Concern Over Menino's Rent Control Plan

BOSTON-Nearly a decade after rent control was abolished here City Mayor Thomas M. Menino has come up with a new plan to control rent hikes and it has some developers concerned over the economic feasibility of residential development in the city.

“It will chase all the developers out of the city,” says Ed Shanahan of the Greater Boston Real Estate Board. “There is a strong desire in the development community to build rental housing but if this goes through a number of developers have said to me that they are packing up and going to another city.”

Boston is no stranger to rent control. From 1972 to 1996, the city had rent control but the legislature abolished it in 1994. The law took two years to phase out. Shanahan points out that since rent control was abolished, the city saw a dramatic increase in multifamily development. He says that currently there are up to 30,000 units in some stage of development in Boston. “The national players will go to another market” if rent control returns, says Shanahan. “They don’t need us, we need them.”

Tom Meagher, of Northeast Apartment Advisors, Inc., a research and consulting firm, tells GlobeSt.com that when the city had rent control there were also federal subsidy programs that made development economically feasible. He points out that those programs are no longer available. “It was only the federal subsidy program that allowed those projects to go forward,” he says. “If rent control is enacted now, those projects won’t happen.”

Meagher notes that the revenue stream is the “lifeblood” of any residential project, but if a developer does not have the economic incentive to build, it won’t get done. Furthermore, financing a new project can get tricky if it is unclear whether a building will be subject to rent control. According to Menino’s plan, new construction starting after September 1 of this year will not be subject to the control but Meagher says that buildings built in the early 1980s that were not part of the previous rent control program would now be subject to the new control.

He points to the 475-unit Devonshire Apartments that was built in 1981. “It was not covered then but it would be covered now,” says Meagher, referring to the new rent control plan. “The city, with a stroke of a pen can attack my revenue stream. They say it won’t be covered today but who knows what will be?” Meagher believes that this will make investors shy away from these types of projects.

“These developers could just build in another city,” says Meagher, echoing Shanahan. “They might also build condos and avoid the whole issue.”

Meagher insists that according to his research, city rents are not going up but are actually going down. He contends that the studies the city used to determine current rents are flawed and based on erroneous information. Meagher says that in his study of larger professionally managed market rate rental units, rents dropped an average of $1.98 between March and October.

“The city does not have a good argument to do this,” says Meagher.