Lest we forget how bad rent control is

25 years of rent control in Cambridge, Massachusetts

A national debate is taking place on whether rent control is an effective housing policy. Yet in 1994, liberal Massachusetts voters rejected rent control in a statewide ballot question initiated by the Small Property Owners Association. SPOA was a group of small landlords who had been heaped with abuse as “greedy” and rose together to fight the city of Cambridge’s tyrannical rent control bureaucracy. In fast-growing numbers, these everyday small landlords picketed City Hall, asked for reform and got none, and appealed to the state’s voters to end it. By popular vote, rent control was outlawed in Massachusetts in 1994. But the 1994 win can be overturned at any time by majority vote of the Legislature — if it chooses to ignore the will and wisdom of the people in 1994.
Now 25 years after this ballot question victory, many writers today know that rent control is poor as housing policy but cannot articulate exactly why. Let’s not forget, then, exactly why Cambridge’s stringent rent control system produced vivid, counter-productive consequences over its 25 years, from 1969 to 1994, consequences as predictable as 1 + 1 equals 2. Yes, Cambridge’s rent control was a stringent system. But milder forms of rent control will have these very same consequences, like stopping all new rental housing construction, or the same consequences to a lesser extent, proportional to how far below market value rents are pushed.

A harsh political force
Rent control dominated Cambridge politics during its 25-year reign from 1969 to 1994. It energized a tenant movement in a way no other policy could. Controlled rents were well below market value, anywhere from $50 to $200 or more a month less. It was cash in tenants’ pockets every month. They would fight for it, mainly by voting without fail for a slate of pro-rent-control city councilors who typically bowed to whatever tenant leaders wanted and struck down even the tiniest reform efforts. The top concern was to keep rents as low as possible, which kept the tenant voter base united and produced such a stringent system. This voter base, once created, makes it politically difficult to reform rent control or prevent milder forms from becoming steadily harsher. Oregon already hears demands to lower the 7% limit. As one historian has said: “If the history of rent control teaches any lesson, it is that once such controls have been imposed, they are difficult to remove.”


Rent control fails to reach its goal
Perhaps this political reality could be tolerated if rent control worked well, but it did not and does not. The key argument for rent control was, and is, to protect low- and moderate-income families and the elderly. The reverse happened. Studies showed that, towards the end, almost half of all Cambridge’s rent-controlled tenants were younger single-person households, many living in units originally built for extended families, such as in New England’s famous “triple deckers.” Since rents were low, many tenants could afford to rent larger spaces than they would without rent control. Thus, smaller-sized households took over more units, effectively shrinking the total renter population and the number of units available for larger households. Furthermore, the turnover rate slowed down in Cambridge’s transient population of MIT and Harvard students and affiliates. The lucky ones who got rent-controlled units valued their cash savings, stayed in their units far longer than they otherwise would, and thus deprived newcomers of housing. Taken together, smaller households living spaciously and holding their units longer were all factors that reduced the housing supply for families – counter to rent control’s professed goal.
Moreover, most rent-controlled tenants were fairly well-off financially. Rent-controlled units were occupied by Cambridge’s mayor at the time, an attorney, and one of the state’s highest court judges, along with other notables. But the problem was widespread. When the 1994 statewide referendum ended rent control, the Massachusetts legislature stipulated a phase-out, keeping rent control for one or two more years for elderly, disabled, and low- and moderate-income tenants. Only a small number, just 6% of all rent-controlled tenants, applied for this additional rent control. Why were rent-controlled tenants skewed towards higher incomes? Because owners chose better-off tenants to avoid the risk of tenants who might not be able to pay even their low rents. While rent control worked against its intended purpose, middle-class tenants were a reliable voter base, which surely did not escape notice by tenant leaders. Acknowledging the problem, the city council discussed an income test for controlled tenants, but it went nowhere. Cambridge residents, then staunch defenders of rent control, would repeatedly ask: “What will the poor do without rent control?” The poor, in fact, were steadily displaced and would have been better off without rent control.


The housing stock steadily shrinks
With substantially lower rents, going as low as $59 a month for a large apartment in 1994, the effects on rental housing were widespread. For 25 years, zero new rental housing was built, even though new construction was explicitly exempt. Contractors feared, rightly, that rent control could one day apply to them. So rent control deprived the city of the increased supply and higher tax revenues that new housing would bring – and left the city stuck with what housing it had at rent control’s start.
Under rent control, Cambridge’s housing supply literally shrank in numbers, aggravating the shortage that brought high rents and cries to regulate rents. Increasingly, owners simply left units vacant to avoid the anti-landlord rent-control bureaucracy and rising hostility from tenants. At the same time, the entire rent-controlled housing stock steadily deteriorated, to the point that some units became unrentable and shuttered up, a trend that continued unabated. This growing scarcity of rental housing in such a highly desirable city as Cambridge forced rents up substantially higher than they would otherwise have been on all the non-controlled apartments, yet another counter-productive impact.
Lack of new rental housing construction is widely recognized as the prime cause of high rents. It’s Economics 101. In a high-demand market, restricting the supply pushes up the price of the limited product. Without rent control, developers of rental housing are ready to build it but are blocked by longstanding zoning rules. From the early 1900s onward, at the behest of more affluent residents, most neighborhoods across the country have been “downzoned,” limiting new multi-family housing or blocking it entirely in order to exclude racial and ethnic minorities and low- and moderate-income households. These prejudiced local forces, often quite liberal in other respects, remain very strong.


Deterioration of the rent-controlled stock
Deterioration plagued Cambridge’s rent-controlled stock. Miniscule rent increases, just a percentage point or two above inflation, did not keep up with actual repair costs. Owners cut back on repairs, and capital improvements became impossible. Tenants preferred low rents above all and cared nothing for long-term preservation – they would be long gone by then. So, they fought every capital improvement expense that could justify a larger rent increase, with alternate claims of “shoddy workmanship” or “gold-plating” (anything more than code-minimum) to sympathetic tenant-employees in the city’s rent-control bureaucracy. Whichever claim prevailed, owners could not recover even their out-of-pocket costs and, predictably, stopped doing any larger repairs or improvements. You get what you pay for, and the units gradually declined to the suppressed rent levels.
City councilors took note of a large number of very-low-rent units and sponsored a study. Owners who had kindly left rents low over the years for longtime tenants, usually families, were caught in an awful trap when rent control started. Annual rent increases allowed by the rent board were small percentages applied to previous rents. A 2% rent increase on $100 came to $2, but on $1,000 came to $20. Over the years, initially low rents stayed low while higher rents rose higher much faster, creating an ever-widening gap. The city did nothing.
After 20 years of rent control, a longtime rent board member and licensed contractor calculated how much was needed to bring the shabby controlled housing stock up to then-current standards. He concluded that no future tenants could possibly afford the rent levels needed to pay
for that huge task. Walking down Cambridge streets, the “rent control wrecks” were easily spotted. The rent-controlled housing, with accumulating neglect and deterioration, was heading for catastrophe.


Devaluation and reduced tax revenues
The initial imposition of rent control on a large percentage of Cambridge’s residential housing was in itself a major property devaluation. A court ruled that assessments had to reflect the actual value of rents received, not a presumed value without rent control. As deterioration set in and steadily worsened, assessments kept dropping, and the city’s property tax revenue would have shrunk accordingly – except that, to keep the city steady-funded, property tax bills were pushed up substantially on all owners of non-controlled properties – single-family, owner-occupied condos, and exempted two- and three-unit owner-occupied properties.
Demonstrating the tenant lobby’s power, the city council passed an ordinance that all condos sold after its enactment had to be occupied by tenants, not owners, and rent-controlled – a terrible loss of property rights and yet another hit to the city’s tax base. But it enlarged the tenant voter base, no doubt a key motive for its passage, and produced “condo criminals,” owners living surreptitiously in their own condos.
Three MIT economists calculated that, in the decade after decontrol (1995-2005), the city of Cambridge gained $1.9 billion in rising residential values attributable to decontrol alone. More than half of that sum, surprisingly, was the improved value of never-controlled housing, which suffered from “rent control wrecks” located next door and throughout their neighborhoods.


Harming small landlords, efficient housing providers
Rent control harms small landlords most of all. When rent control arrived in Cambridge in 1969, some 600 small owners soon sold their devalued properties at a loss and departed the city. As rent control’s daunting impact kept rolling, small owners continued to sell out. These small-owner losses transferred the housing to larger owners, whose operations are inherently more expensive. Large owners must maintain offices with salaried managers and employees, putting upward pressure on their rents. In contrast, small landlords can keep rents lower because they usually have full-time jobs with benefits, their rental property is a part-time job for them, and they do their own management and repairs from their homes. With less upward pressure, they can keep their rents lower, especially for tenants they want to stay. While small, unsophisticated owners usually lost badly at the rent board, larger owners could fight aggressively for even higher rents. Losing small landlords in favor of large ones was, again, counter to a goal of lower rents.
Compared to small landlords, other ways to provide lower-rent housing are expensive, and fail. Tax-funded public housing, once a hope, has failed badly from concentrated poverty, crime, poor educational outcomes, and poor upkeep. The current craze is for “affordable
housing,” which is in every way unaffordable except to the tenants. It is housing built or rehabbed to costly modern standards, maintained by nonprofit groups that operate just like large landlords, and funded variously by federal, state, and local tax credits, federal “community development” block grants, and state and local “affordable housing” trusts funded by surtaxes – all taxpayer dollars to create high-cost units in small quantities that will never meet the demand. These “affordable housing” groups become a tax-funded interest group demanding ever more tax dollars for themselves and (the latest craze) preferential zoning rules denied to private owners and developers. The most economical taxpayer subsidy is “Section 8” vouchers used by tenants to rent privately owned housing. Does anyone really believe that capping rent increases on small landlords will still leave them able to provide housing without reducing housing quality or services, when all other housing providers can deliver housing only at higher costs?
Small landlords, then, are to be valued. Harming and discouraging them is indefensible. Moreover, small landlords, when not under rent control, often have personal relationships with their small groups of tenants, creating valuable local support networks – destroyed by rent control. Also destroyed is the opportunity for middle- and working-class families to invest in small holdings, manage them well, and build their own nest-egg.


The public rejects rent control twice
Cambridge’s abuse of small owners produced horror stories that regularly hit the media. One such story was the Petrillos, who owned a large Victorian triple-decker, lived in one of the units, and rented the finished-off basement to their daughter. Owner-occupied two- and three-unit buildings were exempt from rent control, but that basement unit made the Petrillo’s building into four units, and a tenant complained. With a low, seven-foot ceiling, however, the unit was illegal. To avoid rent control, the Petrillos moved their daughter out and left the basement unrented. The rent board, however, zealous to have as many rent-controlled units as possible, ordered the Petrillos to jack up their entire property, extend the foundation, create a legal unit, and control all their rents. Within days, Mr. Petrillo died of a heart attack. The city quietly let the matter drop.
Many horror stories like this one swayed the state’s voters to reject this destructive policy. In the years after the successful 1994 referendum, tenant advocates have made numerous attempts to bring rent control back. These efforts all failed locally or at the State Legislature after strong lobbying by the Small Property Owners Association (SPOA). The worst threat was a citywide referendum facing Cambridge voters in 2002, eight years after decontrol. To fight it, SPOA wrote letters to all the city’s residential property owner groups and explained rent control’s actual impact on each group, especially their much higher property tax bills and limited options to keep their properties as rental investments if they move out (all non-owner-occupied housing was rent-controlled). Cambridge voters defeated the referendum in a landslide 61%-to-
39% vote, the same voters who once loved rent control. When informed, voters reject rent control.
Strict rent control remains the gold standard for tenant advocates. Knowing rent control’s bad name, they now propose rent control in milder forms or disguised in different names like “just cause eviction,” knowing it will be easy to expand later. Their clearly stated goal is “housing for all,” which means universal rent control and/or what they call “socially owned housing,” that is, housing owned by the government or by nonprofit, tax-funded “affordable housing” groups – the costliest ways. Ironically, small landlords in a less-regulated market can provide housing for all income levels including the homeless, entirely or almost entirely without tax subsidies, if the NIMBY people would allow it. Today, with history fading into the past, however, the enticement of rent control creeps back in Cambridge, in Massachusetts, and in the country.

References:

“A Short History of Rent Control Laws,” John W. Willis, Cornell Law Review, Vol 36 Issue 1, 1950, https://scholarship.law.cornell.edu/cgi/viewcontent.cgi?article=1583&context=clr
“Housing Market Spillovers: Evidence from the End of Rent Control in Cambridge,” David H. Autor et al, MIT, Journal of Political Economy, 2014, vol. 122, no. 3 https://economics.mit.edu/files/9760
“Housing for all” Cf. City Life/Vida Urbana, Boston’s most active tenant advocacy group: www.clvu.org.
“Homes for All,” Cf. https://homesforall.org

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