Between 1979 and 1981, when rent control limited increases in Montgomery County to 10 percent, building permits were issued for 2,885 apartments there, compared to 1,147 units in Fairfax, according to a study by the U.S. Department of Housing and Urban Development. Montgomery lifted rent controls in April 1981. From 1982 through 1984, permits were issued for 3,857 apartments in Montgomery, compared to 2,146 units in Fairfax, according to the HUD study.
Developers and county officials cited Montgomery County's greater amount of land zoned for apartments and its availability at affordable prices as the major reasons for more construction in that county. They added that Montgomery has actively encouraged multifamily housing.
"We're your Cadillac liberals in Montgomery who believe in apartments," said Montgomery housing director Richard Ferrara. "In Fairfax, they've been more interested in single-family housing."
Thomas Bozzuto, a regional partner at Oxford Development Corp., which has built apartments in both counties, added, "One of the problems in Fairfax is that there is very little land zoned for and available at a reasonable price for apartments."
Apartment construction also continued in Montgomery under rent control because developers financed their units through federal programs that would automatically exempt them from local controls.
"By far the majority of those units were federally assisted in some way so rent control didn't apply to them," said Scott E. Reilly of the Metropolitan Washington Council of Governments.
Montgomery County's rent control program, like the one currently in place in the District of Columbia, also exempted nonsubsidized new construction. But developers argued that they believed that exemption alone was inadequate protection for their investments, because as long as rent control was in place, the locality could easily change its mind and subject new nonfederally subsidized construction to controls.
"Every developer that we talked to would say, 'As long as we have rent control we don't know what this crazy local government is going to do to us in two or three years,' " Ferrara said.
The federal government started phasing out its housing subsidy programs in 1981, the year that Montgomery lifted rent control and replaced it with the voluntary program.
"Basically, we lifted rent control at exactly the right time," Ferrara said. "We are convinced that the end of rent control did contribute substantially to the new construction that has taken place," because of the lack of federal programs, he said.
Under the current system, the voluntary guidelines do not cover "turnover" apartments, those that have experienced a change of tenants. In such situations, landlords are free to raise rents as much as they like. These guidelines apply only to projects financed with county bonds.
That exception is the "saving grace" for developers, said John Duffie, vice president of Ralph J. Duffie Inc. of Silver Spring. "If the voluntary guidelines were on all the units . . . I don't think we'd build another building."
Both counties have financed the bulk of their new apartment construction with county-issued tax-exempt bonds, which let developers get mortgage loans at about 3 percentage points below conventional rates. In exchange for the bonds, developers promise to set aside 20 percent of their units at affordable rents for moderate-income tenants.
These bonds make the projects economically feasible because market interest rates would drive rents out of the range for all but the wealthy. The lower interest rates can mean that rents can be as much as $100 a month lower for a garden apartment, and even lower for high-rise buildings.
Prince George's has used tax-exempt financing to renovate some of its deteriorating garden apartments, issuing $83 million in tax-exempt bonds to rehabilitate 3,300 units last year alone.
Now county officials are turning to new apartments, especially those priced for the young urban professionals who are going to work in the growing number of high-technology firms and offices locating in the county.
The Prince George's County Council approved a $15 million bond issue last month for two new 12-story high-rise towers in Laurel, the first regular apartment construction in the county since 1978.