Montgomery County Officials, Developers Debate Rent Control, Economic Competitiveness

Developers and officials in Montgomery County can agree on their goals, such as making housing more affordable and drawing more businesses to the county. The path to getting there, however, is up for debate. 

It’s a debate that was on full display Wednesday at Bisnow's Montgomery County event, which took place at Stonebridge's Avocet Tower in Downtown Bethesda. 

Stonebridge principal Doug Firstenberg and Montgomery County Executive Marc Elrich began the event by battling it out over rent control, tax rates and perceptions about doing business and developing in the historically wealthy area.

“If we put 99 people in a room with you, a vote about whether you should do business in Virginia or business in Maryland, Montgomery County, [it would be] 99 to 1,” Firstenberg said.

In the past six months, the county has undergone two regulatory changes that some in the private sector argue make it even harder to work and develop in the area. In May, the county passed a 4.7% increase to property taxes — less than half of what Elrich was pushing for — to cover its 2024 budget. In July, the Montgomery County Council passed a 6% cap on rent increases for most buildings built before 2000. 

While Firstenberg argued that these measures only add to the entrenched perception that Montgomery County isn’t good for business, Elrich argued that the county’s historically lower taxes have actually put it at a disadvantage. 

“Our tax rate has bound us up to a place that we can’t build anything,” Elrich said. “In order to attract people, you actually provide the infrastructure systems. Virginia creamed us because they actually provided infrastructure.” 

Elrich said that one change he is looking at is adjusting the way property taxes are organized in Montgomery County. The change would model what Virginia does in order to ensure that commercial property owners' taxes go directly to those taxpayers' districts so they can reap the benefits.  

“If they tax you in Tysons, you’ve got projects in Tysons that make your investment worthwhile. If I tax you in Montgomery County, you have no idea where it is going to go,” he said.

Elrich said Montgomery County's property tax rate has remained lower than most of its regional neighbors, but Firstenberg argued that the perception that the county is anti-business is an entrenched one, making it difficult for developers like himself to finance projects in an already-tight capital environment. The new rent control law also doesn't help with that perception, he said. 

“Capital looks at rent control as something they don’t have to deal with in 90-something percent of the country,” Firstenberg said. “So we’re watching our investors say, ‘I’m not going to go to Montgomery County.’ Without capital, we can’t do our business.”

This summer’s rent control measure came after months of heated debate surrounding two proposals — the eventual 6% rent increase cap fell between one plan that sought a cap of 3% and another that sought 8% plus inflation. Elrich said that he has seen housing in the county becoming increasingly segregated by race and class, a problem that without action to stem rent hikes, he said, would only get worse.

"I feel obligated to try to attenuate rent increases as much as possible," Elrich said. 

EYA Executive Chairman and co-founder Bob Youngentob, whose firm is one of the largest residential developers in the region, spoke later at the event and said he is also concerned about the county's economic competitiveness. 

"I worry about some of the things that Marc and Doug talked about where budgets are getting squeezed, costs are continuing to go up," he said. "We don’t have a tax base through new commercial revenue to drive those services. Do we become a less attractive place for people to live in?” 

Youngentob said he has been working on finding new ways to finance affordable housing in the county. 

“We believe very strongly in this idea of public-private partnerships and working with people like [the Housing Opportunities Commission] who have a unique capacity to provide bond financing and counting that as LIHTC assets,” he said. “Those can be great sources of future housing — more and more mixed-income housing.”

Meanwhile, Montgomery County Green Bank CEO Stephen Morel spoke about the possibilities for affordable housing funding coming from the Inflation Reduction Act. 

“There’s all this free money out there that’s available for housing projects, that’s available for clean energy projects or needs to come to disadvantaged communities, and it’s not something to sneeze at,” Morel said. 

But even if developers are able to build, commercial tenants need to come, and Montgomery County faces added competition from neighboring D.C. and Northern Virginia as it tries to compete for employers. 

“The challenge that we consistently have in Montgomery County is that we are benchmarking ourselves against the private jurisdiction in the District and an entirely different state,” Lantian Development CEO Bob Elliott said.

“If we’re developing in Boston or Austin or someplace in California, we deal with one group” he said. “Here, we deal with different groups all competing against each other.”

Montgomery County Economic Development Corp. President and CEO Bill Tompkins discussed how the county is trying to hone in on some of its strengths, such as the life sciences industry, to prop up its business prospects. He pointed to the new Monument Innovation Center expected to deliver this year in Gaithersburg and Alexandria Real Estate Equities' development in Shady Grove. 

“Those are huge, huge, huge facilities,” he added. “So that is going to generate more interest for companies coming here. And that's one of the things that, among other industries, we will continue to double down on. … So if the private sectors here are not as strong here as they need to be, then we’re going to make sure that that’s the priority.”