Two wrongs don’t make a right.
This is true of two high-profile proposals likely to be on the Massachusetts ballot in November. The first would impose a strict statewide rent control regime. The second would cut the individual income tax rate by 1 percentage point.
Both are appealing. Who doesn’t favor more affordable rents or lower taxes?
But both are bad ideas, even though they attempt to address real economic challenges posed by the state’s high cost of living. Like most simple answers to complex problems, they would only make matters worse.
The rent initiative, backed by labor unions, would discourage new construction, which is essential to keeping a lid on lease rates. It would also decrease property values, putting a strain on municipal budgets.
The tax cut, pushed by business groups, would take a large bite out of state revenues, forcing difficult decisions about which services to eliminate.
Here’s a quick primer.
Rent control
What it would do: Filed by Homes For All Massachusetts, a coalition of housing groups, the initiative would limit annual rent hikes to the rate of inflation (as measured by the Consumer Price Index), with a cap of 5 percent.
Landlords would be barred from raising rents again if a tenant leaves during the year. Owner-occupied buildings with four or fewer units would be exempt, as would new buildings during their first 10 years. Cities and towns couldn’t opt out.
The initiative would “protect tenants from big corporate investors who unreasonably increase rents, while allowing local landlords to earn a reasonable profit and enabling new construction to address housing shortages,” said Carolyn Chou, executive director of Homes for All Massachusetts.
Several big labor unions have endorsed the measure, including the SEIU Massachusetts State Council and the Massachusetts Teachers Association.
Why it won’t work: The proposal tries to sidestep the obvious flaw of rent control: that it chills new construction. Hence the 10-year exemption for new buildings.
But developers calculate the payoff on their projects over several decades, and a rent cap waiting at the end of year 10 changes the math.
The deeper problem behind high rents in Massachusetts is a supply problem. There are not enough apartments and rental homes.
Not only do rent caps discourage new construction, they may encourage landlords to convert rental units to condos or reduce their investment in existing properties.
Moreover, evidence shows rent control can have unintended consequences.
A working paper examining St. Paul, Minn.’s 2021 rent control ordinance, which is more severe than the Massachusetts proposal, found that property values fell 6 to 7 percent. The losses were driven largely by lower expected future rents being priced into valuations.
That kind of decline ripples through municipal budgets. Cities facing shrinking tax bases typically respond by raising rates, cutting services, or both.
“It would be catastrophic for the economy,” said Tamara Small, CEO of NAIOP Massachusetts, a commercial real estate trade group.
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