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removal on the value of Cambridge’s housing stock is large, boosting property values by $2.0 billion between 1994 and 2004. Of this total effect, only $300 million is accounted for by the direct effect of decontrol on formerly controlled units, while $1.7 billion is due to the indirect effect. These estimates imply that more than half of the capitalized cost of rent control was borne by owners of never-controlled properties. Rent controlled properties create substantial negative externalities on the nearby housing market, lowering the amenity value of these neighborhoods and making them less desirable places to live. In short, the policy imposed $2.0 billion in costs to local property owners, but only $300 million of that cost was transferred to renters in rent-controlled apartments.
Diamond, McQuade, and Qian (2018) examined the consequences of an expansion of rent control on renters, landlords, and the housing market that resulted from a unique 1994 local San Francisco ballot initiative. In 1979, San Francisco imposed rent control on all standing buildings with five or more apartments. Rent control in San Francisco consists of regulated rent increases, linked to the Consumer Price Index (CPI), within a tenancy, but no price regulation between tenants. New construction was exempt from rent control since legislators did not want to discourage new development. Smaller multifamily buildings were exempt from this 1979 law change since they were viewed as more “mom and pop” ventures and did not have market power over rents.
This exemption was lifted by a 1994 San Francisco ballot initiative. Proponents of the initiative argued that small multifamily housing was now primarily owned by large businesses and should face the same rent control of large multifamily housing. Since the initial 1979 rent control law only impacted properties built from 1979 and earlier, the removal of the small multifamily exemption also only affected properties built 1979 and earlier. This led to a differential expansion in rent control in 1994 based on whether the small multifamily housing was built prior to or post 1980—a policy experiment where otherwise similar housing was treated differently by the law.
To examine rent control’s effects on tenant migration and neighborhood choices, Diamond, McQuade, and Qian examined panel data that provides address-level migration decisions and housing characteristics for the majority of adults living in San Francisco in the early 1990s. This allows them to define a treatment group of renters who lived in small multifamily apartment buildings built prior to 1980 and a control group of renters living in small multifamily housing built between 1980 and 1990. Their data allows them to follow each of these groups over time up until the present, regardless of where they migrate.
Between five and ten years after the law change, the beneficiaries of rent control are 19% less likely to have moved to a new address, relative to the control group’s migration
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