The Bay State’s Rent Control Mistake Redux

The controversy around rent control continues to brew in Massachusetts, leaving even Democratic leadership divided over whether to back an aggressive statewide rent-control measure.

Last year, Massachusetts added momentum to a nationwide wave of rent-control campaigns—perhaps exemplified best by New York City Mayor Zohran Mamdani’s “Freeze the Rent,” signature campaign promise.

In Massachusetts, the tenant-advocacy group (or so it bills itself) Homes for All gathered enough signatures to place its initiative on the November ballot. If approved, the proposal would saddle the commonwealth with one of the strictest limits on rent increases in the country. In Massachusetts, where two-bedroom rents are priced at 74 percent above the national average, the measure make virtually any rent changes impossible, destroying the incentive for developers to build or expand units. This would aggravate the housing crunch, leaving current and future residents with fewer rental options—affordable or otherwise.

This dismal scenario has already played out. Before the mid-1990s, several Massachusetts municipalities enacted strict rent control policies that distorted local housing markets and weakened incentives to build in parts of the Bay State.

While a poll last November found that 63 percent of registered Massachusetts voters supported a ballot question capping rent increases, there are few questions that are more settled among economists than whether rent controls are a self-defeating affordability tool. As economist Nancy Stokey noted, “the planets are lined up here: theory and evidence point in the same direction.”

In The War on Prices, Jeffrey Miron and Pedro Aldighieri articulate the economic theory of price controls––including rent. Their core prediction is straightforward: “if government restricts prices below the market-clearing equilibrium … a shortage ensues.” Some landlords respond to rent control measures by pulling units from the rental market, while the demand for more units rises in response to binding caps on rent prices. Moreover, incumbent tenants become reluctant to forfeit below-market leases. Worse, the policy tends contradict stated affordability goals: affluent incumbents may enjoy below-market rents and high-income renters may have favorable standing with a prospective landlord, all while low-income apartment seekers incur the real costs of rent controls.

A recent review of 112 empirical studies on rent control—spanning international evidence from 1967 to 2023—illuminates the policy’s failures. As the author puts it, “although rent control appears to be very effective in achieving lower rents for families in controlled units … it also results in … higher rents for uncontrolled units, lower mobility, and reduced residential construction.”

Researchers have even studied the effects of rent control in the Bay State. In Cambridge, controlled units rented roughly 25 to 40 percent below nearby market units before the 1995 repeal. Afterward, the evidence of spillovers to never-controlled housing revealed that rent control depressed nearby property values as well. Cambridge neighborhoods saw a rapid turnover of residents in formerly controlled units, reflecting a correction of misallocations caused by suppressed rents. Residential property investment increased sharply because it could finally yield sufficient returns. Building permits issued for improvements and new construction rose by roughly 20 percent. Another Massachusetts study finds that, following repeal, the supply of rental housing increased.

Addressing the supply-side impediments is the proper approach to easing the problems that plague rental markets. For example, a policy toolkit for relaxing land-use restrictions––associated with increases in housing supply––includes rolling back parking requirements, minimum lot-size requirements, and density limits, and lifting bans on mixed-use development, such as apartments in commercial zones.

Massachusetts has already undertaken several deregulatory housing reforms. The state has expanded “simple majority” vote requirements for certain zoning changes and legalized accessory dwelling units (affordable units sharing a lot with a principal dwelling in a single-family zoning district).

Still, 76 percent of Massachusetts land remains subject to zoning and 86 percent is restricted to residential uses. Of that land, 96 percent is restricted to single-family use. Zoning reform should remain at the forefront of policymakers’ housing agenda.

Against the backdrop of national rental difficulties, proposals to freeze rents fall victim to the lesson of The Big Short’s opening line, which, if applied to public policy, should be near-proverbial: “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” If policymakers refuse to learn from Massachusetts’ experience with rent control 30 years ago, they will forfeit an opportunity to pursue housing reforms that could position the Bay State’s housing market for success 30 years from now.