The Boston area’s history of passing and then repealing rent control has led to a wealth of research on its real-world effects.
Mayor Michelle Wu’s new proposal to re-regulate rents could make the perfect test case for whether modern “rent control 2.0” policies can actually avoid the unintended consequences of their 20th-century predecessors.
“Boston renters often suffer steep rent increases, making it impossible for them to stay in their homes,” Woo wrote in Monday’s petition to the City Council, citing citywide advertised rent increases of 14 percent or more.
The mayor is calling on the council to pass an ordinance that would cap rent increases at 10 percent or local inflation plus six percent, whichever is lower.
His policy is based on recent “anti-rent” laws in Oregon and California, which limit rent increases to seven and five percent plus inflation, respectively. (California also imposes a maximum rent cap of 10 percent.) Like those two states, Wu is proposing to let owners raise rents as much as they want in vacant units and in buildings less than 15 years old.
Accepting the same deductions and allowances for vacancy, recent construction and inflation would allow Boston to “maintain a strong growth market” and still provide tenant stability, Woo contended.
Greg Vasile, CEO of the Greater Boston Real Estate Board, isn’t convinced. Rent control “raises the cost of housing, discourages upkeep and maintenance, and discourages construction,” he told a Boston CBS affiliate.
In 1969, the Boston City Council passed an ordinance that empowered tenants to appeal any rent increase to the city’s Board of Rent Appeals. A few years later, another law overturned this system: all rent increases were presumptively prohibited, and landlords had to apply to the Board of Appeals for an exception.
In 1976, the city relaxed rent control somewhat with vacancy controls, which allowed landlords to remove apartments from rent control if a tenant moved out. The number of rent-controlled units then fell from 100,000 to 25,000 in just six years.
In 1994, a state ballot initiative overturned the cities’ rent control policies.
Researchers have used the imposition and repeal of rent controls to tease out the policy’s effects on Boston and surrounding communities.
A 2007 paper by economist David Sims found that rent control significantly reduced the value of regulated units. But the policy also prompted many building owners to convert rental units into condominiums. The quality of rent-controlled housing has deteriorated.
Rent control policies in Boston and Cambridge, Massachusetts, cover only housing units that existed when those policies were passed. Owners of the new units were exempted from the city’s rent cap. This likely explains why the Sims paper found that rent controls do not reduce new construction activity.
A 2012 NBER working paper found that the repeal of rent control in 1994 increased real estate values for both regulated and never-rent-controlled properties, and property value growth was highest in never-rent-controlled properties.
This suggests “the efficiency of Cambridge’s rent control policy was larger relative to the size of residents moving into cost-controlled units,” the researchers wrote.
In a sense, Wu’s proposal is less restrictive than Boston’s past rent control schemes. In other ways, it is actually more restrictive.
A 6 percent plus inflation buy-in increase is on top of the city’s old presumptive rent increase ban. That’s more than other old-school rent control policies still in place in places like New York and San Francisco that typically cap rent increases in the low single digits and below inflation.
Wu’s plan gives landlords a bit more flexibility to raise rates in response to rising costs or to cover maintenance costs. Landlords are less motivated to maintain their properties.
On the other hand, the rolling 15-year exemption to cap rents for newly constructed buildings is more restrictive than Boston’s old policy, which did not apply to new construction at all. If Wu’s proposal passes, all qualifying residential buildings will eventually come under rent control.
Economists warn 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 smart design of rent control 2.0 may actually be more detrimental to new supply than previous policies.
This would worsen Boston’s underproduction of housing units, which would worsen the city’s overall affordability.
That’s theory, anyway. Wu’s proposal must be passed by the city council and then approved by the state legislature before it can take effect. If so, then we will have a perfect test of whether a carefully crafted rent control policy can actually override the laws of supply and demand.