Rent control and the supply of housing services: the Brookline Massachusetts experience

American Journal of Economics and Sociology, The,  Oct, 1993  by Raymond Jackson

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No such evidence of tenant willingness to supplement housing services is apparent from the data presented in Table 2. Comparing the proportion of no heat violations from rent control units of 92.3% in 1980, and 94.3% in 1988, to the respective benchmark figures of 70% and 55% respectively, one finds a statistically significant difference each year between violations in rent controlled units and market units (99% level). The same is also true for violations on roach infestation and damaged ceilings.

The results indicate the occupants of rent controlled units are provided with housing services of inferior quality and are apt to seek relief through enforcement of the housing code rather than raising the supply of services to a satisfactory TABULAR DATA OMITTED TABULAR DATA OMITTED level entirely at their own expense. This is not to imply that the regulatory system creates an undesirable environment from the viewpoint of tenants. Supermarket bulletin boards and the local newspaper, The Brookline Tab, regularly carry notices of rewards of $1,000 and more for information leading to the occupancy of a rent controlled unit.

IV

Building Permits Issued for Renovation

THE DATA on health code violations suggests that many owners of rent controlled property expect below average rates of return on additional investments in the short-run. This pessimism might not extend to long-run considerations where important capital improvements can add significantly to the property's resale value. In addition, the Brookline by-laws provide some degree of upward rent adjustment when major improvements are made in a controlled unit. Therefore, an examination of the number and type of building permits issued for renovations by the Brookline Building Department provides a useful way of focusing on the long-run supply of housing services. Permits issued from January to June 1988 for apartment renovations were classified according to whether the permit was in reference to a rent controlled or market rate unit.

The results of the classification of renovation permits for the given time period are shown in Table 3. Of the total of 1152 permits issued, 31% were for rent controlled units. This is a significantly lower proportion than the 55% of rental units that are controlled (99% level). The data show that the same significantly lower level of activity holds true for permits issued for such common improvements as bathroom and kitchen remodeling, roof replacement and porch/deck construction.

The figures comparing renovations on controlled and market units actually overestimate the extent of renovation on units that are likely to remain on the market under rent control. For a clearer picture, the rent control total was divided into owner-occupied units and non-owner occupied units. As explained above, an owner-occupied rent controlled unit can be eligible for decontrol after two years. Much of the activity in the improvement of rent controlled units is, therefore, being financed by owners who plan to live in these units themselves or who plan to rent them out at market rates after two years of occupancy. Table 3 shows that only 4% of all renovation work was done on rent controlled units that were tenant-occupied, a figure more indicative of the impact of rent control on the level of property improvement than the 31% total that includes owner-occupied units.