The philosopher George Santayana famously said, “Those who cannot remember the past are condemned to repeat it.” This is worth considering as the Massachusetts legislature debates rent control bills this year.
In today’s housing market, it is understandable that efforts to provide housing stability for low-income individuals are gaining traction. Some policymakers would limit residential rent increases, as a means of achieving this end. Laws that impose strict caps on rents are often referred to as “rent control,” and those that limit rent increases are often referred to as “rent stabilization.” For brevity’s sake, this column refers to both kinds of restrictions as “rent control.”
Based on studies of rent control in the U.S. and Europe, economists almost universally agree that rent control’s evils outweigh its benefits. Rent control does not increase the housing supply, and it probably does the opposite. Governments sometimes compensate for reduced housing supply by constructing public housing projects, which are often inefficiently operated and poorly maintained. Rent control also discourages landlords from spending on maintenance and improvements, because it limits landlords’ ability to increase rents to cover those expenditures.
Unintended Consequences Outweigh Benefits
Rent control impedes tenant mobility and produces market inefficiencies. Tenants of controlled dwellings are less likely to seek other housing when their dwellings are too big, too small or too far from their workplaces. Rent control may increase rents on nearby uncontrolled units, and it incentivizes landlords to remove units from the rental market, either by redevelopment or condominium conversion. Rent control spawns bureaucracies to enforce rent limits and adjudicate landlord requests for rent increases. Such bureaucracies are unnecessary when market forces determine rents. Lower property tax revenues are another expected result.
Most significantly, the benefits of controlled rents are poorly targeted, allowing high-income tenants to enjoy below-market rents, without assurances that low-income individuals will realize any benefits. Rent control abuses in New York City are legendary. Luminaries such as Carly Simon, Mia Farrow, Ed Koch and Ted Sorenson, to name a few, inhabited rent-controlled apartments. Former U.S. Rep. Charles Rangel of New York occupied three adjacent rent-stabilized luxury apartments as his living quarters, while using a fourth as a campaign office.
Massachusetts has prior experience with rent control. During the 1970s, Boston, Brookline, Cambridge, Lynn and Somerville adopted rent control. Lynn and Somerville abandoned it after a few years, but the other municipalities retained it. Rent control generally applied to dwellings constructed before 1969. It prohibited landlords from raising rents on controlled dwellings without prior approvals from local boards or administrators. Rent control authorities were empowered to increase or decrease rents on controlled units, while supposedly assuring that landlords realized a “fair net operating income.”
Landlords could not evict tenants without first securing certificates of eviction from rent control authorities. Landlords who charged more than the maximum allowed rents risked liability for treble damages and attorney’s fees. Willful violations could result in criminal penalties. The Massachusetts Appeals Court’s 1988 decision in Commonwealth v. Kapsalis upheld the criminal conviction and six-month sentence of a Cambridge landlord who willfully removed a controlled unit from the rental market without a permit.
Voters Rolled Back Rent Control Statewide
By 1994, Massachusetts voters had tired of rent control as practiced in Boston, Cambridge and Brookline, and approved a referendum ending rent control state-wide. The legislature passed the Massachusetts Rent Control Prohibition Act, which effectively abolished rent control on residential properties throughout Massachusetts, except for regulations or agreements involving publicly owned or subsidized housing, and mobile homes.
The Rent Control Prohibition Act does not prevent rent control from someday returning to Massachusetts. Last year, three different bills that would give cities and towns the local option to regulate rents and evictions, were introduced in the state legislature. The future of these bills is uncertain, but they are all scheduled for further action this spring. The bills are certain to draw the attention of residential landlords. Meanwhile, Boston Mayor Michelle Wu has assembled an advisory committee to study rent stabilization. Her committee consists mostly of tenant advocates, academics and community activists, plus a handful of representatives from major real estate development firms.
Providing housing stability for low-income individuals is a worthwhile goal. But the bills now under consideration would allow local governments to force residential landlords – most of whom are not large-scale property owners – to subsidize tenants with below market rents, while reintroducing other problems associated with rent control. Perhaps housing stability could be better achieved by increasing the housing supply through less restrictive land use laws, or by enhancing direct subsidies to indigent tenants.