It has been suggested that rent control or stabilization might be a way for us to address the urgent problem of a shortage of affordable housing. I believe it would make the problem worse.
Although people living in a currently affordable apartment would no longer be priced out of the market, rent control would over the long run cause a deterioration of our housing stock as landlords would no longer have a monetary incentive to properly maintain their properties. Those in possession of an undervalued apartment would have a strong incentive to stay put, thus reducing turnover in the market and increasing the difficulty for someone not currently living here to find a place.
The main cause of unaffordable rents is a housing shortage, which in a market economy causes real estate prices and rents to rise. The way out of this problem is to build more housing, and it’s encouraging to see that this issue is being addressed on both the state and local levels. Gov. Maura Healey’s plan to finance a major housing construction initiative through bonding is a great idea. Local policies to encourage infill will also help to ameliorate the problem. A multitude of projects by agencies such as Way Finders and Valley Community Development, such as the recently announced plan to replace the old registry of deeds on King Street with a large apartment building, are also helping in this effort. A housing project on the old Honda lot on King Street also would be great.
It also could be helpful if those who write state and local building codes recognize their contribution to the problem. The escalation of code requirements in the past 30 years has made the creation of new housing much more expensive. Everyone is in favor of public safety, but often the efforts to bring the risks of everyday life close to zero drive up the price of housing unnecessarily. I’m guessing that it’s only a matter of time before the state requires that all new construction have fire suppression systems such as sprinklers installed. Is the tradeoff worth it?
It is difficult to build rental housing in today’s market, but it is still being done. Imposition of rent control would bring such construction to a halt; who would invest in an apartment building knowing that a good part of its value would likely be confiscated? Instead, new construction would likely focus on creation of condominium and co-op buildings which would be owner-occupied and thus not subject to that confiscation. The real estate market in New York City, which is subject to rent control and stabilization, has followed this path. “Gentrification” is one result.
If there is to be rent control or stabilization, it matters a great deal how it is done. The current statewide initiative petition would be less damaging than fully banning rent increases, but it’s still very problematic. It offers landlords an annual increase of 5% or the rate of inflation under the Consumer Price Index, whichever is lower. Over the past 30 years this would have been realistic, but given the reckless fiscal policies of the people currently running the government and the increasing politicization of the Federal Reserve, we could easily see much higher rates of inflation in the next few years. The initiative also exempts new construction, but only for 10 years. Given that most properties have 25- or 30-year mortgages, this wouldn’t help. I understand the seeming injustice of a new (possibly hedge fund) owner imposing sudden 20-30% rent increases. Imposing a limit of 2-3% above the rate of inflation for increases and a 30-year exemption for all new construction would mitigate the possible damage of rent stabilization.
In a healthy real estate market, investors will create apartment housing where they see strong demand. They will try to make it attractive to the high end of the market so as to get rents that will help them recoup their investment. Older, less modern and attractive apartments will not go up in price with inflation and tend to become more affordable, thus making housing available for all. Things don’t always work smoothly, but economic policies will always work better when they take into account the law of supply and demand.
Joseph Blumenthal lives in Northampton.