Two of Boston’s biggest high-end landlords say a lack of competition from new buildings let them raise rents nearly 5 percent to over $3,000 per month, with more hikes likely in the coming year. iStock illustration
Rapidly rising rents have once again resurrected calls for rent control.
President Joe Biden, not long before he dropped his reelection bid, announced a proposal to cap rent increases by corporate landlords.
At her recent campaign rally in Atlanta, Vice President Kamala Harris, who has replaced her former boss at the top of the ticket, embraced the Biden rent capping plan.
Local proponents of rent control, like Boston Mayor Michelle Wu, are quiet at the moment, with state a state proposal that would have enabled cities and towns to cap rents having died long before the two-year legislative session ground to an inglorious close a little more than a week ago.
But you don’t have to be a psychic to predict that it is only a matter of time before Boston’s mayor, as well as her counterparts in other progressive bastions like Cambridge and Somerville, are back banging the rent control drum.
In fact, the latest news out the region’s two largest corporate landlords, Equity Residential and AvalonBay Communities, will likely hasten the resurrection of temporarily dormant rent control proposals.
No Competition Leads to Price Hikes
As Banker & Tradesman reported last week, Equity Residential, which owns more than 7,000 mostly high-end apartments in the Boston area, has boosted face rents in those units by 4.3 percent over the past year.
The average rent at an Equity building now tops $3,583 per month.
Ditto for similar high-end multifamily owner AvalonBay, which hiked rents at its 42 different New England rental complexes by 4.7 percent, with the average rent a crushing $3,363 monthly.
But when the calls for rent control – or “rent stabilization,” as it is now euphemistically called – inevitably return, it’s unlikely proponents will spend much if any time discussing the factors that have enabled the two apartment giants to get away with this slow-motion bank heist.
It’s not that Equity Residential and AvalonBay have hidden their tracks and obscured their methods. Far from it, they are brazen in explaining how they harvested all those additional millions in profits from an already stressed-out and maxed-out rental market.
No, the real reason is that even a cursory analysis would point to some basic facts that undercut the case for attempting to bring down rents by government fiat, as opposed to harnessing market forces.
The lack of competition from new developments is the major factor enabling the rent hikes, AvalonBay COO Sean Breslin recently told stock analysts during the company’s second-quarter earnings call.
And more rent increases are on the way, with construction starts on new apartment buildings continuing to slide.
Boston Building Has Crumpled
While no mention appears to have been made about the status of the rental market in Greater Boston, following this fairly solid logic, we can expect to potentially see even bigger rent increases in the city.
Sure, new rental and home construction is down across the state.
But the numbers have fallen off even more steeply in Boston proper, historically one of the single biggest housing producers in the region.
Developers pulled building permits for just 78 new housing units in July, the lowest number since July 2018.
And, through the end of July 2024, new residential construction in Boston fell behind even 2023’s dismal pace, according to city numbers.
The Hub saw just 2,083 building permits issued last year, many of them for public housing or non-market rate projects. That’s down from more than 3,800 units, many of them market-rate, in 2022, and more than 3,000 in 2021.
So, we can make a good guess where rents are headed in Boston. Executives at Equity and AvalonBay have opened up their playbooks and told us how their game plans work at the high end of the area’s rental market, and it doesn’t take a genius to realize the same dynamics are at work at lower pricepoints, too.
Build, Build – Not Cap, Cap
Moreover, you don’t have undertake any sophisticated reverse-engineering to come to the conclusion that if scarcity is the main factor in enabling corporate landlords to raise rents, then plenty – a surfeit of new rental units hitting the market – would help bring them down.
So, will we soon start to hear leaders in Boston, Cambridge and Somerville adopting a mantra of build, build, build instead of cap, cap, cap?
Almost certainly not. That would require a much more substantial embrace of the idea that market forces, not government intervention, is the key to solving the housing crisis than they’ve exhibited to date.
And while diehard progressives may feel compelled to offer lip service to the idea that building more housing is the key to bringing down prices and rents, they appear to remain skeptical.
Scott Van Voorhis
Sure, the Federal Reserve’s decision to hike interest rates from mid-2022 through 2023, coupled with Greater Boston’s sky-high construction costs, have certainly been major factors forcing developers to shelve plans for new apartment and condominium buildings across the city.
But the Wu administration’s insistence on moving ahead with new, more expensive affordable housing and renewable energy mandates has also contributed to the decline in building activity, say real estate and business leaders.
As interest rates come down in next 12 months, as they appear poised to do, these costly policies will become an even bigger factor, preventing projects from being viable when they otherwise might be.
Adopting a build, build, build approach would also require some of our more progressive local leaders to take a good hard look at the role their own policies are playing in bottling up housing supply.
And given the nature of politics and politicians, that’s not likely to happen.
Scott Van Voorhis is Banker & Tradesman’s columnist and publisher of the Contrarian Boston newsletter; opinions expressed are his own. He may be reached at sbvanvoorhis@hotmail.com.
