Realizing Rent Control: Targeted Tenant Relief or Broad-Based Road to Ruin

Please excuse typos.

I’m Joe Selvaggi. Welcome to Hubwonk, a podcast of Pioneer Institute, a think tank in Boston. Bostonians would welcome some relief from the cost of rent, which is second only to New York City. Reacting to this broad concern, Michelle Wu campaigned and won her mayoral election unapologetically supporting rent control as the preferred approach to price increases, adding additional eviction prevention measures for tenants. Since her election, the mayor has not backed away from her promise and has placed her rent control plan on the February 15 City Council docket for a public hearing. Owing to the fact that rent control was outlawed in Massachusetts in a Commonwealth-wide referendum in 1994, the mayor will need the approval of the City Council, the state legislature, and the governor’s office before any such policy can take effect, leaving elected officials to consider how a policy that was rejected in the past can be reshaped to garner popular approval in the present. How should Bostonians think about the likely effects of rent control on the future of Boston? And how will the contours of rent-level restrictions change as the idea must navigate between the demands of its most ardent activists and the need to cultivate a healthy real estate market necessary for a thriving city? My guest today is Greg Vasil, Chief Executive Officer and President of the Greater Boston Real Estate Board. As the head of the oldest real estate board in the country, Mr. Vasil advises his professional members, who range from new property developers to those improving Boston’s oldest residential buildings, on how best to meet the housing needs of Boston residents. Well aware that the demand for quality affordable living space far exceeds the supply, Mr. Vasil will share with us his views on how rent control will affect the long-term cost for renters and discuss how these policies will also affect the experience of aspiring homeowners, future developers, and current homeowners alike. When I return, I’ll be joined by Greater Boston Real Estate Board CEO and President Greg Vasil.

OK, we’re back. This is Hubwonk. I’m Joe Selvaggi and I’m now pleased to be joined by the chief executive and president of the Greater Boston Real Estate Board, Greg Vasil. Welcome to Hubwonk, Greg.

Greg Vasil: Thank you, Joe. Thank you for having me on the show.

Joe: Well, I’m pleased to have you on the show. I had gotten a press release that you had sent out this past week and you were going to talk about rent control. It’s a topic we’ve covered in Hubwonk episodes in the past. We’ve talked with economists who studied the issue all over the world, frankly, and all over the country. We’ve talked with historians that said well, look we’ve had this thing called rent control until 1994 when we had a statewide referendum to ban it so here we are again it’s in front page news, it’s top of mind for many people, so we’re going to visit this issue of rent control. And you are the head of an organization that has a lot to do with home ownership and home rental, so before we get started share with our listeners what is the role of the Greater Boston Real Estate Board?

Greg: The Greater Boston Real Estate Board is the oldest real estate advocacy organization in America. We were founded here in Boston in 1889 after the Back Bay was filled and Boston was growing and expanding; and at the time Boston was a peninsula but by filling the Back Bay we suddenly got a lot more developable land so that the city could grow and expand. So, we’re set up in five different divisions. We have commercial divisions which basically finance and provide brokerage development costs both residential and commercial management and also rental housing, multifamily development, and row multifamily management, as well.

Joe: So, you’ve really got a finger on the pulse. You’ve got different divisions talking about everything from commercial home ownership to rentals and your members are effectively the people who facilitate those rentals and sales. Your members thrive on a healthy real estate market in Boston or Greater Boston?

Greg: Yes, and in fact I think of it this way: Whenever you see a crane in the sky on a real estate project in Boston you can be sure that we have multiple members from our different divisions that are involved in that project.

Joe: Indeed, that’s one of my favorite animals, the building crane! You know, though I live in an old part of the city it’s a real pleasure to see so much development, so much growth, and so much health in in the city. So, let’s get down to business here. We’re talking not in academic theoretical terms we’re talking about real proposals made by our new mayor, Mayor Wu. She ran on and was elected on a promise to impose rent control here in Boston again. It’s a long lengthy process to get there, but let’s start with which kinds of properties—as you say, you represent a whole range—what kind of properties are being proposed to be affected by this new proposal?

Greg: It would be rental properties, it’d be multi-families, it would be anything that was six units or more that was not owner occupied. This was very carefully crafted to exempt certain people especially if you look at some of the city councilors that will be voting on this, they are property owners that own less than six units. They own multifamily units, but some of them own less than that, so they would be exempted. You know, rent control is an insidious policy and it’s a way for a politician to sell hope. This plan was crafted specifically that way to try to convince people ‘Hey, we can keep your rents stagnant and static’ is what they are.

Joe: This is a very familiar concept whereby a politician passes laws that affect someone else’s property but for those people who are listening either who own property or who rent in units that are six units or more owner occupied, why should someone care that the mayor you know perhaps well-intentioned effort to stabilize other people’s rents, why should, if it’s not my unit, why should I care about someone else’s unit?

Greg: Because in year one, it’ll be great because your rent will be capped, but as time goes on you will see the quality of your rental unit decline. You will see crime increase. You’ll see all kinds of things that are going to impact you. The value of that building is going to fall—it’s fallen everywhere across the country where rent control has been been put into place, which in Boston over 70% of real estate taxes pay for the operating budget of the community that means less money for police, less money for fire, less money for city services. You’re going to see your actual unit not have the money to do the repairs that you need to get your heating system up to grade have the roof done have the windows have plumbers come in so it’s going to sound great as I said it’s a politicians way of selling hope but in the long term it’s going to affect your quality of life.

Joe: So, I don’t want to go over old ground but we did experiment with rent control in Boston Cambridge and Brookline a while back it was in 1994 that we made it illegal but I don’t want to recap old episodes where we covered this I’ll just like for those who would challenge your assertion that the values of property would go down when we ended rent control I’ll take this from the report from the National Bureau of Economic Research this is the headline of their research it said “The end of rent control raised the overall valuation of Cambridge housing stock by $1.8 billion between 1994 [when rent control was abolished] and 2004.” So, in 10 years it raised the housing stock value by almost $2 billion and but I think this is interesting $1 billion of that value was in homes that were never controlled in their rent so it benefited the value of rental stock went up but the rock value of those properties that weren’t controlled by rent control also went up. I think what I’m trying to make sure our listeners understand is we’re all in this together. Rent control affects the people whose rent is controlled as well as you and your neighborhood. We’re all in this together—the value of your neighbor’s home affects the value of your home is that fair to say? You’re the expert.

Greg: Yeah, absolutely and what rent control also does is it doesn’t provide people mobility from unit to unit because people tend to stay in their rent control units because there’s not a new supply coming on. I mean we’ve seen this in in the city new buildings get built offer incentives tenant might say hey geez, they have a new gym they have a new pool I want to move to this new apartment building and rent there because there’s some really great amenities there that my old building doesn’t happen to have. We saw this happen in Berlin Germany they enacted rent control right before the pandemic and what it did was cement people in their units and provided them basically housing for life but you know it’s sort of a like a Soviet-style housing for life so you’re sort of trapped in your unit and you can’t go anywhere else.

Joe: Indeed this is price controls create breadlines, but let’s get into the details of Mayor Wu’s precise proposal. How much would rent be capped and for our listeners are skeptical of our claims they’re still able to raise rent they just have a limit on how much they can raise rent do you have the details on how much rent can be raised?

Greg: Well, it’s interesting Joe because what they have reported from the administration’s perspective is that rents will not rise more than 10% basically 6% plus CPI with an ultimate cap of 10. But when you read the language very closely that is in the home rule petition, there’s some gray language that almost sounds like the city could potentially by ordinance set the rents at other rates, whatever they see fit. This is this proposal is very similar to what was done in Portland, Oregon, and what we’ve seen is, since it was put into place a few years ago, the governor’s already come in looking to crank down those numbers. So, they start the process off by telling you that rents are 10% which sounds eminently reasonable and then they follow that up a few years later with ‘Hey we’ve got this regulatory structure in place, let’s really crank it down on the landlords,’ and in fact you’re seeing the mayor have trouble with some of the city councilors now that want much, much lower numbers, so it will be interesting to see how that debate plays out over the next couple weeks. There are also provisions there’s also provisions in there for just-cause eviction which we can get into if you like as well.

Joe: Sure, I want to cover that because I think that might be almost as pernicious an element of the proposal as the control of the rent itself. But let’s talk about if you’re in a rent controlled whether it’s 10% or 4% or 2% your rent is in a sense less than it would otherwise be now if I move out and a new tenant moves in that that resets right there there’s no sort of limit on that particular unit? What I’m getting at is, if you’re in a unit and you want to enjoy rent control, you will never leave, because if you do that rent, the new rent of your future home, would not be constrained by this rule. So, in a sense, this is why people, as you say, stay in their homes for life.

Greg: Exactly, and then the problem with what you just described, vacancy decontrol, is that the landlords will push those new rents to incredible limits. What you saw in Portland, Oregon was very similar this is this ordinance was crafted based on Portland. Landlords just went in and said we’re raising rents 10% right off the bat because we don’t trust the government and we know they’ll come back and try to crank it down later, so let’s get the money up front right now so people think oh geez, my rent is capped those landlords are going to push it to the cap and that doesn’t serve anyone.

Joe: So, to be clear, there’s no limit on a particular unit rent, it is just in a sense once the lease is signed it can only go up by so much but what that initial lease is, is not capped at all. OK, so you touched on what I think is a far more scary proposal and we saw sort of the whiffs of this during the pandemic, eviction moratoriums, and the unintended side effects of these kinds of you know, I guess I would argue they are infringement on property rights—but landlords couldn’t evict a tenant no matter what. Talk about what these provisions are that if a landlord doesn’t want that tenant in that unit any longer and the lease is up he may he or she may not be able to ask that tenant to leave. What are what are the rules in this particular law?

Greg: There’s a lot of detail, Joe. Let me start by just saying this what this would do is create a separate eviction law for the city of Boston compared to the rest of the Commonwealth of Massachusetts, so to be able to evict the tenant you would have a different process and you have different standards that would be under. So, the court system would be dealing with two separate standards—the Boston standard and the Commonwealth standard. Now, the problem would be if you do this for Boston what would prevent Cambridge, Somerville, Arlington, Brookline to come in with home rules and change and look for their own just-cause eviction standard, right? So, you know, you had to prove that there was nonpayment of rent but what does that proof involve? We’ve got a tried and true system. Massachusetts housing courts are very pro-tenant now. Is this an even higher standard? How would this work? How would courts interpret that? It affects the quiet enjoyment and potentially of neighbors. If you have tenants that are causing problems now I’m sure many of our listeners have had issues with tenants that live next door to them it’s not easy for a landlord to get those tenants out. The problem is the tenant advocates are typically advocates for the noisy tenants and the squeaky wheels. The really good tenants out there don’t have anybody pitching for them at the Statehouse and that’s the problem we run into this creates a whole new legal structure.

Joe: Indeed, I think if our listeners are having a quiet moment and thinking well we probably have some complaints about their landlord but they probably have for every complaint they have about their landlord they have 100 complaints about their neighbors and what we are doing here is making it harder to evict someone, and if someone’s not—if you take away that threat of eviction—you’re incentivizing or disincentivizing good behavior. You want your neighbors to be good tenants and if they don’t have to be good tenants because the landlord can’t evict them they won’t be as good tenants and you will as you mentioned have less quiet enjoyment of your own unit, so you have a vested interest in your landlord having the prerogative to evict bad tenants. Do I have that about right?

Greg: Yes, absolutely and you know there are good landlords and there are problem landlords but the most important thing is there needs to be a symbiotic relationship between landlord and tenant, because the landlord needs tenants, and we’ve seen this a lot. I mean there are many landlords out there that are giving their tenants below market deals and this ordinance would really sort of push those landlords to maybe make those deals market or as much as they can get for fear that that there’s going to be more pain coming their way as this as political leaders try to crank these levels and these percentages down over the years.

Joe: Now, the advocates of this kind of proposal we want to create a narrative between let’s say wealthy landlords and then tenants who are, you know, really just scraping by and are powerless. But we’ve had, again, this is in earlier episodes we talked about the business of landlording, meaning you if you don’t have landlords you don’t have rental units you don’t have properties you don’t have a place to live, so we all have a vested interest in people wanting to go into the business of landlording. In general, if we take a step back and focus on these rules, in what way does this affect one’s desire either to be a landlord, a good landlord, a great landlord or really take your money and do something else?

Greg: iIt creates a nightmare problem, because you know the as the landlord looks at their building there’s tenants there that that they love because they get along they’re a great part of the community they care about the building almost as if it’s their own—they you know they won’t take a piece of litter and throw it in the hallway and then there’s other tenants that are problematic and the landlord has a duty to all the tenants to try to make that as habitable and safe a place as possible. For example, if there’s no smoking clause in the lease and there’s a tenant that continues to smoke, these provisions for just-cause eviction will make it harder for that landlord to get that tenant who’s smoking to stop smoking or removing them from the building. If they’re a risk of violence it makes it harder for that to happen and you know the landlord’s also realizing, jeez I’ve got a problem with the tenant in 2C, but I have a problem I have an obligation to that tenant in 2A and in 2D to be able to take care of them and provide a safe and habitable environment. This regulatory structure makes it really hard for me to do that.

Joe: Yes, indeed, and also again getting back to the the rent control if the landlord’s hands are tied as far as to how much he can charge in rent it also ties his hands and how much he can invest in the building meaning the building will you know he’ll be less likely to fix the carpeting in the hallway or paint the hallway. The incentive now is not just to be a terrific guy but rather he wants to make a property as valuable as possible so as to be able to charge rent for future tenants and when we take that away we essentially take away the ability, but also the inclination, to make that a beautiful property.

Greg:  Joe, and this is an interesting point I’d like to make for people, too, the city of Boston has put in place this this building energy reporting disclosure ordinance or BERTO and it affects the emissions that a building can put out. The goal is to take Boston totally off of fossil fuels and bring it all electric so that we would have zero carbon emissions and that’s great. We also have the oldest housing stock in the nation and many of these buildings function by the burning of fossil fuels. I don’t know how an owner is going to be able to retrofit their buildings—and we all want a cleaner planet—I’m not sure how that gets paid for under a rent control environment. Some of these costs are onerous and unless you have a new massive government subsidy program for these owners I don’t think that gets done so these targets don’t get met and these buildings continue to pollute so you know we have an administration that’s pushing the Green New Deal and this green agenda, which is great, and then we also have these this older housing stock that are you know emitting because they’re heating their building so that they’re comfort —a couple weekends ago we were all freezing you know so those tenants were cared for by gas and oil fired burners it’s going to be really hard. I don’t know how the math works here it’s going to affect people it’s going to affect the quality of the heating that they have.

Joe: You know, Greg, I’m sure listeners will think OK if we’ve made it harder for someone to own a rental building one could imagine say I’m a building owner I don’t want to put up with all these regulations you’ve tied my hands, I’m going to now convert my property to condos and sort of avoid the whole rent control issue altogether. Is there anything in this new proposal that deals with this.

Greg: Yes, there is and they’ve been pretty quiet about broadcasting this, but it would make it much harder for a landlord to convert an apartment unit into a condo unit. So, it almost, the city would regulate it more stringently so and they would view that, you know, in terms of losing housing stock rental stock so they would sort of box a landlord into keeping a rental unit by making it harder to convert it to a condo unit.

Joe: So, indeed now we’ve got that everyone says three cheers for government preventing my rental building from becoming condos, but of course this has trickle-down effect, which is it makes owning a building less attractive. It reduces the value of owning a property and therefore reduces the value of housing stock. What do you think landlords would do to sort of evade this kind of constraint?

Greg: It’d be very difficult, because we would have to see the way that the ordinance is drafted it was all would all be done by regulation, so it would be a very broad delegation of authority to the city and the city would draft regulations to establish how they would regulate those condominiums. Also the downside though here is it also removes the ability of home ownership. You know somebody buying a condo also can build equity and that’s a good thing you know and some condos may be more—especially older buildings—may be more affordable than say some of the newer high-priced condos we’ve seen so you know we also don’t want to disincent the ability of people to build equity through home ownership. That’s really what this would do.

Joe: So, the next step after a property is converted from let’s say rental to condo, you are suggesting perhaps lower price models ones that middle class families involved in could buy and own and build equity—if we prevent rentals from being converted into those let’s say lower price condos we’re not talking about you know the Millennium Tower we’re talking about brownstones being converted from rentals to condo units we’re getting removing or reducing or limiting the supply of reasonable reasonably priced condos that middle class families can afford.

Greg: Yeah, absolutely, you know, especially in neighborhoods where people of color are trying to buy, trying to build equity you may be able to quote unquote recycle housing by taking these apartment units and providing a program where somebody could sort of maybe rent to own and the condoize them and that could create problems I mean we do have a lot of ARPA money out there that could be available for housing. Somebody could get creative here and come up with programs like that.

Joe: Indeed and we know, I mean, just from my own experience, when one is buying a condo in a multi-unit building, the question is asked all the time: What is the owner occupancy? You know they’ve got a stake in it, they own it, they’re going to take better care of it. So, we want a city with a high owner occupancy and what this bill—or this proposal does—is discourage, effectively, owner occupancy, and what you’re suggesting is primarily those lower-income communities that really do need this as a way to build equity in their own lives.

Greg: Yes.

Joe: So, effectively we’re making the world a tough place to be a landlord in other words we’re making it hard to evict we’re making it harder to charge market rates for rent and of course we’re going to mandate that they make their buildings cleaner all of which cost money so those people who are considering becoming landlords actually say look you know I’m going to do something else with that money I put in the stock market or something else, landlording is no longer a profitable profession. Let’s talk about the actual proposal where are we? I’ll admit to our listeners we’re reporting on Friday, February 17, and this is really a current event. Where is this proposal and what would it take to get from where we are now to making all these proposals have the power of law?

Greg: The proposal right now is going to be up for a public hearing this coming Wednesday it’s a virtual hearing before the Boston City Council at 10 o’clock in the morning. It’s fascinating that it’s virtual, because, you know, the mayor has been struggling a little bit with some of the very progressive members and typically these hearings would turn into a real festival down there, so I think they’re trying to limit how the testimony comes in by doing it virtually. After that, it will likely have a what’s called a working session, which is sort of unique to the City Council and very different—not done in the same way at the statehouse. It would probably have at least one or two working sessions and probably be up for a vote before the full City Council sometime in early March, it would be our guess.

Joe: Would that be something that would voters in Boston know how their City Councilor voted?

Greg: Absolutely those votes at the City Council level are recorded, yes.

Joe: Indeed, now, for listeners we’re saying look you know I’m still not persuaded, I really think you know landlords are you know you cry me a river I’m not I’m not feeling it, I think actually I would like my rent to be controlled, I would like it to be stabilized, to use a term  and they’re not sympathetic to our proposal—in our defense, I’ll run to our defense, what would you propose if you were, I’d like to call it king for a day, actually takes more than a king you’d have to be both the mayor and the whole City Council. What would you do for the very real problem of rent that—and you know home prices in Boston—that are you know let’s all accept very, very high. What would you propose to fix that?

Greg: The only way that we can fix our housing problem is to produce more housing. We need to incent more investors to come in put capital at risk and build more. What we see time and time again across the country is that in markets where rent control is production is down—\in San Francisco, in LA, in New York we don’t have the kind of production that we need to keep pace with the demand, and you do that in Massachusetts—we have members of ours now that are producers of housing multifamily housing they say, thank God we don’t have anything in the ground in Boston. We will not look to Boston in the future. We will go elsewhere to put our capital to work for us and build, because we do not want to be in a in a rent-controlled environment. It’s not healthy, number one, and it’s not going to solve our problem.

Joe: Indeed, so what you’re saying is the real reason that we have such high rents beyond the fact that Boston is a terrific place to live is the demand for good housing far exceeds the supply so every economic system, houses are rationed by those who can pay the highest price get the highest priced houses and everybody else is forced to either live elsewhere or you can endure horrible commutes. Were we to increase the stock of housing such that everyone who wanted a home had one, naturally those prices, over time, would be likely to fall more in line with the average person’s ability to afford it.

Greg: Yes, so Joe let me throw this out to the people that are really still concerned about their rent. A landlord when they look at their buildings typically budgets rents to rise probably about 3% a year. That’s typical, and if you take a look back at some of the numbers we’ve had some ups and downs over the time and we do have high rents but over a 10-year period, it’s about 3%. What this ordinance would do is push landlords to make that much higher than 3%, they would push it to the limit.

Joe: So, again, like so many well-intentioned government programs the exact—what the proposals that they put in place are intended to do have the exact opposite effect which is this is a you know as you say it’s giving people hope it’s saying we’re going to constrain how much your rent can go up, but the net effect that people will see on the ground is that their rent would go up much faster than it would otherwise, the quality of their home would be lower than it would otherwise be, and the options for alternatives would be lower because nobody’s moving because this creates a stagnation where people don’t want to trade a rent-controlled home for one that isn’t rent controlled. Do I have that about right?

Greg: That’s right and what it allows is the politician that proposed this to point the finger and say oh, it’s on the landlord, we put this in place, the landlord’s the one that raised the rent, so they get to pass the buck as well.

Joe: So, now, our listeners they’re either I think we’re heretics or we’ve inspired them perhaps activated them. I think they may be inclined to participate or at least join in this open meeting with the city councilors on Wednesday of next week. How can our listeners who are interested in your organization—how can they learn more about the Greater Boston Real Estate Board and the work that you do?

Greg: Just go to our website the Greater Boston real estate board.com you can Google the Greater Boston real estate board, our five divisions are there our website is there we’ll be sort of embarking on our efforts with rent control. You know, Tuesday you will see some ideas and some new press releases coming out from us, you know, as we continue to combat this issue, and Joe, let me throw this out to you, too. In the city of Boston we have 442,000 registered voters and the last mayoral election 127,700 almost 128,000 of them voted that’s only 28%, so the administration that’s in place was only elected by less than three voters—so it’s seven out of 10—more than seven out of 10 voters didn’t vote in the last election. We need people to be involved to contact their elected officials to understand what’s going on that’s way too many people not taking becoming politically active. That should be whether I agree with you, whether I agree with your, you know, viewpoints or not, please be politically active. It’s your right.

Joe: Indeed, this is a common theme of Hubwonk I like to share with our listeners: The world is run by those who show up, and if you don’t show up and you just imagine that Boston just happens to be a great city on its own without the active engagement of informed people who understand the impact of the very real impact of policies like this it we won’t enjoy forever. We can see all kinds of success stories or other successful cities on this in this world and there’s some miserable failures you see you know, the disgraceful condition that, say, San Francisco, or Portland. I hate to throw anybody under the bus, or Detroit. This is all the product of policy, not magic, and not some third source of, you know, the engagement of individuals. If we want Boston to continue to be this fantastic place to live we have to confront these proposals that look great on their on their cover but you open the brochure and what you see is disrepair and decay. So, I want to thank you very much for joining me today this has been a great eye opener Greg, I wish you and your members who are all vested, have a vested interest in Boston continuing to be a wonderful city, I hope you and yours have a great future.

Greg: Thank you, Joe, thank you for having me on the show.

Joe Selvaggi: This has been another episode of Hub Wonk. If you enjoyed today’s episode, there are several ways to support Hubwonk and Pioneer Institute. It’d be easier for you and better for us if you subscribe to HubWonk on your iTunes pod catcher. If you’d like to make it easier for others to find us, you’re welcome to offer a five-star rating or a favorable review. We’re always grateful. If you want to share Hub Wonk with friends, if you have ideas or comments or suggestions for me about Future Hub Wonk episodes, you’re welcome to email me at hubwonk@pioneerinstitute.org. Please join me next week for a new episode of Hubwonk.