The Boston area’s history of passing and then repealing rent control has produced a wealth of research on its real-world effects.
Mayor Michelle Wu’s new proposal to re-regulate rents could create the perfect test case for whether modern “rent control 2.0” policies do in fact avoid the unintended consequences of their 20th-century predecessors.
“Tenants in Boston are often victim to steep rent increases, making it impossible for them to stay in their homes,” wrote Wu in a Monday petition to the city council, citing advertised rent increases in the city of 14 percent or more.
The mayor is urging the council to a pass an ordinance that would cap rent increases at either 10 percent or local inflation plus six percent, whichever is less.
Her policy is based on recent “anti–rent gouging” laws in Oregon and California, which limit rent hikes to seven and five percent plus inflation, respectively. (California also creates a maximum 10 percent rent cap.) Like those two states, Wu is proposing to let owners raise rents as much as they want on vacant units and at buildings less than 15 years old.
Adopting those same exemptions and allowances for vacancies, recent construction, and inflation will allow Boston “to maintain a robust development market” while still providing tenants with stability, claimed Wu.
Greg Vasil, CEO of the Greater Boston Real Estate Board, isn’t convinced. Rent control “increases housing costs, discourages upkeep and maintenance, and disincentivizes construction,” he told a Boston CBS affiliate.
In 1969, the Boston city council passed an ordinance giving tenants the ability to appeal any rent increases to a city rent appeals board. A few years later, another law flipped this arrangement: All rent increases were presumptively banned, and landlords had to petition the appeals board for an exception.
In 1976, the city moderated rent control slightly by adopting vacancy decontrol, which allowed landlords to remove apartments from rent control if a tenant moved out. The number of rent-controlled units then dropped from 100,000 to 25,000 in just six years.
In 1994, a state ballot initiative overturned cities’ rent control policies.
Researchers have exploited the imposition and repeal of rent control to tease out the policy’s effects in Boston and surrounding communities.
One 2007 paper by economist David Sims found that rent control did significantly reducing prices on controlled units. But the policy also prompted lots of building owners to convert rental units to condominiums. The quality of rent-controlled housing deteriorated.
Rent control policies in Boston and Cambridge, Massachusetts, also only covered housing units that existed when those policies were passed. Owners of newer units were exempted from the cities’ rent caps. That plausibly explains why the Sims paper found that rent control didn’t reduce new construction activity.
A 2012 NBER working paper found that the 1994 repeal of rent control led to increasing real estate values for both decontrolled and never-rent-controlled properties, and that the property value increases were highest at never-rent-controlled properties.
That implies “the efficiency costs of Cambridge’s rent control policy were large relative to the size of the transfers made to residents of controlled units,” the researchers wrote.
In one sense, Wu’s proposal is less restrictive than Boston’s past rent control scheme. In other ways, it’s actually more restrictive.
A 6 percent plus inflation by-right increase is well above the city’s old presumptive ban on rent hikes. It’s also higher than other old-school rent control policies still in effect in places like New York and San Francisco that typically cap rent increases in the low single digits and well below inflation.
Wu’s plan gives landlords a little more flexibility to raise rates in response to rising costs or to cover maintenance expenses. Landlords’ disincentive to upkeep their properties is reduced.
On the other hand, the rolling 15-year exemption to rent caps for newly built buildings is more restrictive than Boston’s old policy, which didn’t apply at all to new construction. If Wu’s proposal is passed, all qualifying residential buildings will eventually fall under rent control.
Economists have warned that similar rolling exemptions in Oregon and California will reduce the value of new units and thus reduce developers’ willingness to build them. The supposedly smarter design of rent control 2.0 could actually be more injurious to new supply than preceding policies were.
That would worsen Boston’s underproduction of housing units, making overall affordability in the city worse.
That’s the theory, anyway. Wu’s proposal has to be passed by the city council and then approved by the state legislature before it can go into effect. If that happens, we’ll have a perfect test case of whether a carefully crafted rent control policy can in fact repeal the law of supply and demand.