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Appraising the District’s rentals – Conclusions

April 01, 2020


As renter incomes rise in the District, the pressures on rental housing are becoming stronger. As this report has shown, there are not enough rental apartments to serve all renter households. And this pressure comes both from the bottom and from the top: for every household that would need to keep its rent expenditure under $750 per month for rent to be affordable (that is, less than 30 percent of household income), there is at least one household that can pay upward of $2,700 without being rent burdened. This competition for rental housing is increasingly contributing to segregated neighborhoods, especially for the rent-controlled stock where rents are capped, but units can serve any resident of any income level. This is apparent because rent burdens higher in parts of the city where rents are low, and lower in parts of the city where rents are high.

On use of public subsidies

In solving its housing and affordability crises, D.C. must work on more than one front. One such front is public subsidies for housing. In the current environment of higher-income rents, and fewer affordable units, the District has made significant investments into housing affordability. A recent review of the District’s Fiscal Year 2020 budget shows that in this year, the city invested upward of $840 million in housing services, including $95 million for rental assistance (which is less than half the tax expenditures such as mortgage deduction for home homeowners), $30 million in public housing, and nearly $175 million in affordable housing production and preservation.[1] As a result, the city now reports having nearly 53,000 housing units with rents capped at levels affordable to households that earn below 80 percent of Area Median Income.

The District has used a variety of strategies, including leveraging federal assistance through bond issuance, loans for affordable housing production and preservation projects, inclusionary zoning, and a local rent supplement. Yet there are also potentially some units that could soon convert to market-rate as their covenants run out. Based on data compiled in the “D.C. Preservation Catalogue,” there are an estimated 6,100 subsidized rental units whose covenants will run out by the end of 2030, and another 8,100 units whose covenants will expire by 2035.[2]

This report’s proposed Inclusionary Conversion tool is designed to leverage D.C.’s current resources more efficiently, and not a wholesale solution for the city’s affordability crises. Specifically, it considers how the city could tap into its rent-controlled housing stock, which has relatively lower rents than the uncontrolled rental stock and is also concentrated in more expensive parts of the city where existing public programs have struggled to produce subsidized housing. The below-market rents in rent-controlled buildings mean the city can convert them into affordable units with a smaller subsidy, and by doing so in small batches, can create economic inclusion without significantly altering the tenant or revenue profile of the building. All other features of the Inclusionary Conversion approach, including implementation concerns, are identical to those in existing programs for subsidized housing (such as the need for some type of government intervention to ensure that subsidized units are allocated to those who meet income eligibility limits, some type of continued eligibility rule which ensures that while units are allocated to those who need them the most, strict eligibility does not lead to high turnover rates, a strong compliance mechanism to ensure that landlords commit to keeping their buildings up, among others.)

On increasing the housing supply

Ultimately, solving the housing crises in the District will require much more than subsidized housing, and must employ tools to increase housing supply of all types, including housing for middle-income renters. Land is arguably among the most scarce—and the most valuable—asset in the District of Columbia. This report therefore takes as its view that the city’s policy efforts should focus on using land as productively as possible, specifically through less restrictive land use practices: increasing allowable density as much as possible and easing infill development. The city can also improve the regulatory environment by hastening the pace of the issuance of construction permits, which at present create a significant barrier for new development. And some of these changes will require changing commonly held beliefs about what creates value and beauty in a thriving, inclusive city.

On the need for a broader perspective for rental housing

Importantly, this report’s analysis of the rental housing in the District of Columbia shows that the city must also think beyond rental apartments when formulating its rental housing policies. As shown in this report, the shadow rental market—the units built for ownership but let by their owners—fills a significant gap in meeting housing demand by offering a greater variety of units at a greater variety of prices across all parts of the District of Columbia. As Ethan Seltzer notes in a recent essay at the City Observatory [3], more housing—especially through infill—means more landlords:

“Build an ADU [Accessory Dwelling Unit], and you are now both a homeowner and landlord. Convert a single household dwelling into a duplex or triplex, and you’ve become a landlord.”

The District, with its commitment to ADUs and infill development, likewise, has chosen to pursue housing policies that depend upon current homeowner’s willingness to become landlords. However, absent from the current housing and zoning debates in the District of Columbia are a more comprehensive view of rental housing and a discussion of a more comprehensive rental housing policy. Perhaps the most important takeaway from this study, and the part that is left unanswered, is how the District can reshape its rental housing policies to consider what would convince a large number of homeowners to become future landlords—and what would continue to convince them to keep their units as rentals. This could mean enabling better financing mechanisms for Accessory Dwelling Units; it could mean reducing uncertainties that could impact “small” landlord more deeply, such as obtaining construction permits; or it could mean helping landlords and tenants negotiate contracts with that can help minimize future conflicts.

You’ve reached the end of Chapter 6 (Conclusion).

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[1] Office of the Budget Director, D.C. Council The District’s Commitment to Affordable Housing, (December 2019).

[2] Peter Tatian. “Cataloging where DC should preserve affordable housing as the city’s population continues to grow” (Urban Institute, Washington, D.C., 2019).

[3] Ethan Seltzer, “Want more housing? Build a landlord,” (City Observatory, 2019).