Rent Control: Theory, History and Unintended Consequences
This policy presentation examines the theory behind rent control, the history of rent control in Massachusetts, and the reasons why we shouldn't have rent control in Massachusetts (or indeed anywhere in the U.S.).
We study:
- Legitimate motivations to correct injustice in modern housing markets.
- Current and past bill text proposed for Massachusetts.
- First, second, and third generation schemes for price controls.
- Economic data from Massachusetts, Finland, and other studies.
- Evidence of housing shortage, disparate impact under rent control.
- Detailed bill text.
- Alternative resolutions to the housing crisis.
Attendees will learn about the history of rent control in the commonwealth and how to best help those impacted by the housing crisis both short-term and long-term.
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Webinar: Rent Control: Theory, History and Unintended Consequences
Rent Control Theory History and Unintended Consequences
Resource Person:
Douglas Quattrochi - Doug
Technical Host:
Naomi Richardson - Naomi
[Start 0:00:00]
Presentation
Doug: Welcome to this afternoon's webinar on rent control. For those of you who don't know, my name is Doug Quattrochi. I am the executive director of MassLandlords and I’m joined today by Naomi Richardson, our community builder and accountant who will be performing the role of technical host during this webinar.
Please use the Zoom Q&A feature to record your question. I think chat is on as well. Let me just check that here. Yes, you can chat with one another. Please be respectful, but if there's a question in chat that you would like me to answer, I may not see it. Naomi's going to work to try to make sure those questions do rise to the surface. If you use the Q&A feature, it makes it very easy for all of us. We'll get started.
This hour we're going to be talking about rent control, the theory behind it, the history of rent control policies in the country, and in Massachusetts and we'll discuss the likely unintended consequences of the policies being proposed this session. This legislative session in Massachusetts ends for the purposes of rent control July 31st. It could be extended but any bill that's going to move forward will have to be decided in the next month or so.
We'll try to use this hour efficiently. I want to give an introduction to what rent control is all about and then we'll talk about the history just so we understand we're all coming from the same place here, we all have the same background, we know what we're talking about, and then we'll share a bunch of data. Massachusetts had rent control of repealed rather unexpectedly after about 20 years in 1994, and that provides a kind of natural experiment for people to go in and look at what happened, what was it like to live in Cambridge, Boston, Brookline before when you had rent control and what was it like after.
We'll review sample bill text in detail. We have actual bill marked up here that we'll talk about it's an actual bill before the Massachusetts legislature, and I want to leave you with a key message that rent control is the kind of Frankenstein's policy. It’s a resurrected idea from the past. It’s cobbled together with a lot of bits and pieces needed to make it work. It’s likely to run amok with lots of unintended consequences, and basically there's a lot of folks not listening to the warning as that's what this webinar is about here. It’s about recognizing the problems we have with housing in Massachusetts and what the real solutions would be and leaving this idea in the past. We'll have time for Q&A.
Here's the big idea with rent control. It’s intuitively obvious, right? “If the rent can’t increase too fast however fast that is, then I as a renter can't be evicted for non-payment, even if my wages are not increasing very fast either.” You know, no skill development supplemental security doesn't increase at the rate that it should, to keep up with cost of living. You use CPI-W instead of CPI-U. All these technical reasons why people's incomes aren't going up as fast as the cost of housing.
So rent control has this intuitive mass-market appeal, but our intuition is wrong in a lot of ways in physical systems, in economic systems. We can't rely on our gut field to know what's going to work out. That's why we have science and why we study and why we look at history and rent control is one of these policies that has a litany of long-term harmful consequences to the point where an overwhelming majority of economists like 95 percent of people who are actually practicing economists don't support the idea of rent control, but people even with economics backgrounds like Boston Mayor Michelle Wu keep bringing it up because well it's popular
Let's just review this economic foundation here. There's this concept of supply and demand, and basically there are two separate things that can change independently but when one changes it can have an effect on the output price, so for instance if there are a lot more apartments for rent, then rents could go down or they could be held steady over time even as the value of the dollar decreases such that rents go down in real dollar terms even if they keep the same nominal value. On the other hand, if there are a few apartments for rent like if there's a natural disaster or a fire or something and then suddenly these apartments are all off the market, then rent goes up.
Supply can change but also demand can change. If suddenly a whole bunch of people need to move into an area for instance. It has happened over the decades with oil town booms or other national resource economy booms, people settling to move into an area and rent skyrocket in places that were not valuable before suddenly become very valuable. On the other hand, if people are unwilling or unable to pay rents or move into an area and people invest elsewhere, they convert the use to the condos. It basically means that demand is decreasing, and so if you have lower demand, you have lower prices; if you have higher demand, you have higher prices. Those two can change independently. But in Massachusetts we've been hit by both in exactly the wrong ways from the point of view of helping everybody have a good affordable place to live.
Even before the pandemic, we had a housing crisis and a lot of folks didn't really pay attention to it because in Massachusetts most people who vote own their own home, and they aren't particularly concerned with what landlords have to go through or what renters have to go through to live here and to work here. That's the way we use our land in Massachusetts. Most lots are his zoned single-family, so that actually creates a really tight supply. There's not a lot of rental housing. There are about 350 towns and cities in Massachusetts; most do not allow you to add an apartment on land that you own without special permission. I’ll say that again you cannot create a new housing unit without permission from the town or city, and that's usually hard to get.
[0:05:40]
If there's any kind of perception about the kind of person who will live there, they're worried about you know having lower-income people next to higher-income people, or they're worried about the way the building will look, or neighborhood character, or parking, or any of these other terrible reasons to deny people a place to live, then you won't get the ability to add a unit and we've had this in Massachusetts. We've had single-family zoning for over a hundred years at this point, so there's been a really constricted supply.
On the other hand, demand is as high as ever because Massachusetts is a pretty great place to live. We've got a lot of fantastic government services. We've got arts and culture. We've got job opportunities. Although winters are tough, it’s a pretty safe climate. We don't typically have terrible threats from hurricanes or fires, although we can get hurricanes and fires it's typically not the way other parts of the world are hit by stuff. Massachusetts is a desirable place to live, and so we've got a lot more people living here and demand is a lot higher so supply has been constant over 100 years and demand's gone up over 100 years and that's how you get a housing crisis and prices are really high and legitimately unaffordable for a lot of us.
Just to put an underscore on this point here, a lot of people think Boston for instance is a dense town, but this map produced by the Metropolitan Area Planning Council, MAPC, is called the Zoning Atlas you can check it for yourself. This map shows the effect of all these little things in zoning besides explicit single-family restrictions. It looks at lot size. It looks at minimum frontage. It looks at minimum setbacks. Some of these things have legitimate purposes like a setback is useful to help prevent a fire spreading a minimum distance between lots, and so on structures on lots. But you add up all that and the brown areas are places where you effectively can have only one household living on that spot of land.
You look at Boston, which is this large blob here, half of it is effectively single-family. You look at many towns in the surrounding suburbs they're completely overwhelmingly entirely single-family. Shout-out to Dedham, Westwood, Wayland, and Concord where you do have some more ability to add housing. You still need some kind of permission, but it's not like some of these other places where there's nothing possible at all. So even places you think of as being very dense are not actually allowing new construction of housing.
And so this is where you get the conflict between renters and landlords, which is a totally synthetic conflict because we want the same thing: we want to be able to operate more housing. People say well renters are heavily rent burdened and therefore we need to put price controls on, but it's zoning that's caused a sharp uh constraint of supply, and if you think about what a landlord's financial incentives are would I rather argue with the town or the city, or the renter who already can't afford rent over a five percent or even a 10 percent rent increase or would I rather build a new unit, rent it at the same price, and get for a three-decker add one more that's a third more that's 30 percent more revenue at the same price.
The economics for landlording are clear: landlords are better off adding units but very few of us do that and there's a whole separate discipline now called being a developer where you get these special permissions and special variances to build more units because otherwise you can't do it. So the role of landlord instead of being housing creator and operator has just become housing operator, and we're left with what was built mostly 100 years ago. Let's set that as the economic context. So let's look at rent control explicitly here. Let's look at the history of the policy.
Rent control was invented as a way to stabilize prices during the world wars. For instance, in World War I people would go around in these little anti-profiteering committees and apply public pressure to landlords to hold rent still as a patriotic thing to do, and there were some municipal protections. You couldn't evict people especially if for instance the income-earning person was overseas or had been killed or something like that, there needs to be something done to help the people who are left in that household. Then World War II, we actually had absolute price freezes so the rent is say it's $100 a month in those days. It’s $100 a month and it's not changing above that, not a penny more and that again was um considered a patriotic duty and things that we did to help the war effort. Everybody who was contributing to the war effort was protected and didn't have to worry about their housing for the duration and.
[0:10:19]
Then after the world wars, after World War II, all those price controls went away except for in New York for instance is a prime example, and so in the ‘50s and ‘70s New York developed this Byzantine and complicated set of regulations based on the World War II regulations but they tried to adapt it. They tried to say, “You know rent control has been very popular even apart from the war we should have some kind of protection to make sure people can remain in their housing.”
They created this concept of a rent control board. In World War II, it’s very easy to impose rent control with the absolute price lock because anybody could enforce that. If the rent before was $100, the rent now better be a $100, no more, but in New York they invented the rent control board primarily an unelected body, somebody or a group of people who are looking at what would be fair and in many cases what would be a reasonable level of profitability for the landlord. They're trying to figure out not just what the revenue is but also what the landlord's expenses are, how much do they pay for that fridge, how much does it cost for a gallon of paint, how much do they really need to repair this place, or can we squeak by another year with a leaky faucet. That level of detail applied to the problem was pretty intractable and really very crippling for housing providers, and so they switched after that to allowing something called vacancy decontrol. So now as long as somebody's actually there in the unit they're protected by this arbitrary board, but if they were to leave of their own accord then the rents could reset to market and the next tenant would come in at market rent but then would be controlled after that. That's what we call a second-generation system so if the world wars were the first-generation absolute price lock can't change, second generation is a board makes an arbitrary decision.
Now Oregon has pioneered a kind of third-generation, which is much more objective. It recognizes that markets change and that the dollar is continually I guess inflating or becoming less valuable in real terms over time, and so there should be some kind of rent control tied to inflation is what their theory is, and they say you know it's going to be the Consumer Price Index as officially recognized by the Secretary of the State plus some percentage over that. If you have a really hot market or things are changing you're allowed to go even above inflation and it's always going to be above inflation. In the case of Oregon, it's a formula like inflation plus seven percent, which would mean nowadays you could have a 15 percent rent increase right because inflation last year is nine percent plus seven we'll call it eight percent plus seven is 15.
Now Cambridge had exactly the opposite approach in Massachusetts. We had our rent control boards here, so New York it pioneered the rent control board, it came to Cambridge it came to Boston, it came to Brookline and we actually set it to be below CPI because the sense was housing providers were too profitable and therefore we need to erode the value of that income over time by making sure that rents didn't raise as fast didn't go up as fast as inflation. Now that's completely backwards because somebody has to come in to stop that policy when profitability is reduced to zero otherwise all the landlords and housing providers quit but we didn't really do that ever.
We kept our second-generation system for decades and this is a picture of I think it's just a low exposure on that camera but this there's very few pictures of these rent control boards but this is a picture of an actual rent control hearing from Cambridge and here's another one yes these unelected people who are making decisions about not just revenue but also expenses and a lot of people would pack the room trying to find out what's going to happen. “Am I going to have to find additional housing because the rent control board approves a renovation and I can't afford to pay the new rent?” Or, “Am I going to have to sell this place somehow because I can't operate it as an apartment without a fridge? The fridge stopped working and the rent control board isn't going to prove my fridge. Basically a whole bunch of people's lives depended on these arbitrary and unelected positions, and in Cambridge, there's lots of sad stories. Here's one that a lot of people think is incredible but it really happens.
Helen and Peter Petrillo operated this building. As they started their family September 1953 with the purchase of this a lot. Their daughter grew up there and then moved out and then in 1989, that daughter's house suffered a terrible fire and rather than let her move into a hotel or be homeless or whatever the Petrillos just converted the basement of this building into a makeshift department for the daughter and her family, and that took this from being a grand three-decker to a four-unit building in the eyes of a neighbor who had a four-unit building and was subject to rent control. I’ll just point out before I state at the end of the story, this is the sign that commemorates this event at that intersection, Peter and Helen Petrillo Square.
[0:15:30]
Okay, so what happened they got a fourth unit all of a sudden. It was a three-unit building. As a three-unit building was exempt under the earlier rent control rules; now as a four it's subject to rent control that's why the owner dropped the dime. “Hey, if I’m rent controlled they're going to be rent controlled.”
Actually what the city of Cambridge did is they went in and said you've got an illegal four-unit building and that unit's below grade, so you have to jack up this building at your own expense, and they wouldn't just let the daughter vacate the basement and turn that back into basement because the justification was we need rent control to create more housing. It’s a perverted logic. We'll find in a minute that rent control reduces supply, but they said, “We need the rent control regulations to create more housing therefore you cannot unconvert this basement. You're going have to make it a glorious basement unit, so jack up this building at your expense.”
Peter didn't have the money for it and didn't know how to appeal the rent control board decision. A lot of these decisions were not appealable because this is a separate body and Peter died of a heart attack three days later and so as a kind of mea culpa, the city put up a sign here in front of their house but they don't even mention rent control. They mentioned his military service. Okay, fine. At least his name is there. That's one story.
Another story is the Bologna, Laura and Vincent. They bought this place, 310 Harvard Street. They hand restored it on their own before YouTube videos taught you how to do it. They had to do an awful lot of work. It looks it's a beautiful building, right? They rented it out. They lived in the back. They rented out the front of the house to the Stowes. We actually called. We talked to the Stowes here for a story we wrote. It’s up on our site.
Anyways the Stowes alleged that the Bolognas didn't follow the rent control board rules and had given them an illegal rent increase, and it didn't actually matter to the rent control board that the Stowes had left and were subletting in violation of their lease with the Bolognas. The rent control board just said you know, “Bolognas, you're the landlords you should know better before the internet, before their educational campaigns to inform you about the Byzantine intricate rules of our board, you should know that what you did this these terms and this rent increase were not allowable, and you have to pay the renters $64,000 in damages plus their attorney's fees, which were at that point $30,000. In today money, that's the down payment for a property pretty much. The Bolognas didn't have it because they had poured everything they had into making this place good. They actually declared bankruptcy and they're not landlords. They run a different business today but it's not a housing business.
That's another example of how rent control destroys not just housing providers but housing as well. These are people who were trying to do the right thing. They'd like to do the renovation. They were doing the work themselves and now they don't operate anymore.
These rent control boards in the second-generation system we had in Massachusetts were a real serious problem. You couldn't even access the courts in that municipality unless you got what's called a certificate of eviction, which was permission to file in the state courts so this extremely complicated system where how does this municipality prevent you accessing a state records. Well they did and it was a really difficult bureaucracy. Small landlords who didn't have professional staff or attorneys on staff had a really impossible time navigating that and the easier thing to do would be just to board up the building and leave it vacant like here we don't have a lot of we don't have a lot of pictures from the rent control years, but I mean here's a building that basically you know not being used, not being maintained, can't operate it just leave it. Wait for rent control to end.
Cambridge had a five-member board and you had effectively two decades. We went through an eviction moratorium during the pandemic here, but you had two decades of that where we had rent control in Massachusetts in Boston, Brookline, and Cambridge because you couldn't even file in courts unless you had this certificate of eviction and you couldn't get that unless you knew the bureaucracy.
Now don't take a landlord's word for rent control being a bad thing. You can look to the City of Cambridge itself that wrote this detailed report in 1991 February 25th, and the mayor of the city or would become mayor of the city – no he was Ken Reeves at the time subcommittee chairperson right looked at this. They said rent control has get some serious issues. A lot of renter advocates will bring up the point today like I hear on the radio from one commentator in particular you know people in Cambridge voted overwhelmingly for rent control yes that's not entirely true.
[0:20:17]
What the report says is many people remain unsatisfied with the present rent control system and often for good reason. It’s with these good reasons in mind that the city council subcommittee rent control worked to reform the rent control system is in that same spirit this report is written, so the reforms went nowhere and they had to write this report in 1991 that said no really like these are the things we need to focus on and it's hard to focus when the system is so bad they had this huge list of suggestions. this is a MassLandlords’ graphic, but all kinds of things that need to be addressed.
So for instance the very first one, the random timing of general rent adjustments make it hard to budget or plan improvements so that's right so if you're a landlord and you're thinking you know I’m going to renovate this place when the apartment turns over, it might turn over because the renter told you they're leaving for whatever reason, but you don't get your rent increase approved so you can't actually justify a renovation at that point so like basically nobody budgets or plans for renovation at that point.
Then look down again, two items down. Many rent control buildings are in very poor condition this is not what landlords say about rent control. This is what the City of Cambridge said about its own rent control system. They proposed to find this pot of money somewhere and to help landlords make renovations because they couldn't afford it with price controls. That's really the main takeaway here. Housing is expensive and if you want to help people live in good modern housing with zero emissions and you know all the amenities we expect, you've got to pay for it somehow so rental assistance is really the alternative to rent control.
Cambridge listed all these things. You can go through and read it and there's big mess, a huge mess. Rent control law is complex, hard to understand, and constantly changing, so they're basically saying the rent control board should continue to increase communication efforts well that's an empty promise I mean the best way to make the laws clear and easy to understand is don't have an arbitrary board that can make them up on the fly, so all these issues published in that 1991 report, and that was no surprise to landlords operating at the time.
Landlords operating at the time put together this statewide ballot initiative to repeal rent control. Statewide because efforts in Cambridge, Boston, Brookline locally were unsuccessful so they actually looked at what are the ways we can explain to people that rent control is destroying the housing in these towns and destroying our ability to operate here and what they realized was we have a formula in Massachusetts called state aid. Basically towns that are impoverished or not doing so well will get a redistributed amount of funding from other towns that are doing great, so everybody pays into the state and everybody gets money back from the state but it's different according to how they're doing, and the landlords rightly pointed out that places that had rent control –Boston, Brookline, and Cambridge had artificially destroyed their housing, suppressed, assessed values, reduced their tax base such that this policy intended to help people was actually affecting a massive wealth transfer from other communities in Massachusetts into the towns that had adopted it.
We still have state aid today so anybody who wants to bring back rent control has to figure out what the other towns are going to say about the reduction in assessed value even if you have a local control scheme, “Only Cambridge wants rent control. Only Boston wants rent control.” But what are all the rest of the towns going to say when they have to pay those towns for the effect of decreased assessments?
This campaign was in 1994. It was effective it was astonishingly effective because the landlords then were multiple organizations just as we still are today, and it took an awful lot of work primarily in areas that landlords don't operate in. We had to go talk to single-family owners who have all the land and good jobs and everything and they don't generally concern themselves with rental housing where people often work a very tough jobs and have a hard time making ends meet and funding repairs and paying the rent, so they talked to all these other people and said, “Look you're funding this broken policy and the landlords got rent control repealed via this Question 9 by a small margin,” and again the renter advocates always point out it's a small margin but remember rent controls not obviously bad. It’s intuitively sensible you'd think well it sounds like a good policy.
Anyways the landlers got it repealed and the result of that has been this astonishing influx of new data that folks who previously supported rent control never could have had access to until this unexpected repeal. Now all of a sudden nobody had been planning. There was no Wall Street coming in thinking okay rent control is going to end in two years and we're going to have this massive investment in the city. None of this was foreseen, and so that rapid change makes a natural experiment where we can look at Massachusetts before we've repealed rent control and then after going back to a market economy in the very places, in the very buildings that had previously been controlled, and now we can say all kinds of interesting things about housing economics.
[0:25:38]
I’ll go through each of these in detail on separate slides, but in an overview we can talk about allocation of units. Ideally rental housing should go to people who can't afford to own their own home or who choose to rent for various reasons. Our units allocated correctly and we can look at maintenance. Do landlords maintain the places? We can look at availability. How many apartments are for rent in an area? We can look at the effect on actual prices. Did rent control actually keep rents lower than they would have been otherwise? Did rent control actually impact other properties that weren't controlled? There are always exemptions in any rule, right, so what about the ones that were exempted? Does rent control help homelessness? How much does it cost to administer? Does it line up in particular not just allocation of units or rents? Are apartments available for people in general who want to rent but does it particularly line up with low-income renters? How does that help folks remain housed?
Finally, this is a huge one and we'll talk about this at length what's the impact on racial equality, America's unending quest for true freedom and equality, so we'll look at this. The 2009 American Institute for Economic Research did this comparative study we're looking at all these different papers so it's called a meta-analysis and they can look at all kinds of different things, and all different papers, so this is a good summary piece to start with. You can look at individual papers but this is a meta-analysis, which makes it very impactful.
They can show that with Generation One systems, which we didn't really have in Massachusetts, but a Generation One system, a renter will say on average 18 years longer than a renter in a market apartment if you think about it that makes sense. If people need more space they'll just make do with the tight space because the apartment's such a deal or if the kids leave and you get empty nesters at home they'll keep that huge space because they couldn't go to somewhere more expensive that was smaller anyways cheaper to stay where you are in the big space. Even if you have a vacancy decontrol system renters stay on average two years longer. The average tenancy is about 18 months, so that's basically you know saying half of the time of tenancies in a Gen 2 system in a Massachusetts system, half of that time is because of rent control keeping prices artificially low. They can look at maintenance and basically there's a qualitative and a quantitative result, so the qualitative result is code are still there to enforce the essential things that housing must do. You have to have sanitary drainage and you can't have you know electrical hazards and so on, but everything cosmetic and elective is stopped. Buildings are no longer painted inside or out.
Masonry that's not considered critical for the structure is not repaired. There's no gardening. There's no landscaping. The place starts to look barren, and there are many places people could walk through, and there are landlords around today if you remember this they walked through Cambridge and Boston or drive through and they see terrible things. There's one landlord who reports driving through a Boston neighborhood, a rent-controlled neighborhood and just seeing water pouring out of the front steps in the spring because the place had frozen up nobody was even there to even notice that it was a burst pipe and was coming out just basically anything that you don't have to do you don't do.
Now the quantitative result is a bit more subtle. You might have saved on average three percent rent, with the rent control policy, but that's actually reduced by a 2 percent global reduction in maintenance so of all the maintenance that should have happened in those rent controlled areas basically two-thirds of your rent savings was eaten back by property owners and managers by reducing maintenance. Basically like for as much good as it helps renters, it resulted in a place looking like the mess that it was, so really it goes to show housing's expensive and you can't have something for free. There's no free lunch.
Here's a really important result on availability. Just how many apartments are available for people who want them? We have single-family homes. We have condos. You can buy and live in as an owner, occupy and then we have you know you could buy either of those you could rent them out, or you can buy multi-family housing and clearly that's going to be rented out.
[0:30:04]
What we found in Massachusetts is that rent control or rather the repeal of rent control increase the probability that a unit would be rented by six percent. That sounds like a small amount but when you multiply six percent by all the units available in the town, you see huge numbers. If we were to enact rent control in Boston today, it would instantly take 30,000 units off the market. They'd be converted to condos or sold piecemeal, and they wouldn't be rented anymore. That's a huge hit. We need to be making 300,000 units of housing in Massachusetts overnight in order to keep rent stable. That's how far short we are in our supply, but to take off 30,000 overnight is completely the wrong direction, a huge step in the wrong direction.
Those are just a few of the things. We can look at other things from this meta-analysis we can look at the actual prices that people will pay in a rent-controlled unit with rent control. It’s really hard to imagine, but actually rent control because you have a board making a decision actually resulted in although rents didn't go up as fast there was a measurable economic loss to people who had a controlled unit because there were so few apartments being rented compared to after the rent control system was repealed, so if your apartments they can deduce between $4 and $44 a month is what the average renter lost even in a rent-controlled unit just because there was so little supply. Even the rent control board had to concede that the apartment was worth so much and those rents are higher on average than what the market would have been if it had been left uncontrolled. That's really counterintuitive, that's been studied here.
This is a really intuitive thing here if you look at all the properties that are exempted so you've got a bunch that are rent controlled but typically they'll exempt you know owner-occupied three units or something, that means there's two units in that owner-occupied three that could be rented at market rents and those rents go through the roof. You see that in New York and San Francisco today where they still have rent control. It’s extremely expensive to rent an apartment there because you're not going to find a rent-controlled unit. People are going to be in those for years and years. The only ones you can find are the uncontrolled ones in a really constrained supply situation as those rents are much higher and we can see over the two years of rent control repeal that the uncontrolled rents had been 13 percent to 46 percent higher in Boston, Brookline, and Cambridge here than they were resulting after the repeal. So that's a really a big deal.
An unintended consequence of controlling some rents as the others like you know a slinky they go out of control. This is a really important point, the preambles to these rent-control bills and other bills always say we need to stop homelessness. Homelessness is a really difficult problem caused by about 40 different unique causes, among those mental illness, substance abuse, LGBT status, economic status, a whole bunch of things go into whether someone becomes homeless, and h there's no clear signal in the rent control literature that it helped to hurt and so you're going to see people say rent controls needed for homelessness. No, homelessness is caused and impacted by so many other things. Rent control does not have an impact on it.
We can look in Massachusetts at alignment. Did these apartments go to people who needed them, who are economically disadvantaged? In fact, no. Thirty percent of rent-controlled departments in Massachusetts under rent control were occupied by the upper half of all the households in the city. These are people who should be owning. These are people who should own their buildings, own their condo. They own a single-family lot. The wealthiest half of people took a third of the rent-controlled departments and why is that?
We'll talk about it but basically landlords would hold their units vacant, waiting for a perfect applicant. Anybody who wants second home or pied-a-terre or something like that, they will rent that space and they'll get it because the landlord can't make so much money on, it they want somebody who's going to be there, pay the rent automatically no damage, no issues so they rent to wealthy people. Let's give it time. Give it 25 years like we had here and you find all these apartments taken up by really wealthy households.
This last point is a jumping off point for a major discussion we'll do in just a second. I’ll just tee it up here. We can look at how many people in Boston, Brookline, and Cambridge were renters of color under rent control and how many people had rent-controlled units who were renters of color. David Sims in 2007 studied this and he shows that 24 percent of Boston, Brookline, and Cambridge were residents of color but only 12 percent got controlled departments, so there's this huge disparate impact. Somehow renters of color were not participating in the rent control scheme.
I didn't call attention to it too much in the Cambridge study but you can look at the Cambridge study there and they talk about it. They talk about race explicitly in the 1991 Cambridge study. That's the meta-analysis. I’ll spend a minute on the race discussion just a minute but the major benefit here of rent control is now clear. If you have an apartment the day rent control was enacted, you're set but everyone else forever after –landlords who want to provide housing, the town that wants to have more housing, people who want to move into town to get new apartments, everybody forever after loses out.
[0:35:45]
The most important points from the point of view of MassLandlords, what would we do about this if it were to pass is this disparate impact issue. Why we're only 12 percent of the renters renters of color even though 24 of Boston Brookline and Cambridge were residents of color, why only 12? Well, as I said landlords held units vacant, waiting for a perfect applicant and in America and Massachusetts no less, we have a real problem with the Black-White wealth gap and other systemically racist problems here.
Look for instance what the Economic Policy Institute has found. In 2018, the median household income was $42, 000 we'll call it for Black households and $71,000 for white households. Why should that be? There's some systemic racism going on here. There's a problem with the system. Look at apartment lists. How many Black households are twice are likely to be evicted? Answer is twice as many as white households. That's a real problem. That's a systemic problem.
Urban Institute, if you're looking at a credit score on a rental application right, how many Black households have a credit score above 700? Only 21 percent compared with White households 50 percent? What else do landlords check on a rental application? We check criminal history, and so we know for instance African-Americans constitute 53 percent of drug convictions despite using drugs at the same rate as White people and that's again systemic racism. That's from the Sentencing Project. That's the data that show the Black-White wealth Gap and systemic racism in America and Massachusetts.
Then we have Theory as well. Heikki Loikannen in Finland came up with the theory of landlording tenant screening and he's done this math and we don't have to understand this graph, but basically he predicts that landlords would wait for a better applicant and he predicts that this discriminatory disparate impact would come out of a landlord's rational decision to wait in a rent-controlled environment especially to wait longer for a more perfect applicant who's much less likely unfairly much less likely to be a renter of color. This is a huge problem and that makes rent control on its face a real problematic policy to try to enact because you have to address this systemic racism somehow and make sure that renters of color get access to rent-controlled units and I don't know what the answer is.
But I can show you the current framework in Massachusetts, the current law already allows rent control and potentially allows it in a way that doesn't have any unintended consequences. it's called General Law Chapter 40P and the title is called the Rent Control Prohibition Act. I don't like the title because it's actually the Rent Control Enabling Act. It says no city or town may enact, maintain, or enforce rent control of any kind except anybody who does these things can have rent control. It’s right there, Current Law. If Boston wants rent control they can do it today under Chapter 40P. The only thing is they have to reimburse the owner for the damage so if the city wants rents to be only $1,000 a month and the market is now $1,500 a month the city is just going to pay the landlord the $500 difference. It’s like a rental subsidy except instead of applying to the renter who has to go through all this means testing is applied to the market.
City doesn't think $1500 is reasonable for that part of town, make it $1,000 pay the owner the $500, the renters only responsible for a thousand and of course it could be a side deal protection so you can't have anybody paying on the side and all that. It would be a great thing you have a whole bunch of people stabilized immediately. We've been to all these hearings where people can't afford the rent and it's a real disaster and we shouldn't tolerate that in Massachusetts. I don't understand why Boston Mayor Michelle Wu wouldn't have enacted rent control already because she's free to do so under Chapter 40P.
Well a lot of people are hoping to change the law, so let me show you what they actually hope to do. I’m going to go through actual bill text here to give you a flavor of what is being proposed this session. I don't know what Boston's rent stabilization advisory committee is going to do in the future, but I can tell you what's being proposed for the legislature to permit right now.
[0:40:18]
I’m going to leave the slides. I’m going to open up the bill that I’ve marked up here. This is not the only rent control bill, but it is I would say the um the most representative. I’m going to reshare this, to make sure that's still visible.
Here’s House docket number 3676 filed February of last year. Massachusetts has a two-year session, so everything filed at that time is still in play until July 31st of this year, and the sponsor of this bill, sponsors originally were um Representatives Connolly and Elugardo, and they got a whole bunch of cosigners on it, and the new approach because they know rent control has been tried and failed in the past, the new approach is to give local options. Basically a city doesn't have to have rent control if they don't want it, but if they vote for it they can have it under this enabling law.
How do they do this? Their proposal starts by deleting the Current Law. Chapter 40P as I just showed you is hereby amended by striking out its title and calling it something else, the Tenant Protection Act. Okay well, titles don't matter. What else does it do? It deletes the entire law. There's only five sections to it, Sections One to Five and then you have the following nine sections instead so delete the option that allows rent control and put in an option that allows our type of rent control is basically what they're saying. They're pitching it as a variety of flexible options. People like say we need every tool in our tool belt. Well I don't like that metaphor because if a house is on fire, you don't bring a can of gasoline, right? You bring only certain tools. You bring water and hoses and things like that. You might need an ax, right? But anyways we don't need every tool, but they're pitching it as a whole bunch of tools.
And so this law is written as a kind of buffet of little different bits and pieces that you could have or not, and of course they start by a motivation that says this is important to prevent homelessness. Well I showed you it has no impact on homelessness. Rent control won't help, and they're talking about how this impacts all but the wealthiest. Okay so they're worried about helping those of us who can't afford rent currently. That's good, that's right, so there better be something in here that targets this to people who can't afford rent. We'll take a look in a minute and see that's unfortunately not the case, but that's what they're saying. They're saying one thing and then the data is going to show another.
All right, local acceptance any city or town have can have any of these sections, so they don't have to do the whole thing. This is an enabling law. Once this up statewide any city or town Southbridge, Pittsfield, Boston anybody could have these different rent control regs if they want. The first section the town could adopt is a plenary power for local rent and eviction regulation. Plenary means basically like can't be challenged. This is absolute authority, and they're going to allow these towns or cities to draw little lines around different neighborhoods called anti-displacement zones, so let's go find where all the apartments are and let's draw a line around that and we'll say this is an anti-displacement Zone and we're going to have rent control here, and then of course because the town gets to draw the line, they get to draw the line not around the mayor's rental property or not around some other influential person's house to exempt them, so huge opportunity for corruption.
Also it's smacks of redlining mortgages where we had in the past said certain areas are going to be high risk and we're not going to invest in those. We're going to call those the rent control districts now, not redlining mortgages but deciding who gets the terrible impact of this failed policy, so we're going to draw a line around the neighborhoods we don't like and those are going to be a couple handy displacement zones.
They're going to exempt a three-year list rolling units in an owner-occupied building, so if that were to happen, if rent control were to be enacted here like where I live and operate, I'd make so much more money because I’m an owner-occupied three. I could charge you know in a place where there's no apartments available anymore for rent. I could charge through the roof. I don't want that. I’m just saying from the point of view of like my personal self-interest would I'd be better off on a rent control yes I would because I know the data that says uncontrolled rents like these go through the roof and the fact that they put this in it indicates how little they understand what they're doing, the folks who support this bill.
It says any city or town that adopts a section may ensure that dwelling units governed by such measures are only eligible for those individual households who meet income-based eligibility requirements, “may.” It doesn't say “must,” so basically why wouldn't you set aside rent-controlled units only for people who can't afford market rent. Why would you allow wealthy people to rent these apartments under the current framework where landlords wait as long as possible for the perfect applicant come along. Why would you do that?
[0:45:25]
The fact that they've written the word “may” here again tells me that the people who drafted this bill do not understand what kind of monster they're creating, and the last section in the plenary power section is the ability to create a board. No further thought than this one sentence, “doesn't have to be elected, doesn't have to be accountable, doesn't have to be a subject to recall, may be compensated, may not be compensated.
What kind of person sits on a rent control board without compensation to set prices and tell landlords what to do it's a person who loves power? I’ll tell you that. This is not any kind of framework. They're leaving it totally up to the towns or cities to decide. Build your own monster, whatever you like go for it. That's one section. That's the plenary power section.
Section five on Just Cause Eviction is totally separate and you could enact it or you could not, but the basic idea here is a recognition that any rent control scheme fails if a landlord can ask a renter or force a renter to leave and then charge a new renter new rents, so Just Cause Eviction says you better have a good reason for terminating a tenancy and rather than let the courts decide that, they choose to prescribe the specific reasons. For instance, you can terminate a tendency if the less he has failed to pay the rent to which lessor is entitled, so can't pay the rent eviction for cause. That'll be allowed, but not every possible tenancy failure is outlined here and some of them are worded in such a way that makes it really difficult to predict what will happen.
So remember we talked about the lack of predictability on our rent control scheme. The second Just Cause Eviction is if the lessee has violated an obligation or covenant of his or a tenancy not inconsistent with Chapter 93A. so this references a whole other law that says anything unfair or deceptive is illegal, so now basically as soon as a renter says the landlord is being unfair, I can't evict as all a renter would have to do to stop the eviction potentially and say well that's unfair. That's not a well-drafted policy.
They list other reasons. If the lessee is committing substantial damage, you can evict them well that's good, but why is the word substantial there. I mean how many renters should be allowed to commit how much damage exactly? That's going to be litigated. Again not really an informed choice of words there.
They're not totally off the rockers, though. They say if “the lessee has used or permitted a leased unit to use for any illegal purpose,” you can evict. Well that's good. That's something I’m not going to criticize 100 percent of this bill, but there wouldn't be a need to write this if you didn't have just cause eviction because this is a given. Every tenancy says you know you can't do stuff that's illegal there.
Now here they do reference the Consumer Price Index and remember we said the third-generation organ system would have you do CPI plus some percentage. Well they don't say it has to be more than the CPI. It just says does not exceed a certain percentage so they could do what Cambridge did and have 85 percent of CPI. That's not ideal but that's what they've done.
Here's another thing. You could evict somebody who refuses to provide reasonable access. Reasonable is the most litigated word in the English language. What does it mean to have reasonable access? It doesn't mean that if the pipe bursts in the middle of the night, I can't get in there to fix it because it's the middle of the night and that's unreasonable. I have to let the water fill up the basement until the morning. I don't know why. They just are waiting for people to end up in court and argue over whether the Rent Control Law allows them to proceed with an eviction.
Other things listed is subleasing is potentially still a bannable so that's good. You know you could take someone to court for subleasing without landlord's permission. They let you go to live in the unit yourself if you need it, so that's a thing there, but then if you're going to do that, it's 180 days written notice plus you have to provide the mandatory cash for keys equal to three months’ rent. Now that's a lot of notice, and if you've got a bad diagnosis, a health condition or something and you need that unit and you've got a tenancy at will there and the renter can leave, you know you can work it out with them why shouldn't you be allowed to do that.
Why does the law have to prescribe you have to wait 180 days where you are before you move closer to the hospital for your medical care and you have to pay the renter three times the monthly rent even though they're fine and you because of rent control you're rented to somebody who's very wealthy anyways? I mean why are they doing this?
[0:50:13]
And then lastly they provide there could be any other just cause but it's up to a judge to decide, so again no predictability there, and if you're going to do this you're going to notify the city or town and failure to notify people or attempt to get somebody out will be a fine of not less than $5,000. Each attempt to get somebody out in violation of the section is another $5,000 and this is really important in eviction parlance defense means the eviction is stopped, so it shall be a defense that a renter says you know this is Just Cause Eviction Ordinance in my town, therefore state law does not apply, so that's something a town could adopt as well.
Another option in there, assortment of bits and pieces to stitch together is tenancy preservation notices, so one part of this was struck down during the eviction moratorium as unlawful compelled speech, but this part it's probably okay they would say you know this notice to quit is not an eviction, but again they're potentially confusing people because what it should say is although this is not an eviction you're potentially in big trouble and you better get some help or find some rental assistance or something because this is going to go very badly for you.
It could say for instance 95 percent of cases actually it’s 99.5 percent of non-payment cases result in the landlord winning. I mean sometimes this wording is too lenient people need to be motivated because they're in housing crisis. They need to speak up and get help somewhere. Anyways they're saying tell the renter not to sweat all right and the town that adopts this is going to have the power to tell the Executive Office of Housing and Economic Development what form to make. I’m not sure that's constitutional in Massachusetts, but they've written it that way and that form has to be available in the five most common languages. I put a note here I mean there are 15 languages commonly spoken in Massachusetts that are not English, and that are particularly important to people with limited English proficiency. Think about this, Spanish is probably the number two language in Massachusetts, right? Is that what I said? Yes, 430,000 residents speak Spanish as a first language, but there are so many people here who speak Spanish and English that if you only speak Spanish, you could probably find somebody to translate that form for you whereas if you speak Khmer that's really hard and that's why Lowell has a whole separate set of city services that are in Cambodian or Khmer to help people with limited English proficiency who don't have access to casual or friendly translators, so Khmer is nowhere on this list of five. It’s too far down, and so that's again indicating that this bill has been drafted by people who aren't really like super knowledgeable about housing policy.
You got to send electronic copy of the notice to quit to the Executive Office Of The Housing Economic Development and you've got to send it to the chief executive officer, that means the mayor or the city manager of the town. Good every mayor wants to hear more about things that they can't do anything about that's great. They're saying none of this is a public record, so nobody can oversee it. They're intending not to shame people or not to have any stigma, but what the resulting system is going to be is you can't oversee it or improve it.
The towns get to share these notices with certain people, a Housing Consumer Education Centers so for instance you might be getting evicted and then suddenly RCAP Solutions or Metro Housing Boston is going to come talk to you and say, “Hey we heard that you're getting evicted. You want to apply for rental assistance and give us more state funding?” I mean really I understand wanting to help people but again like why these particular agencies have to have something shared with them not clear to me, and they're under no obligation to provide rental assistance. If they were legally obligated to provide rental assistance then share away. That's not the case.
Housing stability resources could be a conversation not clear, and the Executive Office Of Housing Economic Development is saddled with issuing regulations. This is a big jumping off point here. There's a lot of work that has to go into rent control to make it work and is much more than just this bill text. You get these reams and reams of paper and we're actually starting a scanning project to document some of this.
I won't talk too much about this because this is the most ludicrous part of the bill, but they would basically roll back any rents you have. They would undo any contracts you have and set them back to some time period. It currently says 12 months prior to enactment but if this law were to pass they'd set your rents back to some point in time, maybe before you renovated so you've got pre-renovation rents in the post-renovation unit. It’s just really difficult to imagine that passing.
They'll regulate deposits so now every town has its own Security Deposit Law, and its own opportunity for landlords to get triple damages in court or something. You have to accept security deposits first month's rent and six equal monthly installments. I mean can you imagine if people haven't saved enough to pay the moving monies, how are they ever going to catch up in a new apartment that's probably too expensive for them? That's what they've got there and you can't have any fee or interest or anything to offset the risk of nonpayment. A $1,000 fine for breaking the watered-down security deposit law, whatever complexity it may have in it.
[0:55:30]
There is also one line, casual line—by the way, a town can make brokerages illegal, can't pay for help to find an apartment. Just one casual line so like there's just so much in this I don't understand where people are coming from, and as we mentioned before they let the towns draw these little lines around people and say you're the one who's going to be hurt by this policy. They get to say, “We aren’t actually rent-controlled, but as a matter of fact they've hurt a whole bunch of people in a very select area perhaps not even their district, people who are voting or donating to their campaigns.
I’m not a fan of rent control obviously and I would like to leave you with the impression that this is like a Frankenstein's monster policy. It’s something we've had in Massachusetts that we're now resurrecting out of the past. They're letting folks stitch together all these little failed pieces. If they want Just Cause Eviction, they can have it. If they want to rent control board, they can have that but there's no guidance on how to make a system that actually works, that's means tested. They won't have a racist disparate impact. It’s going to run amok with all these unintended consequences and basically it leaves towns and cities to become their own mad scientists, further balkanizing housing policy. I don't know if I can add an extra unit in in Belchertown or in Springfield. I have to go check with local zoning, and it's going to be 10 times that with rent control.
Just by way of conclusion here, if this were to pass, well the first thing is prevent it from passing and it can really help a lot of renters who are really hurting right now if we have sustained rental assistance and that pandemic program should not be scrapped at this point. It should be expanded and made to work better and actually this is why MassLandlords is suing the Department of Housing and Community Development. At this moment we've already filed, we've had hearing on it. This is why we're in court because this rental assistance thing is really important to really a lot of people. Long term of course the answer is “gentle density” as of right. That doesn't mean I’m going to build a skyscraper in a single-family lot, but it means why can't I have multiple households living in this building that has enough space that's safe, that has egress, that has all the things you'd expect it to have.
Of course if this does get enacted we can litigate under the Civil Rights Act in a way that was never possible before because we've got all this data specific to Massachusetts that says what a mess it was for so many of us in the Commonwealth and we could bring the action in a way that would eliminate single-family zoning, so it's kind of like the legislature could enact a comprehensive zoning reform much above housing choice or the courts could just say you can't restrict the relationships between people in a building.
That's really where our calls to action are, but we'd like folks to ask their representative or senator to write a letter to the chairs of the joint committee on housing and say we can't do this rent control we have to do something else with our rental assistance to zoning reform. Of course you can become a member and you know we are collecting volunteers to gather signatures if it happens to go to referendum.
Right on time here. Yes, question?
Naomi: Can you go back to the sponsors on that bill?
Doug: Yes, I can show that. Yes, this is as of last I downloaded it. It might be a little small to see, but there's a lot of people who are bought into this and it's understandable because rents are a legit problem for a huge number of Massachusetts residents. All right, so just by way of conclusion, I can show the sponsors again in a minute, but I'd like to leave you with the sense that you know we have a real shared problem here in Massachusetts about housing costs. We've tried rent control before. It didn't work um we're dead set against returning to it, and we know that rental assistance does work and we can make it work better and that's a really immediate relief for a lot of people in pain today and in the long term we have to do more to increase rental housing supply in Massachusetts.
That's our presentation here. I’ll just look at the Q&A here.
Questions and Answers
I see we've got a request for the cosigners.
“Is there a form letter?”
No. We don't have form letters here because we want you to build a relationship with your representative let them know or their aid, more likely you'll talk to their aide, let them know who you are, you live or you operate housing in their district, and this is a really important issue for you and that's going to be a unique communication that won't get caught in a spam filter. It will indicate you care enough to build that relationship, have that conversation and allow them to ask questions. So now that you've seen all this, you're going to be very much more knowledgeable than the typical person.
Representatives and senators are asked to do an impossible task with all these different issues and emergencies all the time and so they really need somebody to be available to help them understand the concerns here.
All right, I don't see too many questions but I think that's anticipated because this presentation has been given a couple times before and I think we try to address all the bases, so probably given that, it's just past 1:00, I will end here. I’ll pause in just a minute in case somebody's typing a question as we speak, but that's the gist of what we wanted to share today.
[1:00:52]
Naomi, speak up if you think there's anything else that we should have mentioned but didn't get.
Naomi: No, but I did put the bill link inside the chat if anybody wanted that.
Doug: Thank you very much.
Naomi: You’re welcome.
Doug: So I will end there. Make sure to leave us feedback on this webinar at masslandlords.net/yellow. Those are representing the yellow feedback cards we have it in-person events.
Charlie asked, “Will it pass?”
I mean I don't know, Charlie, but I’m hoping with our efforts here it won't pass because it's a glaringly obvious that it shouldn't pass, so I’m hopeful um, so we'll end there and leave us feedback and if there's anything you need, if you want a link to these slides or you want to be connected with somebody to talk about this email us at hello@masslandlords.net. We'll point you in the right direction, so we'll end there.
Thank you very much everyone if you're interested in this and take care.
[End 1:02:00]
