At a monthly meeting of Los Altos and Mountain View REALTOR® members of the Silicon Valley Association of REALTORS®, a Berkeley professor shared his study on the effects of rent control in the city of Cambridge, Mass. and why the ordinance did not benefit the community as a whole, including many of those who needed it most.
Christopher Palmer, assistant professor with the Fisher Center for Real Estate and Urban Economics, Haas School of Business in UC Berkeley, presented the REALTORS® with data from his study entitled "Housing Market Spillovers: Evidence from the End of Rent Control in Cambridge, Massachusetts." Palmer's research assessed the effects of the city's rent control ordinance imposed from 1970 through 1994, and the effects of a decade of decontrol between 1994 and 2004.
From 1970 through 1994, rental units in Cambridge that were built prior to 1969 were subject to a rent control ordinance that capped rent increases and restricted the removal of units from rental stock. The ordinance was imposed to solve an affordability problem.
Palmer found while it kept rents low, the Cambridge rent control ordinance reduced the quantity and quality of available housing. He explained there was a mismatch between those who could get rent-controlled apartments and those that needed it most. Rent control pushed rents even higher in non-controlled units and produced an inefficiently low turnover. Since landlords could not raise rents, it killed incentives to make improvements to rental units.
What seemed seem like a "surefire way, a silver bullet, a quick fix" to bring down affordability had, in fact, created long range effects for the rent controlled units, uncontrolled units and spillover effects on surrounding neighborhoods which were not beneficial to the community, said Palmer.
Palmer said ending "a fundamentally flawed and deeply unfair policy" created tremendous value for the city of Cambridge. He said a decade after the end of rent control, there was a dramatic appreciation of residential stock and new investments, including substantial tenant turnover. Property values rose in the decontrolled and never controlled units that were located in rent control dense neighborhoods.
The end of rent control in Cambridge created $2 billion in economic value within 10 years - $300 million "direct effect" through increased rents and return on investments and $1.7 billion in "indirect effects" through renovations, higher comps, gentrification and reduction in crime.
Palmer told the over 60 local realtors gathered at the Los Altos Hillview Community Center based on his data, he has come to a conclusion that rent control does not benefit a community.
"Rent control is tempting. Affordability is a real issue and rent control immediate, but it has a range of unintended consequences," said Palmer.
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