A dramatic drop in multi-family permitting in Montgomery County has drawn sharp criticism, big questions and some rethinking of county policies.
Data released by the county’s Planning Department showed a major change in the number of multi-family units permitted since County Council enacted a rent control law in July 2024. In the last quarter of 2024 and the first two quarters of 2025, the number of units permitted ranged from 7 to 23 per quarter. In the first two months of Q3 2025, that number was 54. In the seven quarters before July 2024, the number of permitted units ranged from 284 to 1,240 per quarter.
CRE professionals and policy-watchers say a number of factors have depressed multi-family investment in the county: high interest rates and capital costs, long-term lack of job growth in the county, expensive and time-consuming development regulations, major cuts in federal employment and spending in 2025, and trickle-down effects on service industry jobs in the county.
Source: Montgomery County Planning
“But frankly, the nail in the coffin was the rent-control law,” said Geoff Sharpe, Vice President – Creative Planning and Development at Federal Realty.
“I know the county council’s heart was in a good place when they passed the rent control law, but the consequence is they have slowed development of multi-family rental units,” said Dr. Daraius Irani, Chief Economist for the Regional Economic Studies Institute. “These laws make many landlords very nervous about the fact that their returns are capped, but their risk is not capped.”
In addition to limiting owners’ ability to deal with rising costs, the law’s prescribed limits on annual rent changes prevent owners from tailoring increases to market conditions and averaging profits and losses over multi-year periods, Sharpe said.
Due to the rent control law and other unfavorable conditions in Montgomery County, “we’re just not going to invest our capital here,” Sharpe said. “We are a public company and it would not be responsible for our investors.”
Federal Realty, he added, has entitled almost 1,000 multi-family units in the county, including 450 units off Rockville Pike and 250 units in Bethesda Row. “We are not moving forward with a single one of them.”
The company is actually downsizing its residential holdings in the county and recently sold a building at Pike and Rose.
The regulatory environment has prompted many financiers to effectively curtail any investments within the county.
“Because of rent control, capital investors have raised their financial threshold. They are raising what they would accept as a rate of return before even starting a conversation with people who are looking for investment in the county,” said Stacy Silber, a Partner at Lerch, Early & Brewer, Chtd. where she practices Land Use law.
“On the positive side, I think Montgomery County is beginning to take note of what is happening and the fact that almost no multi-family projects are moving forward right now. They are beginning to address the issue,” Silber said.
Last fall, the county’s Planning Department released preliminary findings from its assessment of development pipeline challenges. A survey of and interviews with developers highlighted three key types of obstacles:
- Market-based challenges – interest rates, construction costs, and weak demand and job growth;
- Policy-based barriers – rent stabilization regulation, impact and permit fees;
- Project-based barriers – approval and permit delays, infrastructure costs and phasing.
Planning staff also recommended several policy changes to boost delivery of housing projects. They include:
- Streamlining regulatory processes;
- Improving coordination and permitting efficiency across county agencies;
- Financial incentives and infrastructure support for large housing projects;
- Changing the rent control policy.
The county has already launched some measures to attract investment and development, Silber said.
“Montgomery County Economic Development is beginning to work with Planning to see if they can pre-entitle sites, so if a big employer is looking, the county will be able to point to sites that are ready to develop,” she said.
The county has created a pilot program to facilitate office-to-residential conversions and adopted a payment-in-lieu-of-taxes arrangement for residential developments beside Metro stations.
“There are promising signs that the county is realizing they have to do things differently and they have to think creatively about development,” Silber said. “I am seeing more investment come back into the county, but those are breakthroughs – projects that are exceptions to the normal rules where some initiative is helping the investor get that higher rate of return. There is still a lot that needs to be done to attract investment.”
Featured in this article: Federal Realty, Regional Economic Studies Institute, Lerch, Early & Brewer, Chtd, Montgomery County Planning Department