Housing Market Spillovers: Evidence from the End of Rent Control in Cambridge, Massachusetts

A study by David Autor, Christopher Palmer, and Parag Pathak measures the spillover effects of the 1995 end of rent regulation in Cambridge Massachusetts to reveal an increase in value of uncontrolled Cambridge housing by 2003 due to decontrol.

Understanding potential spillovers from the attributes and actions of neighborhood residents onto the value of surrounding properties and neighborhoods is central to both the theory of urban economics and the development of efficient housing policy.  Autor, Palmer, and Pathak measure the capitalization of housing market externalities into residential housing values by studying the unanticipated elimination of stringent rent controls in Cambridge, Massachusetts, in 1995. Pooling data on the universe of assessed values and transacted prices of Cambridge residential properties between 1988 and 2005, we find that rent decontrol generated substantial, robust price appreciation at decontrolled units and nearby never-controlled units, accounting for a quarter of the $7.8 billion in Cambridge residential property appreciation during this period. The majority of this contribution stems from induced appreciation of never-controlled properties. Residential investment explains only a small fraction of the total.