Cautionary Tales from Across the River
The multifamily construction market nationwide is facing high interest rates, the impacts of the Trump administration’s aggressive and volatile tariff policy, and a slowing economy, all of which have led to a slowdown in construction. And yet, from a regional perspective, Virginia continues to experience strong levels of new multifamily construction starts, while neighboring jurisdictions in Maryland and Washington, D.C. have seen a precipitous drop in activity.
The Commonwealth’s reputation as a business-friendly jurisdiction is well cemented. Virginia’s economic development trophy case features countless recognitions, including a record six times being named the “Top State for Business” by CNBC, most recently in 2024. Virginia placed #4 in the 2025 rankings, while Maryland comes in at a below-average 32nd place. The District of Columbia is not included in the CNBC rankings, but other similar rankings, such as the Tax Foundation’s Business Tax Climate Index, rate D.C.’s business environment at the bottom of the heap (#48 overall).
This reputation extends to the rental housing business, as evidenced by the distribution of total multifamily housing construction starts across the Washington metropolitan region. According to Costar, the percentage of the region’s new housing construction located in D.C. and Maryland has dropped precipitously since the outset of the pandemic, down from an average of 40% and 25% respectively, to approximately 11% apiece. This suggests that construction hasn’t just slowed down; it has moved and relocated to Virginia. Apartment building owners in Northern Virginia have been the biggest beneficiaries. Multifamily transaction volumes were up 155% in Virginia in the first three quarters of 2024 compared to the same period in 2023.
The Commonwealth’s regional dominance in apartment development over its regional counterparts stems from a stable regulatory climate that encourages developers to invest without fear of sudden policy shifts. This is not the case in Washington, DC, and Suburban Maryland, and we show why below.
Suburban Maryland
In Suburban Maryland, a series of bills passed at the County level over the past three years have mandated expensive retrofit work for existing multifamily buildings, including Building Energy Performance Standards in Montgomery County and burdensome security camera requirements in Prince George’s County. Additionally, Montgomery County has substantially increased real estate taxes over the past three years. This includes an increase in transfer and recordation taxes from $2.30 per $500 in assessed value to $6.90 per $500 in assessed value, a 4.7 percent increase in the effective property tax rate, and a significant increase in impact taxes, a fee charged on new real estate construction projects to fund school and transportation capital projects.
These policy decisions have significantly increased the operating expenses of housing providers. The effect is most severe for older, class B and C rental housing, which requires more frequent maintenance and commands far lower rents. However, the recent passage of restrictive rent control in both Counties is the most significant reason why developers and housing providers are avoiding making new investments in Suburban Maryland.
Montgomery County passed its rent control law on July 23, 2023, and it became effective on July 23, 2024, through the approved executive regulations. Prince George’s County passed its law in 2024 and is currently finalizing the regulations. Both laws implement complex regulatory requirements that govern ancillary fees and exemptions. However, the most negatively impactful provision both laws share is vacancy control, which regulates rents between tenancies by prohibiting any increase upon vacancy beyond the allowable rent increase. In both counties, that increase is CPI plus three percent, with a maximum of six percent.
By regulating rents between tenancies, vacancy control gradually defunds rental housing, choking off revenue and increasing the number of distressed properties —those where operating and maintenance costs exceed gross income. In New York City, the implementation of vacancy controls has resulted in over 20,000 units being held off the market because allowable rents do not cover operating expenses and the costs of bringing units up to code.
The market response to the implementation of rent control in suburban Maryland has been swift. New multifamily construction starts dropped by half in 2024. Adam Pagnucco, a former Montgomery County Council staffer and journalist covering county politics, asked his real estate sources about the combined effect of rent control and the wider regulatory environment on housing development. The consensus among the six sources that responded was that the County has become radioactive for investment, while multiple sources stated Northern Virginia is the go-to market.
These sentiments from industry participants supported by County planning board data, which show that the number of residential units permitted has dropped precipitously from Q1 2023 through Q2 2025, from hundreds of units per quarter to 8, 7, and 23 in Q2 2025, Q1 2025, and Q4 2024, respectively. All 38 of these units were for sale, not for rent. Staff summarized the data at a July planning board meeting as follows: “The big takeaway is that there is essentially no- there’s no for-rent multifamily, it's been over nine months, we haven’t seen a permit for for-rental multifamily units.”
Washington, DC
The District’s regulatory environment is also challenging for real estate developers and housing providers, though two laws passed this year may begin to make it more favorable.
The District, like Montgomery and Prince George’s County, has rent control in place, but it applies only to buildings constructed before 1974 and allows a vacancy bonus when a renter voluntarily vacates an apartment. This helps counteract the deterrent effect of rent control on new housing construction, allowing housing providers to boost revenues upon unit turnover to cover expenditures after long tenancies and exempting new construction.
However, there are two unique differentiating factors that set the District apart from both Suburban Maryland and Northern Virginia. The first is a series of legislative changes that made temporary laws enacted during the pandemic permanent, resulting in the landlord-tenant court process, which previously took 4-6 months to conclude per case, taking approximately 12-16 months. These changes included mandating automatic stays of eviction when renters apply for rental assistance, creating a 30-day notice requirement before filing for eviction in court in instances of nonpayment of rent, and requiring judges to dismiss eviction cases for technical filing errors that do not prejudice tenants.
These changes created a massive delinquency crisis that imperiled the financial viability of government-subsidized and older rent-stabilized housing. According to a February 12 presentation by the Office of the Deputy Mayor for Planning and Economic Development, unpaid rent owed to affordable housing providers, which are properties that receive government subsidies through local or federal programs, totaled $100 million in 2024. DMPED projected that number to rise to $147 million absent legislative action.
The second differentiating factor is the District’s Tenant Opportunity to Purchase (TOPA) Act. Enacted over 40 years ago, TOPA requires owners of apartment buildings to notify renters when a sale of the building has been agreed upon in principle. The building’s residents can then form a Tenant Association and either match the offer for the building and purchase it, turning it into a co-op. If the building residents cannot afford to purchase the building, as is overwhelmingly the case, they can assign their rights to a company of their choice, which can then purchase the building by matching the original offer.
The TOPA process deters investment in several ways. First, the process can delay building transactions between 5.3 months and 420 days. During this time, prospective buyers must place funds in escrow that remain inaccessible during the TOPA process, tying up capital that could be deployed elsewhere. Additionally, market fluctuations could imperil the proposed purchase.
Second, the process applies broadly due to the definition of sale under TOPA, which includes refinancing and recapitalization. Common commercial lending agreements typically require multifamily properties to refinance mortgages every 15 years or pay a balloon payment that consists of the loan balance, while investors usually exit projects every 5-15 years. Both processes are considered sales under TOPA and require notice to tenants, triggering the TOPA process. Taken together, TOPA presents severe obstacles to attracting investors, refinancing properties, and conducting sales, resulting in investors looking elsewhere.
The D.C. government has publicly acknowledged the reality of the policy environment’s impact on the market and its inability to attract new investment. The Washington, DC Economic Partnership, in conjunction with the Office of the Deputy Mayor for Planning and Economic Development (DMPED) and Mayor Muriel Bowser, conceded in their annual Development Report that onerous policies adopted by the District were responsible for the 79% drop in new multifamily construction starts:
“The lack of new construction starts and lower multifamily investment sales activity in the District compared to surrounding jurisdictions is partially due to the city’s regulatory environment. Pandemic-era regulations made it more difficult for landlords to evict tenants who were rent delinquent, which resulted in a large share of tenants not paying rent with little recourse.”
The DC Council has responded to these twin challenges by passing two laws this year. The first, the Emergency Rental Assistance Reform Amendment Act, reforms the District's rental assistance program by removing the requirement to automatically stay cases upon the submission of an application for rental assistance by a tenant, and making other programmatic changes. Subsequently, the Council passed the Rebalancing Expectations for Neighbors, Tenants, and Landlords (RENTAL) Act on September 17, 2025. This law enacts significant reforms to TOPA and the District’s landlord-tenant process. Both laws are expected to facilitate greater investment in rental housing construction and result in a healthier rental housing industry throughout the District. However, it will take some time for the rental housing market to stabilize and investor sentiment to change, as the RENTAL Act still needs to undergo Congressional review, while certain provisions will require enabling regulations and appropriations.
Takeaways
As Virginia seeks to attract new community investment to meet its housing production targets, lawmakers should learn from the self-inflicted mistakes made by their neighbors across the Potomac. Avoiding policy approaches that layer additional costs and regulatory burdens on housing providers and deter investment in new housing will be crucial if the Commonwealth is to maintain its regional competitive advantage in housing development.