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

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

Neighborhoods, June 2014

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.