Imagine you’re a landlord sitting in your belfry/penthouse reviewing rental applications for 123 Main St, Rentcontrol, MA. Thanks to the town’s “local choice” ordinance, rent control has been enacted and the most you can charge for this unit is $1,550 per month. Since you can’t negotiate the rent up, you have been holding this apartment empty waiting for an application that achieves your passing score. It’s a high bar.
Imagine on your desk are two rental applications. You have evaluated both according to MassLandlords’ objective, non-discriminatory applicant qualifier. You use a completely numbers-based approach. Your staff give you the details and you make a decision without looking at applicants’ pictures or even reading their names. You look just at income, average length of tenancy, credit score and number of criminal convictions.
One household has okay income, average housing history, normal credit and a conviction for possession of weed, which wasn’t legal at the time but now is. They can’t pass. They would have qualified under your old credit builder program – higher rent for a time, lower rent after a proven track record – but that’s no longer an option. The other household has above–average income, strong housing history and good credit. One member of this household was arrested for weed, a Google search says, but they got off at a show-cause hearing without conviction. All totaled, this second household passes.
Good news: The apartment is rented. Bad news: Your non-discriminatory screening policy is systemically biased against applicants of color.
The Black-White Everything Gap
The Economic Policy Institute shows 2018 median household income was $41,692 for black households and $70,642 for white households. ApartmentList shows black households are twice as likely to be evicted as white households. The Urban Institute shows 21 percent of black households have a FICO credit score above 700, whereas 50 percent of white households do. And a report from the Sentencing Project shows African Americans constitute 53 percent of drug convictions, despite representing 14 percent of drug users.
How can we all have high income when some of us haven’t had access to well–funded schools? How can we all remain out of Housing Court when some of us have no household wealth and no safety net? How can we all have good credit when some of us have been redlined out of credit–building opportunities? And how can we all have a clean CORI when some of us get convicted when others get off scot free?
Rent control encourages tougher screening on the numbers, and the numbers in Massachusetts and across America vary unfairly by race.
Is the landlord scenario above just rhetoric? No, it’s history. In 1994, when we repealed rent control, the number of people of color in formerly controlled housing doubled.
Both sides of the race argument will cherry pick statistics they like to support their ideology. Advocates will cite how rent control stabilizes people of color now, because obviously anyone who has an apartment now, when price controls are enacted, can’t then be priced out of a home. True. And I have just focused on the long-term impact of rent control, 20 years after passage, as people move and find there is nowhere they qualify. The point is, rent control is not a consensus policy, and in so far as it is race-neutral, it is long-term racist.
Economists, Owners Flee from Rent Control
Economists usually agree that price controls create shortages and are to be avoided. This was most recently and most disastrously illustrated in Venezuela’s food distribution system, and it is true in housing.
First, renovations will slow. One rent control bill on Beacon Hill sets rents back to their values 12 months before enactment. This has already discouraged some renovations, because who wants to rent out a new unit at old prices? Further price caps discourage future renovations.
Second, new construction will slow. Developers are already in many cases better off building condominiums or single–family homes. The housing crisis means there will be strong demand so you can build, sell and repeat. No one willingly signs up for an inflation-based investment return under rent control.
Third, there will be spillover into other investment. The Brookings Institute details how the value of Cambridge property increased $2 billion from 1994 to 2004. Only $300 million of that increase was from properties that were actually rent–controlled. Put another way, rent control cost Cambridge $2 billion in total tax base to tamp down just $300 million in rental housing basis, a loss of 85 cents for every dollar invested.
Investors fled Cambridge as surely as if there had been a sign posted saying, “Cambridge is Closed for Business, Invest Elsewhere.” Price controls imposed arbitrarily by unelected, unaccountable rent control boards did nothing to create more or better rental housing.
There are alternatives. A permanent supportive rental subsidy, to give one example of many, would return between $1.10 and $1.37 for every dollar invested.
If we are serious about solving the housing crisis and systemic racism, we need to stop trying to pass a law that will make both worse.
Doug Quattrochi is executive director of MassLandlords Inc.