KATHY BROWN
‘Modest proposal’

A new proposal that would limit a landlord’s ability to raise rents is already generating controversy and debate in Boston, with some real estate observers saying the proposal could potentially shut the door on new apartment development in the city.

At least one real estate executive interviewed by Banker & Tradesman last week said that any type of rent control policy would force his company to abandon housing projects in the works in Boston.

Boston Mayor Thomas M. Menino last week released a proposal, in the form of a home rule petition, to protect tenants from rising rents and evictions. The plan includes several provisions that are similar to protections included in the last version of rent control. Rent control was abolished in Massachusetts by a statewide ballot initiative in 1994.

Some of the features of the latest proposal include:

“This goes right back to so many of the same old sorry, tired and failed components of a rent control scheme,” said Edwin J. Shanahan, chief executive officer of the Greater Boston Real Estate Board. “They’re all here with a couple of new twists.”

Shanahan said the proposal sends a clear message to private, for-profit apartment developers. “I think absolutely this has the potential of saying goodbye to the big developers. Not only saying goodbye – it’s kicking them out,” he said.

“The big developers … they can cash their chips at our table and go play at another table any day of the week. Equity [Residential], AvalonBay, Roseland [Properties] – all of them – they don’t need to play in the Boston market,” he said.

The history of rent control in Boston makes the city a “very hostile place” to invest in, agreed Chris Reilly, an area vice president for Equity Residential, one of the largest apartment owners in the nation with about 50 properties in Massachusetts.

Equity Residential has already made it known that the company will not be able to do “additional deals” in Boston, if the rent control emerges again, explained Reilly. With all the talk about rent control, Equity is considering pulling out of a proposal to build between 375 and 650 apartments – 15 percent of which were going to be set aside as affordable – at the site of a parking garage at Emerson Place near Massachusetts General Hospital.

“If … rent control passes the City Council, we will have to put our plans to go forward in Boston on hold indefinitely,” said Reilly, who is heading a subcommittee on rent control for the Rental Housing Association.

The home rule petition must be approved by the City Council, and then has to be sent to the state Legislature to be enacted. Last week, the council referred the legislation to its government operations committee, which has scheduled a hearing for Nov. 7.

Some sources interviewed by Banker & Tradesman said that, based on votes in the past, the petition is likely to be passed by the City Council. But some aren’t so sure, particularly given the fact that at least four councilors are too young to clearly remember the days before rent control was voted out.

Rent control was first passed in 1969 and throughout its history was amended, and in some instances, expanded. In the early to mid-1990s, landlord groups, including the Small Property Owners Association, successfully pushed for a statewide ballot initiative to abolish rent control. At the time, rent control was in effect in Boston, Cambridge and Brookline. Statewide, voters rejected rent control, but the results showed that voters in Cambridge and Boston supported it.

Tenant advocacy groups like the Boston Tenant Coalition are advocating for the return of some kind of rent stabilization program because of skyrocketing rents that have been prohibitive for working people. In a recent study by the National Low Income Housing Coalition, Massachusetts was listed as the least affordable state for renters, while Boston ranked as the fifth least affordable metropolitan region, behind such metro areas as San Francisco and San Diego. According to the study, minimum-wage workers in the Boston area would have to work 157 hours a week – or earn $42,040 annually – to afford an average two-bedroom apartment.

“We feel that this is a very modest proposal,” said Kathy Brown, director of the Boston Tenant Coalition. “We’re not rolling back rents. We’re talking about stabilizing rents at 2002 levels, which are the highest in the country.”

Brown said the proposal protects working people who no longer can afford to live in the city where they work. Even though the rental market has softened a bit and vacancies are up, Brown said rents are still too high for working people.

“If rents go down from $3,000 to $2,800, that’s not helping working people in Boston,” she said.

Pat Canavan, a general policy adviser to Menino, disputes that the proposed legislation would “put a damper” on future apartment development because newly constructed units, those built after Sept. 1, according to the proposal, will be exempt. (New construction will be defined if the city receives approval to proceed with an ordinance to determine whether units permitted and/or constructed after Sept.1 will be exempted, said Canavan.)

Canavan also noted that since the end of rent control, there has been little development of new rental units. Most of the development that has occurred has been condos, she said.

Of the 2,721 non-subsidized housing units permitted from July 2000 through Dec. 31, 2001, only 225 were rentals.

‘Strength of Symbolism’

Even though new construction is exempted under the proposal and there is no guarantee that city and state leaders will approve the legislation, just talking about it makes investors nervous about pouring money into residential projects in the city, according to Reilly and Shanahan.

“They [tenant advocates and politicians] don’t understand the strength of the symbolism of even advocating for rent control,” said Shanahan.

“Publicly traded companies and REITs [real estate investment trusts] are going to be reluctant to expand or continue investing in the city,” said John Noone, a partner with the residential group of Lincoln Property Co.

And rent control has other implications, according to critics. Some property owners fear they won’t be able to maintain and improve their units.

“Since rent control was done away with, the quality and the standard of our very old housing stock has dramatically risen, because people have now had the resources to upgrade their property, to maintain their property, to rehab their property, to modernize their property,” said Shanahan.

Now, property maintenance will be at risk, according to opponents. “The quality of the rental housing stock will deteriorate because landlords will not have an incentive to invest in their properties,” said Noone.

That could harm revitalization efforts in various city neighborhoods, he said. “There’s no sense in having inexpensive housing when the quality of that housing is worse than it was before,” said Noone.

Canavan disputes that, saying property owners will still be able to raise rents, but will have to get a board’s approval if they want to increase rents by more than a certain percentage. The landlords can show that the increased rent is necessary to cover operating expenses, she explained.

Other cities with similar rent stabilization programs – including New York and Chicago – provide incentives for developers like tax abatement programs. There have to be similar incentives in Boston for developers to build and maintain properties, said Noone.

The proposal comes at a challenging time for apartment owners. Thousands of units are in the pipeline, the rental market is showing clear signs of softening, rents are dropping and vacancies are up. The economy has also presented obstacles. Companies across the Bay State continue to lay off thousands of people, restricting the tenant pool and market further.

By instituting rent control and pushing developers out, that could mean less construction and fewer building jobs, and lenders, in the face of all the job losses and shaky economy, are not going to finance projects when the rents that can be collected are in jeopardy, according to some observers. That directly contradicts the city’s goals to increase housing production, the rent control opponents said.

“We all acknowledge that there is an issue in Massachusetts with affordable housing,” said Reilly. “We disagree with the solution to solving this problem.”

Critics also disagree with the “right of first refusal” and “just-cause eviction” provisions, arguing that they violate property owners’ rights.

“Just-cause eviction in a nutshell means that the owner, for all intents and purposes, can’t get tenants out,” said Shanahan.

The provision isn’t needed, according to Shanahan, because in Massachusetts landlords must have a court order to successfully evict. Requiring property owners to go before a board, in addition to court, to evict a tenant, adds another unnecessary layer to the process, he said.

As for “right of first refusal,” property owners don’t see why they should be restricted as to whom they can sell to.

“If we’re going to produce more housing, we need the big players to do it,” said Shanahan. “The CDCs [community development corporations] do great work in Massachusetts. We’re blessed … with very top-shelf community development [corporations], and they’re a necessary component to the production of the housing supply. But they can’t do it in the volume that we need to meet the demand.”