The Cambridge Model

Whenever New Yorkers debate rent stabilization, they quickly ask one question: What would happen to the city’s apartment market if its 1.04 million rent-stabilized units were deregulated? Luckily, we have one good example of what would happen: the Boston area.

In 1994, Massachusetts ended rent regulations on most apartments. Boston and its suburb Cambridge were among the state’s few municipalities that still had wide-scale controls on apartments that kept rents below market. In Cambridge, two-thirds of apartments in buildings with at least four units were regulated.

Within a few years of deregulation, rents were way up, especially in Cambridge, a city of about 100,000 where tenants are similar socioeconomically to those in New York and where the housing stock is also similar. Over the same few years, landlords invested more in the formerly rent-regulated apartments they owned, improving the physical conditions and therefore helping to improve some Cambridge neighborhoods.

Henry Pollakowski, a housing economist at M.I.T.’s Center for Real Estate, did a study of the effects of Cambridge’s deregulation. The report, released by the conservative Manhattan Institute in 2003, found landlord investment increased through 1998 by about 20 percent over what it would have been had the city maintained rent regulation. Landlords, too, spread this investment over both affluent and poorer neighborhoods.

The report concluded that this “tremendous boom in housing investment” could happen in New York City should it deregulate its stabilized apartments. “… [T]he Cambridge experience suggests,” Dr. Pollakowski wrote, “that if New York’s policymakers wish to achieve significant improvements in housing quality in New York, they should give serious consideration to deregulation.”

But the physical improvements in formerly stabilized apartments would drive up rents and likely change forever the demographics of some of the city’s most prominent and desirable neighborhoods.

Another study by Dr. Pollakowski concludes that New York rents in the short term would rise following deregulation. In the long term, it’s anyone’s guess; but it seems likely New York rents, once all market-rate, would jump so much as to render today’s already high prices quaint, like stories now of $100,000 Central Park West co-ops in the 1980’s.

Again, look to the Boston area.

“Five years after Massachusetts voters ended rent regulation … in Boston, Brookline and Cambridge,” began a New York Times article from July 2000, “rents have taken sizable jumps, the cities are spiffier and less pockmarked by deteriorating neighborhoods and many poorer people have been forced to move to communities farther from the urban core. … [A] leading landlord in Cambridge found that rents for his company’s formerly controlled apartments have doubled.”

More striking than any post-regulation rent jumps in New York would be how expensive and exclusive some neighborhoods in particular would become. Dr. Pollakowski’s report suggests a mere $8 as the median monthly increase in the first two years for stabilized apartments citywide.

But most stabilized apartments are in more affluent neighborhoods, including the lower two-thirds of Manhattan. These neighborhoods are already some of the least diverse economically and socially in the city. Quite simply, the already high costs of living, including rents, keep out many New Yorkers and create ample and understandable fodder for those who lament the city’s gentrification.

The Cambridge Model