Jonathan Gruber on Massachusetts Rent Control Proposal

This was excellent testimony. It underscored not just how rent control shrinks the rental stock, but also how it would hit the public finances by depressing property values and, with them, the tax base.

The Massachusetts proposal now in play is no mild “rent stabilization” measure. It is a highly restrictive 2026 statewide ballot initiative that would cap annual rent increases at the lower* of CPI or 5 percent, while also applying that cap between tenancies so landlords could not reset rents to market rates when one tenant leaves and another moves in.

That makes it an especially stringent form of rent control, relative to many rent control regimes elsewhere. In effect, it forbids rents in high-demand areas from going up relative to the wider price level. In the recent high inflation burst, it would have enforced huge real price cuts. Worse, in most places where demand rises over time, the controls would become more tightly binding. Because landlords could not reprice units to reflect market conditions on turnover, the gap between controlled rents and market rents would grow and grow and the distortions would compound.

This is significant, because as Gruber explains, the empirical evidence on rent control’s distortions is crystal clear: even less stringent forms reduce the rental housing supply, erode the quality of remaining accommodation, and so depress property values both for affected buildings and nearby properties. They also create serious misallocation problems: tenants lucky enough to secure controlled units stay longer than they otherwise would, while younger and more mobile households are locked out because there are fewer properties available. So the policy does not solve scarcity. It entrenches it, while imposing very perverse distributional consequences.

As Gruber explains, the better approach to improving housing affordability is the obvious one: remove government zoning, land-use, and other regulatory barriers that prevent the building of homes that people want.

*Gruber misspoke and said “the larger of” when he should have said “the lower of.”