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Rent Control and Housing Investment: Evidence from Deregulation in Cambridge, Massachusetts

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Rent Control and Housing Investment: Evidence from Deregulation in Cambridge, Massachusetts

May 1, 2003
Urban PolicyOtherInfrastructure & Transportation

Traditional economic analysis suggests that when price controls (rent regulation) are imposed on housing stock, housing quality declines over time because landlords are unable to recoup their investment and routine maintenance costs.

Conversely, rent deregulation should lead to significant new investment in housing that was previously rent stabilized. This question has important policy implications for New York City, where over half of the city’s 2.1 million rental housing units are privately owned and rent stabilized.

This report documents the actual effect of rent deregulation on housing investment in Cambridge, Massachusetts. Cambridge maintained a very strict form of rent regulation from 1971 to 1994, when rent controls were removed by statewide initiative. Like New York, Cambridge is composed of both affluent and modest income neighborhoods, and has a very large older housing stock. The Cambridge experience should provide information highly relevant to the effects of rent deregulation in many parts of the New York market.

This study uses an econometric model that employs the most complete set of building-level data ever assembled for a project of this type and finds the following:

  • In Cambridge, investment increased by approximately 20% over what would have been the case if rent control had been maintained.
  • Investment increases occurred across a wide variety of settings; both affluent and modest income neighborhoods experienced an “investment boom”.

These results suggest that complete deregulation of stabilized dwelling units would lead to important gains in housing quality in New York. These investment gains might also lead to neighborhood “spillover” effects as owners of property proximate to buildings experiencing new investment feel more comfortable making additional investments themselves.

Given the need for better maintenance and increased renovation of New York’s aging housing stock, such an increase represents a considerable potential boon to the city’s residents, and should draw serious consideration from New York City policymakers.

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