Rebecca Diamond and Jonathan Gruber explain why economic research shows that rent control will lead to a reduced supply of housing.
While housing costs in Boston are a problem, rent control is not the answer. Economics research shows that rent control will benefit some renters already in place, but will lead to a reduced supply of housing that will ultimately make housing less available for Bostonians — and less fairly distributed.
Perhaps the best example of the problems with rent control come from the experience of San Francisco. In 1994, the city expanded its rent control program to include a set of buildings that had been excluded based on size of the building and year of construction — but left other similar nearby buildings to be priced under the free market. This law had the intended effect of reducing the exit of existing tenants from the newly rent-controlled properties.
But the unintended consequences were costly. Landlords of the newly rent-controlled properties responded by removing them in large numbers from the rental market through condo conversation and other redevelopment. Over time, the result was a dramatic 15 percent reduction in the rental supply of small multi-family housing — which led to higher rents over the entire city. Moreover, since many of the rental properties were converted to higher-end owner-occupied condos, the housing stock became more elitist — further creating barriers to a thriving middle class in the city. Taken together, rent control increased, rather than decreased, the gentrification of San Francisco.
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