ROCKVILLE — “The new pricing system for MPDUs [moderately priced dwelling units] will work but if not, we’ll come back to the Council,” offered Richard Nelson of the Department of Housing and Community Affairs. Council president Michael Knapp wasn’t buying it. He wants the amendments to MoCo’s Moderately Priced Dwelling Unit law to be based on empirical data rather than waiting to “see if it works” and possibly having less affordable housing in an already strapped market.
Four years ago the County Council tried to fine tune the MPDU program and now they’re at it again. The new legislation would regulate the sale prices of MPDUs so that they are based on affordability not construction costs. Both proposed bills would stop developers from being able to “buyout” of building the required MPDUs by paying into the Housing Initiative Fund.
A recent Office of Legislative Oversight report found that from 2005 to 2007, 27% of the MPDUs built were too expensive for the program participants and another 29% were only affordable to those with the highest incomes permitted.
Nelson stressed that the intent of the MPDU law is to make housing affordable in all types of housing throughout MoCo. He doesn’t understand why we would let developers build big with extra units and then allow a buyout. If we make an exception for high rises, it’s conceivable that there wouldn’t be any MPDUs in Bethesda and Silver Spring. It’s difficult to determine the actual cost to produce the MPDUs. If the developer is getting height and density allowances that make the development more profitable then this should make the MPDU’s affordable.
Erlich questioned whether setting the sale price would work in high rises. If a developer owned a whole block, he should be able to put the MPDUs wherever he wants. If our purpose is to have economic integration in a community, then it shouldn’t matter which building is used. He questions why it is so critical for MPDUs to be in high rises.
The Council Staff recommends that the buyout authority remain in the law. Their recommendation is to require the developer to pay “at least 90% of the cost of a comparable market rate unit in the same building or development”. The bar needs to be set high enough to meet the MPDU goals. Elrich thought it should be whatever the cost is to provide an MPDU and not simply a punishment. Staff thinks that a buyout could result in more than one MPDU at another location.
When asked directly by Knapp, Elrich stated that he “wants to retain the buyout”. Knapp would like to look at the options for keeping buyouts. They also want to consider whether households should spend more than 30% of their income on housing. Nelson pointed out that people have been spending more and we have foreclosures, but he’ll get the statistics for the next worksession.
Cindy Cotte Griffiths is Editor of Rockville Central.
Copyright (c) 2008 by Rockville Central. Reprinted with permission. Photo courtesy of Flickr user Faceless B.
Updated Oct 5, 2008, to put Marc Elrich back on the county council. — JD
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Memo to Real Estate Developers:
The real estate bubble party is over. Done. Kaput. Wall Street investment firms have no money to lend for real estate projects. The mortgage-backed securities are worthless paper today. The landscape has dramatically changed since the height of the real estate madness.
I don’t think the developers have the resources to complete a buyout anyway. If the county government wants to establish price controls on property, I think the developers will play ball because they need bodies moving into those empty condo units.
The foreclosure rates in the Silver Spring area are getting higher by the quarter. The outrageous pricing by developers and the naive acceptance from home buyers that their property values will increase 10-20 percent per year with no down payment required was a recipe for disaster. Why did the county government not intervene sooner by placing stronger legislation on developers?
I am STILL thankful that I am a renter. My friends and family told me that I should BUY, BUY, BUY in Silver Spring during the housing bubble insanity period from 2004-2006. They were all wrong. Had I listened to them, I would be up to my all balls with mortgage payments, condo fees, and a heavy property tax bill. In the mean time, my property value would be dropping by the hour. No thanks.
Thanks for your comments, IHY. You mentioned an increase in foreclosures in Silver Spring. However, I previously reported:
Regarding legislation over developers, I believe risky mortgages and unrealistic expectations on the part of home buyers fueled any perceived overdevelopment. The completely exagerated demand outpaced supply.
Where are all these scores of empty condos that IHY has been carping about for the past couple of years ? I live at the Mica which is full (barring a couple of units for sale by the owners themselves). From what I hear from my neighbors at Eastern Village, 8045 and the Aurora, the same holds true there. IHY needs to get off his talking points and acknowledge reality when presented with evidence contrary to his beliefs. Yeah, it’s not a good time to be a developer with new units just going online now, but despite all the naysaying about the Mica and other condos, the developers did manage to sell them out.
Exactly…IHY is generalizing and failing to acknowledge the very different set of conditions that exist in the downtown Silver Spring market and most other close-in urban areas.
He’s also wrong to believe that had he bought in 2004 he would be in trouble. Property values went up more than 100% but the drop has been about 30% max.
For example, let’s say in 2004 he bought a condo for $250K and put down 5% ($12.5K). The condo’s value would have risen to $500K at the height of the boom. Now it’s down to $350K. If he sold today at a fair market price plus 5% commission, he still would pocket $82.5K (plus a few K from paying down the loan….a whopping 532% return on his initial investment!
Yes, there are different cash outlays compared to renting, but the cost of the mortgage/condo fee/utilities work out to about the same as rent because he would get the tax deduction for mortage interest & property taxes.
And if he stays in the condo for the long run he will see price appreciation sooner rather than later because of the downtown location, location, location.
Woodsider,
First, I highly doubt there would be a 100 percent appreciation between 2004 and 2006 (the peak RE boom year). The bubble was in full force in 2004; the year 2001 would have been a better benchmark when real estate prices started to take off.
Second, I don’t flip properties. Home is where you hang your hat for a long time. I don’t see my condo or house as a money machine for buying luxury items or as a financial savior for my retirement years.
Third, it is still a renters market. The cost ratio between renting versus buying still skews in the favor of renting. Although, the spread has diminished significantly since the Housing Bubble popped. Property taxes will increase as the county must close its budget deficit gap.
Fourth, there is too much upheaval with the global financial markets to think about investing in property. We have a massive credit crunch and I will have a hell of a time finding a 30-year fixed mortgage at an affordable interest rate. Banks are not lending right now…not even to businesses and individuals with solid credit histories and decent collateral. The gazillion dollar bailout package is a short-term fix in my opinion.
I agree that location matters since gas prices continue to chip away family budgets. Demand will remain stable for downtown Silver Spring. However, this doesn’t mean that the supply of available condo units will be obtainable because of the financial crisis. I would hate to be a real estate developer trying to sell property right now.
IHY, your initial posting was about what you didn’t do when your friends told you to buy in 2004 and that’s what I responded to. You weren’t talking about buying now.
Selling a property after four years isn’t “flipping”…selling after a year or less might be. If you would be a long term owner then your argument against buying in 2004 is even more flawed since the bubble is only relevant to buyers & sellers.
Certainly no one should use a home’s equity for anything except improving (within reason) the asset itself. But why in the world would you be against having your equity contribute to your retirement? Regardless of the current economic proglems, over time, the house/condo will rise again in value–it is FREE MONEY when you sell it (up to $250K capital gains for a single dude like you).
Do you really think Social Security will be enough for you in 35 years? As an eternal renter, I hope that for the past ten years you have been investing every penny you can in the stock market by dollar cost averaging in good times and bad.
Unfortunately, your opinion isn’t supported by facts and I’m afraid your unwillingness to see another side will keep you working for “the man” and under the will of a landlord for most of your life.
Think that as a renter you will come out ahead? Your rent is destined to continue to rise every year and the condo/home price meltdown will only add to your increases. People have to live somewhere and if they are not buying houses then they are renting. The more people rent the lower the vacancy at apartment complexes and in turn the higher the rent.
Renters who can’t pay the higher price of all the new apartments on the market will look to “B-class” apartments like Summit Hills, where you live. High demand = rent increases. Trust me, I’m in the business and have access to a vast amount of data that supports what I am saying.
So, once again, had you bought anything in 2004 with a non-adjustable mortgage, your payment would still be the same. Instead, your rent will continue to go up every year.
Sure, I will buy real estate some day. But it won’t be in Silver Spring. The cost of real estate here is too excessive. It’s a shame because I really like the community but the area is becoming a playground for yuppies that have income means to buy property.
I can name several DISADVANTAGES of owning property though:
Sure, the mortgage payment stays the same. But the property taxes, insurance, and condo fees are not static. You better believe they increase of every year.
If you own a house, the expenses can be burdensome. If the hot water heater dies, you need a new air conditioner, roofing needs repair, plumbing problems…you just can’t call a landlord and have a repair guy come out at no charge. You are talking thousands of bucks for upkeep with the property. Oh, and I have to buy a lawn mower to keep that grass presentable.
I am sure you know that electric utility rates have risen dramatically in the past couple of years. Cooling off a house in the middle of summer is going to be expensive. Heck, just keeping the lights on and TV running will cost you big-time when the see the PEPCO bill.
I know people who have home heating oil and they have seen prices jump 50-75 percent in the past year alone. Ouch!
You wanna know what I pay in utilities at Summit Hills per month? ZERO. Zip. Nada. You wanna how much my rent increased this year? About $20 per month. Not bad since I don’t have to worry about property taxes or big utility bills. I am actually saving real money by renting at Summit Hills. That money will come very handy when I make a down payment on a property that will be outside of the Washington, DC region.
By the way, even when you purchase a house, you are still paying “rent”. The bank is the landlord and they still want their check every month just like a real landlord. This ownership society BS shoved down our throats from the ass hats in Washington caused this big mortgage mess in the first place. Everybody wanted a slice of the so-called “American Dream” of owning a home. The sky was the limit when it comes to home property values. Freddie Mac and Fannie Mae doling out loans like it was Monopoly money. Gee, what happened to them recently?
A fool and his money are easily parted.
“Home is where you hang your hat for a long time. I don’t see my condo or house as a money machine for buying luxury items or as a financial savior for my retirement years.” Right on, IHY!
Jennifer, who is “Erlich”? Did the reporter mean Councilmember Marc Elrich? Would also like to see more detail. I recall a report on the MPDUs showing that in one recent year, 0 units were actually built. If the reporter meant Councilmember Elrich, I would be surprised to hear that he favors keeping the buyout. Also, aren’t there some complications with federal (HUD) financing, such as the obligation to keep units affordable expiring after X # of years or after certain loans are paid back? We seem to keep losing existing rental housing stock, in part due to condo conversion. In such conversions, I have the impression that few renters in the complexes actually “convert” to owners.
Hi LuvMyHood,
One of my paragraphs didn’t make the article. It explained that Councilmember Nancy Floreen was not able to make the Committee meeting and Councilmember Marc Erlich had to leave in an hour.
It was Marc Erlich. He said that he has never been one to be opposed to requiring reasonable requirements on developers but he does question whether the changes to the MPDU law would work in high rises. He also pointed out that in single-family developments, the MPDU residences are sometimes more than a block away from the market-rate residences. He indicated that he is seeking flexibility.
Hi, Cindy. Thank you for the clarification. However, your clarification repeats an error from the story: the councilmember’s name. It is Marc Elrich, not Erlich. I suspect a spell-checker that was set to the name of former Gov. Robert Erlich. Indeed, Marc’s supporters have called the former governor “Bobby Haircut.” They differ sharply on issues. For example, Elrich has opposed the Intercounty Connector, but Erlich supported it.
IHY,
Actually you do pay for utilities…they are included in your rent. It’s all marketing to think they are “free” and apparently you believed it. If utilities were not included then your rent would probably be $125 less for a 1BR in your location.
The cost of gas and electricity have risen to the point where it is cost effective for landlords to convert their “all utilities included” properties to “resident pays utilities”. It’s happening en masse throughout the DC area so don’t be surprised one day when Southern Management tells you your new rent is lower but now you are responsible for gas & electric.
Woodsider, I agree with your last post about utilities.
I have seen much lower rents in the Midwest, but residents pay utilities. However, several factors may influence this. If each unit has a thermostat (and perhaps even a meter) it is easier to break it down. If the units have radiators, the tenants have little control. However, if they use electric space heaters, their electric bills will jump. Some of the old-fashioned space heaters can present fire hazards,and I suspect even the newer, safer ones put some strain on the wiring.
Also, regardless of whethe the landlord owns the building, the condo or co-op members own it, if the charges fail to cover the regular maintanance, big projects and emergencies — look out. A backlog of maintenance creates pressure for conversion to a more “upscale” place.
Question for Mouse, who said the developers sold out the condos built in Silver Spring during the recent boom. How many were sold to owner-occupants? How many to investors? Living in a building where the vast majority of neighbors own their units as primary residences in one thing. Living in a building where a high percentage are renters is another. I am not disparaging renters. But such a building has 2 classes of people. The tenuous feeling can be very uncomfortable for renters. And the landlord/owners can act high-handed. Even if the complex is designed to be primarily owner-occupied, it can be difficult to get the landlord/owners to sell — even to the renters occupying the units.