Market Rate Rental Housing

For many households, rental housing is a preference; for others, it is a financial necessity.
In 1996, households in the lowest 20 percent of County incomes, those with incomes below
$37,500, could only afford 9 percent of all single-family houses sold that year, about 1,100 of
12,400 houses. With few exceptions, only households at the high end of the low-income range
could afford any of the houses that were for sale. For the rest, rental housing is often the only
choice. Households with limited choices include in-movers, especially recent immigrants; young
workers; long-term workers in low-wage jobs; and older residents with limited incomes.

Many households at the very lowest income levels rely on subsidized units for housing.
Such resources are discussed in depth in the “Assisted Housing” section starting on page 31.
Market rate housing also provides some rental units that are affordable to low and moderate
income households. This section of the Inventory concentrates on market rate units.

Some of the market rate complexes also include subsidized units or units that are publicly
owned. A clear distinction between market rate and subsidized units can be difficult to draw. For
example, some of the most expensive high-rise apartments in the County are in a mixed income
building owned by HOC, the Metropolitan. This study considers units with rent rates that are
expressed in dollar amounts and that are no more than about $50 below other units in the area to
be market rate. Those with an income ceiling that charge a percentage of income or those with
extremely low rents and public or nonprofit ownership are considered assisted. Some of the
market rate units are also included in the assisted section as opportunity housing. Specialized
housing for the elderly has also been excluded from the rental housing analysis. The rents for age
segregated housing often include services and amenities such that spending a higher percentage
of income for rent becomes reasonable.

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Rents
In 1999 the maximum rent for a two-bedroom apartment leased with a Section 8 voucher
was $8202 per month. This analysis uses Section 8 voucher rents as an indicator of affordability.
These rents are a convenient dividing point between market rate housing that is affordable to
lower income households and housing that is not. Two-bedroom apartment rents are discussed in
detail to illustrate the composition of the rental housing stock by price range.

According to housing industry standards, an affordable rent should represent no more

than 30 percent of income. This means that the $820 per month apartment is considered
affordable to households with incomes of
$32,800, about 46 percent of Montgomery
County’s 1999 estimated median Supply of Affordable Two-Bedroom Units by
household income. The standard target rent Housing Type
of no more than 30 percent of income is an
# Units Total Two- Percent
extremely desirable goal. However, U.S.
Priced Below Bedroom Below
Census data and other surveys routinely Type $820/Month Units $820
report that many households exceed this
percentage in order to find an adequate Garden Apt. 8,992 21,448 41.9%
place to live. Mid-Rise 352 1,807 8.0%

All rents discussed in this section High-Rise 358 4,422 8.1%

are turnover rents – the rent that is charged Total 10,541 27,677 38.1%
to a new tenant. Long-term tenants may $820 represents the maximum 1999 Section 8 voucher low-
pay somewhat less as landlords often raise income rent.
rents for continuing tenants less than they
raise the rents for new tenants. The rental
information in this Inventory is based on DHCA’s 1999 Rental Apartment Vacancy survey.
Some preliminary data from the 2000 survey are also included.

In 1999, 38 percent of the County’s two-bedroom rental apartments were priced at or

below $820 per month. Almost all of these, 85 percent, were garden apartments. Only four high-
rise complexes were in this price range, three in Silver Spring or Takoma Park3, and one in Kemp
Mill/Four Corners. Their rents ranged from $691 to $800 per month. The least expensive of these
units is affordable to a household with an annual income of just under $28,000.

Twelve mid-rise complexes were in the Section 8 Voucher rent range. Again, all but one
of these are in Silver Spring and Takoma Park. The other is located in Fairland. The rents ranged
from $571 to $820 per month. The least expensive unit would be affordable to a household with

2
This rent is also known as the fair market rent.
3
None of these units were in Silver Spring’s Central Business District.

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an annual income of $23,000. There were no market rate mid-rise or high-rise apartments in
Bethesda-Chevy Chase or the I-270 Corridor reporting two-bedroom rents below $820.

Modestly priced two-bedroom units in garden apartment complexes were more plentiful
and more widely dispersed throughout the County than similar units in high-rise or mid-rise
complexes. Market rate, lower rent garden apartments could be found in every section of the
County. Silver Spring and Takoma Park had the highest percentage of lower rent units, 77
percent, while Bethesda-Chevy Chase had the lowest percentage, 25 percent. The lowest rent was
$495, requiring an income of $19,800 per year.

Other apartment sizes have similar patterns of availability of units affordable to

households needing rents at or below the Section 8 Voucher level. The share of one-bedroom
apartments affordable to low-income households is particularly small. Only 1.5 percent of high-
rise one-bedroom units are below Section 8 levels, and a comparatively low 37 percent of garden
apartment one-bedroom units are in this price range. Three-bedroom units, on the other hand, are
more likely to be affordable. Almost all of the mid-rise three-bedroom apartments in the County
are affordable based on the Section 8 Voucher rent level, as are 83 percent of the garden and 37
percent of the high-rise units. The main exception is units in high-rises in Bethesda-Chevy Chase
and the I-270 Corridor. All of the 265 three-bedroom high-rise units in those areas are priced
above the Section 8 Voucher level.

Overall, about 35 percent of the County’s approximately 57,500 market rate apartments4
had rents at or below the Section 8 Voucher maximum in 1999. These 20,000 units are an
extremely important housing resource. They are not, however, sufficient to house all of the
County’s more than 50,000 low income households. Based on the 1997 Census Update Survey
data, low income households were those with incomes below $40,000, approximately 60 percent
of the 1996 median income. Even combining these lower cost apartments with the County’s
approximately 11,718 subsidized units (see Tables 6 and 7.) and various other affordable options,
many households must still pay too much for housing or accept inadequate units. The 1997
Census Update Survey found that 28 percent of households in rental housing were paying 30
percent or more of their incomes for rent. Ten percent of all renter households were paying 50
percent or more of income for rent. A small proportion of these may be elderly households whose
rent includes some meals. As mentioned above, such households would expect to pay a higher
percentage of income for rent. Many of the rest may be sacrificing other necessities for their
housing.

4
Includes only complexes of 12 or more units that participated in the County’s 1999 rental vacancy survey and meet the
definition of market rate housing on page 8..

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Vacancy Rates
Rental vacancy rates for all Vacancy Rates by Building Type
unsubsidized units have been steady or
declining since 1994. As the economy has Type 1994 1997 1999
improved, the market has tightened High-Rise 3.8% 3.4% 1.8%
considerably. Preliminary data for 2000 reveal
an even tighter market with an overall Mid-Rise 3.2% 4.3% 2.8%
vacancy rate of 2.5 percent. Apartments Garden 4.5% 4.8% 3.4%
projects are usually structured so that the
project is considered fully occupied at and All Types 4.3% 4.4% 3.0%
reaching financial expectations at a 5 percent All unsubsidized units.
Source: Department of Housing and Community Affairs
vacancy rate. When rates fall much below 4 or
5 percent, prospective tenants may not be able
to find appropriate units in any price range. The level of demand tends to drive up rents, and
owners have little time between tenants or incentive for routine maintenance, such as painting
and for modernization.

2000 Rental Apartment Vacancy Survey

Early results of the 2000 rental survey indicate that the housing situation for low income
renters is deteriorating. County-wide, rents rose 7.8 percent between April 1999 and April 2000.
The increase was 7 percent or more for every unit size. This increase was about triple the 1999
increase in the Consumer Price Index for the Baltimore-Washington area. Combined with the
decreasing vacancy rates, the number of apartments available for lower income households
appears to have declined.

The affordable market rate rental supply is also being eroded by another effect of a strong
economy. Low vacancy rates, rising rents, and the thriving economy combine to encourage
owners and investors to upgrade rental properties. This may result in a healthier housing stock
but also in higher rents, much higher in some cases. It is too soon determine how many units are
affected by this trend, but there are indications that such renovations are becoming widespread.
Many of these modernization projects are moving apartments out of the affordable range of the
market.

Findings
Rental housing is often the only real option for low- and especially for very low-income
households. Montgomery County had a comparatively wide range of units with moderate rents in
the 1990s. A major source of this supply was older apartment buildings showing their age and
commanding fairly modest rents. Indications in the last few years are that the market is changing
in response to a strong economy in ways that reduce the options for poorer households.

• Increasing rents and decreasing vacancy rates are creating an increasingly tight
rental market. Early 2000 data show a continuation of this trend.

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• While affordable apartments are reasonably plentiful now, pressure to upgrade
older stock and build expensive new units threatens to decrease the affordable
stock.

• County government is actively working to retain affordable units in the housing

stock.

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