In Defense of Rent Control and Rent Caps (Part I of II)

Duncan Kennedy –

Via Boston Globe

The Massachusetts State Legislature’s Joint Committee on Housing is currently considering two bills that would revive rent control in the state. The first bill caps rent increases for not-owner-occupied residential housing at the CPI not to exceed 5%, with an income eligibility proviso. The second much more ambitious bill authorizes localities to choose among a menu of options to create their own version of full rent control. The options included fixing rents subject to increases for capital improvements, controlling condo conversion, good faith eviction requirement and zoning to deal with market variation within the locality.

On January 14, 2020, I offered testimony in support of the bills. Rent control has already been revived in Oregon, California and New York and in Massachusetts it is the focus of intense grass roots neighborhood activism particularly among the low income East Asian and Latina/o communities. At the hearing, they showed up in mass and testified in moving detail to the devastating effects of the crisis on individuals and neighborhoods.

What was absent, and the gap I tried with a fellow academic to fill, was a head-on attack on the industry arguments against the bills. Their arguments are of course rationalizations of their economic interest. But they make serious claims about consequences for the public interest and for supposed beneficiaries as well. Elected legislators, alas, are responsive both to the massive money spent lobbying against rent control and to some extent in good faith to the industry arguments. My goal, as laid out in the edited testimony we’re publishing today and tomorrow was to supplement not to displace the narration of blatant injustice and the invocation of a human right to decent housing with arguments in the policy language of the policy makers.

I wanted to post my testimony here because I think of it as law and political economy, in the particular tradition I work in, which might be called post-Marxist critical legal studies. It starts with groups led by elites, with strategies based on shared material and ideological, or “ideal” interests. They co-operate in social production and reproduction and compete over the distribution of stakes that are both material and “ideal.” Relations of domination and subordination are pervasive. The stakes of the game include the rules of the game, including prominently law. In this tradition the goal is not just to grasp the way law functions in struggles but also to push (humbly, uncertainly) on the side of emancipation or liberation or social justice.

Claim 1: Economic theory and empirical studies both prove that rent control can’t work.

Studies purporting to show that it never works in practice are obviously flawed because every scheme is different and the result depends on the particular market conditions. Rent control worked well for years right here in Massachusetts, in Boston, Brookline and Cambridge. Industry advocates predicted all the bad things they are predicting today for H3924. None of them happened. It was intended to counter displacement and squeezing in place, either because of local pressure for gentrification or area-wide market pressure. It did. These towns all voted to keep it because it worked! The vast majority of the studies cited for the “won’t work claim” are of types of rent control long since abandoned and studies of the “new model” now being proposed, including the one recently adopted in Oregon reach positive conclusions.

At the theory level as well, the economics depend on the scheme and the market. For example, gentrification is by definition something that happens in a particular geographic market. Simple neo-classical economic analysis shows why a local option law specifically tailored to prevent displacement works in theory as well as in practice. A local option policy aimed at across the board speculatively driven rent increases, for example a cap, works in a different way than rent control aimed at gentrification. Localities facing homelessness and rent gouging will modify their schemes accordingly, with eviction controls a key policy tool.

Claim 2: Rent control will cripple, chill, discourage, or eliminate new construction, and production of new market rate housing alleviates the housing crisis for low and moderate income neighborhoods.

The claim that market rate production is the cure for the crisis was discredited years ago and survives only as an industry talking point. In the unregulated market, profit-maximizing developers build new residential units only for upper income buyers, and a few luxury renters. These units do not lead to “trickle down” of existing upper income units to middle or low income residents. New construction is absorbed in upper income neighborhoods as they expand at the expense of middle and lower income areas. The claim that excess regulation is a cause of the crisis ignores the fact that the predicted new housing would still be overwhelmingly upper income—that’s where the money is—and a lot of it would be on the sites made available by displacing residents in lower tiers.

Rent control encourages new construction. H3924 does not cover new construction or owner occupied units. Gentrifying demand, that without rent control would displace lower income residents who are now protected, now has a powerful incentive to create new units and upgrade exempt units. Like all new construction, new units will be upper income and unaffordable. This kind of new construction, when a rent control scheme prevents displacement, can be a major benefit to the locality. Large amounts of new construction of this type occurred in Boston, Cambridge and Brookline under rent control.

No credible expert believes the claim that rent control that exempts new construction reduces investment for fear that the exemption will be revoked at some time in the future. The chance in the present to take advantage of pent-up gentrifying demand (denied the chance to displace lower income residents) should more than compensate for the trivial impact of possible future controls on profit calculations in the present.

Come back tomorrow for the rest of Duncan Kennedy’s post! 

Duncan Kennedy, Harvard Law School, retired.