Life After Rent Control: A Case Study
by HENRY O. POLLAKOWSKICAMBRIDGE, Mass. -- Those who envision catastrophe if New York's rent regulations are undone can look to Massachusetts for reassurance. A rent control phase-out there is bringing more benefits and less disruption than many expected.
New York Times, June 14, 1997
Deregulation began in Boston, Cambridge and Brookline in 1995 and was completed in only two years. Though a fuller evaluation is months or even years off, three encouraging lessons are emerging: deregulation has affected the poor less than anticipated, construction and renovation of rental housing are up even for a boom time and higher property values are translating into more property tax revenue. Cambridge is using a substantial amount of that money to ease the effects of deregulation on the most vulnerable.
Officials were surprised to find that the poor were not the main group benefiting from rent control. When the Massachusetts Legislature sought to ease the transition by offering short-term extensions for needier tenants, remarkably few households applied and even fewer qualified -- about 3,090, or 7 percent of the 42,500 rent-controlled units.
Looking at studies of Cambridge, what is most striking about tenants in rent-controlled units is their similarity to tenants of unregulated units; it is the public housing population that stands out as being poor. Households under rent control reported somewhat lower incomes and somewhat smaller apartments than unregulated tenants, but actually had slightly more space per person. Rent-controlled tenants were less likely to be in families with children. About half of them had higher-status white-collar jobs, and only 10 percent were elderly. Thus substantial benefits -- averaging at least $300 a month, I found in a study for the Manhattan Institute -- were going to relatively well-off tenants. For many, the end of rent control meant the loss of a good housing deal -- a discomfort but not a hardship.
There are parallels to numerous Manhattan neighborhoods below 96th Street, an area that reaps 70 percent of the benefits of rent stabilization. On the Upper West Side, for instance, occupants of one-bedroom stabilized units had a median income of $50,000 per household in 1992, compared with about $20,000 for all New York renters.
And deregulation in Massachusetts seems to be having a beneficial effect on the housing stock, particularly in Cambridge, where about two-thirds of the rental housing (other than public or subsidized) was controlled. The number of building permits has increased, and anyone walking through the city can clearly see that numerous buildings that were once rent controlled are now being renovated. This was not the case in the late 1980's, the last time the apartment market was booming.
According to the Rental Housing Association, Boston's largest landlord group, about 2,500 new housing units, mostly rental, are under construction or in the pipeline in Boston and Cambridge, the largest number of conventionally financed rental housing units since the beginning of rent control 25 years ago. Although the figure will seem small to New Yorkers, in percentage terms it is four times the amount being planned or under construction in New York City.
Increases in the market value of rental buildings in Cambridge are being rapidly transformed into income for the city, with a projected increase of 9 percent per year in residential property tax revenue. The property tax base of Boston is also increasing. Though residential assessments will rise gradually, eventually they should yield an annual increase of 3 percent.
In New York, an increase equivalent to that in Boston would mean about $100 million a year. New York studies predict a considerably larger increase.
Deregulation in Massachusetts is increasing the quality and quantity of housing. New York, too, can create a healthier housing market with a carefully designed withdrawal from rent regulation. A phased withdrawal -- greater than two years but not indefinite -- would provide time to develop and expand measures to protect the least fortunate.
Henry O. Pollakowski is an urban and housing economist at M.I.T.'s Center for Real Estate.