ECONOMIC IMPACTS of rent control

The simple act of pushing rents below market value has widespread negative impacts. Giving local-option rent control would affect the state’s entire economy.

Devaluation  

The initial vote to impose rent control immediately lowers the value of all affected housing. As landlords feel the pinch of lower rents, they cut back on repairs and improvements, further devaluing the properties. The further rents go below market value, the greater the devaluation. 

Falling assessments & revenues   

Devaluation means lower assessments and lower property tax revenues to cities and towns that opt for rent control. Income tax revenues to the state will also decline. A Massachusetts court long ago established that rent-controlled housing must be assessed for rents collected and actual sales values. 

Higher tax bills 

Property tax bills go up on all non-controlled owners, both residential and commercial, to compensate for revenue losses and keep local and state governments well-funded.  

Deterioration 

Deterioration esults as low rents push landlords to cut back on upkeep and improvements. Tenants vigorously oppose capital improvements, which lead to higher rents. Bowing to tenants, New York recently limited capital improvement rent increases in rent-stabilized units to $15,000 per unit over 10 years, ensuring further deterioration. HB.3924 does not prohibit a Massachusetts city or town from freezing rents, rolling rents back, allowing only inflation-rate increases, or severely limiting rent increases for capital improvements. Tenants will cheer, but the housing keeps deteriorating. In rent control days, “rent control wrecks” were easily spotted. A contractor on the Cambridge rent board calculated that, after 20 years of rent control, the cost to bring the shabby rent-controlled housing up to then-current standards would far exceed the financial capacity of future tenants to pay for it. A disaster lay ahead – until rent control’s repeal.

Everyone is affected  

Not just rent-controlled housing but also non-controlled neighbors are devalued. An MIT study calculated that, in the decade after decontrol, the city of Cambridge recovered $1.9 billion in assessed values lost during rent control. More than halfof that lost value occurred in non-controlled properties next door to or in the same neighborhood with “rent control wrecks.” 

Construction industry killed   

Yes, the state’s entire rental housing construction industry will shut down. Even when new construction is specifically exempted from rent control, none gets built for fear of rent control. Even cities and towns that do not choose rent control now will have no new rental housing for fear of rent control being adopted in the future. 

Local economies depressed    

Carpenters, plumbers, electricians, and other tradespecple will be out of jobs. These tradespeople are local residents who will have less to spend in local markets. So, too, landlords will be spending less locally on workers, materials, and on their own personal expenses.

Bank loans dry up  

As the collateral for loans loses value, a vicious circle sets in that further hinders improvements and leads to more deterioration. In New York, stock prices for community banks dropped 24% and 16% since this past March (2019), just anticipating tighter rent laws.

Local aid 

In Massachusetts, the state distributes “local aid” funds according to the valuation or properties in each city or down. This distribution, however, gets skewed under rent control, more going to depressed rent-control jurisdictions, less to everyone else.

It only gets worse  

Aiming for “mild” rent control is hopeless. It only gets stricter. Rent control mobilizes tenants into a voter base that outnumbers landlords, elects pro-rent-control lawmakers, and pressures for still lower rents. New York City just limited annual rent increases to 1.5% when its own rent-control staff said that “core building costs” shot up 4.9% this year.

Self-inflicted depression & slums   

Wherever rent control is adopted, economic depression heading steadily towards slums will result. Massachusetts House Bill No. 3924 can even make landlords rent only to lower-income tenants, ensuring even worse slums.

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