Massachusetts' Rent Control Referendum
Voters have option to impose property-destroying rent controls
6/11/20262 min read
November’s ballot measure in Massachusetts will decide whether to repeal the state’s 1994 ban on local rent control, then impose a binding statewide cap on rents. Lawmakers have also proposed that the Legislature restrict the use of algorithmic pricing software that aids landlords in determining the value of their properties.
Basic economics determines that rent control, in any form, only hurts those it intends to help. Here’s why:
The Massachusetts ballot measure would cap annual rent increases to either 5 percent, or the annual increase in inflation, whichever is lower. Such actions, however, fail to track the actual costs of maintaining rental units.
Since 2000, rent inflation has averaged 3.6 percent – one point higher than overall inflation. However, landlord operating costs have increased by an even larger amount. According to the National Multifamily Housing Council, property insurance rose 26 percent in 2023 – that’s in a single year. A rent control cap of 5% or less could easily limit the ability of landlords to properly maintain units.
When rents don’t keep pace with operational expenses, owners are likely to defer repairs, avoid renovations, or even worse for the tenant, convert the property into condominiums or higher end uses not subject to the cap. Documented evidence across the country bears this out. Decades of regulation have left a large share of units in poor physical condition when compared to market-rate units.
The Massachusetts law wouldn’t even be means tested. A high-earning Bay-area tenant would receive the same protection as a low-income family in a downbeat neighborhood. In straight dollar terms, the rich would receive a much larger benefit. The transfer of resources would run from landlords to well-off tenants, not from landlords to whomever is most in need.
While there are some minor exceptions, such as owner-occupied buildings of four units or fewer, there would be no vacancy decontrol. What’s that? Simply put, when a tenant moves out, the new tenant would inherit the old rent rather than paying market rate. This puts even more of a burden on landlords to maintain units in a proper condition. Deteriorating rent-controlled buildings would become less attractive, and impose costs on surrounding property by lowering their property value – meaning less property taxes going to city-provided services.
The ballot measure does contain a 10-year new-construction exemption claiming it would create incentive to build new rental housing. That’s unlikely. Developers underwrite buildings based on 20 to 40 year projections. Developers may chose to leave and go to places more friendly, which means less supply while demand remains high. That creates inflationary pressures.
There’s a better way. Loosen unnecessary zoning restrictions, end single-family-only districts, legalize accessory dwelling units and tiny homes, and shorten the permitting process. Austin, TX, where permissive zoning was enacted, allegedly saw a surge of new construction and a meaningful drop in rents. Free markets work, if we let them.
In today’s world, I have little hope for voter common sense. Massachusetts can prove me wrong by rejecting rent control – as they did in 1994. We’ll all know in November.
Source used: Cato Institute
