Several homes in my neighborhood have sold recently, each more expensive than the last. The priciest was a lovely home that drew $1.65 million at the peak of this spring’s market.
Takoma Park is a great place to live. It’s also the only jurisdiction in the region that has rent control.
As a result, one building here sold cheap: a 12-unit multifamily building at went under contract in late July for $1,280,000. That’s just $130 per square foot, less than a third as much as the dilapidated (although heroically marketed) house next door.
Outside the City of Takoma Park, inferior multifamily real estate commands higher prices. On the unincorporated side of Flower Ave – where commutes are longer, perceived crime risk is higher, and students are assigned to less desirable schools – two small, unrenovated multifamily buildings sold this year for $258 and $191 per square foot, respectively.
Now, it’s of course possible that the cheap 12-unit building is so cheap due to major maintenance issues or higher taxes. But it’s no surprise to find that decades of strict rent control would massively depress multifamily building values.
The upshot is that there’s an investment opportunity here. For just $1.3 million, you can buy this 25,000 square foot lot, scrape it, split it into three lots, and build a McMansion on each. If the Big Macs cost half a million to build and sell for $1.25 million each – we’re being conservative here – you’re looking at a clean million dollars in profit.
As far as I know, no-one has done that with a Takoma Park rental building. But plenty have been converted to condos (“very cool, hip, and chic”, fellow kids). And no one has built new multifamily within the city limits since rent control was instituted in 1980. Rent control is how affluent people outbid their working class neighbors for valuable urban land.