When it comes to rent control, Wu’s plan aims for a delicate balance

The mayor hopes to protect tenants while allowing landlords room to raise rents

Mayor Michelle Wu delivered her first State of the City Address at MGM Music Hall at Fenway on Jan. 25.Matthew J. Lee/Globe Staff

Housing advocates say it’s vital for keeping communities together. Economists warn it has unintended consequences. And to the real estate industry, it’s nothing short of a disaster.

But for Mayor Michelle Wu, rent control is simply a tool — one of many — to tackle Boston’s intractable housing crisis. Before she can use it, Wu has to pull off what seems impossible: persuade decision-makers that her proposal goes far enough to rein in the worst rent-gouging, but not so far that it will stop housing investment altogether.

The draft “rent stabilization” plan Wu is floating, and aims to file soon with the City Council, is far softer than the rent control that existed here before Massachusetts voters outlawed it in 1994, or the one in place in New York City today. It would limit annual rent hikes to 6 percent plus inflation, with a cap of 10 percent in high-inflation years like 2022. Small owner-occupied rental properties such as three-deckers would be exempt, as would any new apartment buildings over their first 15 years.

The policy would apply to nearly 56 percent of the 313,202 apartments in Boston, according to city estimates.

Experts say Wu’s proposal, far from the existential threat landlords had feared, is modest — more like the compromise state laws negotiated in California and Oregon than the stringent caps in the nation’s other most expensive cities. Wu says her approach strikes a balance: strict enough to prevent predatory rent hikes, flexible enough to keep the housing market growing.

“This policy is not going to harm production of high-quality housing in the city of Boston,” said Wu’s housing chief, Sheila Dillon. The city urgently needs more housing, she said, “but until we get there . . . we do need to protect our tenants from really egregious behavior.”

It’s hard to say how many tenants would directly benefit from the cap. Last year, city data show, advertised rents surged 14 percent across Boston on average, and as much as 27 percent in some neighborhoods, as the rental market rebounded from COVID-19. But from 2017 to 2021, that number did not climb more than 3 percent in a single year. That suggests the rent caps proposed by Wu would not have limited most rent hikes on most leases in typical years.

Wu doesn’t expect rent control alone to solve the housing crisis — nor is it intended to. She’s making efforts to boost housing production, and pushing other tenant protections, such as requiring landlords to show “just cause” for evictions. She has also allocated more than $200 million in federal COVID relief funds to develop affordable housing and assist first-time home buyers.

Research shows rent control helps keep vulnerable tenants in their homes, preserving community and a working class in ever-more-expensive cities. But economists warn that in the long term, rent control can fuel gentrification by driving up rents in uncontrolled units or pushing landlords to convert apartments into condos. More affluent tenants may scoop up scarce rent-controlled units, since there are no income requirements.

Even supporters note its limitations.

Renters' rights groups rallied outside the State House in 2020 to call for the return of rent control. Lane Turner/Globe Staff

“It’s a bandage, honestly,” said Tim Thomas, a specialist with Berkeley’s Urban Displacement Project. “It’s not a solution, per se. It will give policy makers time to really help reduce the income gap and displacement.”

Rent control may protect existing residents, said Christopher J. Palmer, an MIT professor who studied how it worked in Cambridge in the 1990s, but it “doesn’t improve affordability for someone who cannot afford to live here right now.” Nor does it do what city officials, many advocates, and much of the real estate industry agree is most important to combat Boston’s housing crisis: build tens of thousands of homes, quickly.

Construction of new homes in Greater Boston fell in 2022 from the previous year, as developers faced much steeper interest rates and persistently high construction costs. But despite the fears of real estate developers, there’s no evidence that rent control depresses new housing production, said Edward Goetz, a professor of urban and regional planning at the University of Minnesota.

On its own, though, rent control certainly doesn’t increase production either.

“It doesn’t create an incentive to build, or make it easier to build,” said Jenny Schuetz, a senior fellow in urban economics at Brookings Metro. Building more housing is “the only solution” to the housing crisis, she said.

In San Francisco, overall rental stock fell as a result of rent control, Schuetz said, in part because landlords converted apartments into for-sale units to skirt the policy. Wu’s policy is far less strict than San Francisco’s, city officials pointed out, and would include a provision to discourage condo conversions. Boston would require all landlords seeking to convert apartments to condos to provide tenants notice, pay fees, and seek permits from the city.

There are several provisions in Wu’s policy aimed at softening the impact on real estate, including the 15-year carve-out for new buildings, which experts say is essential to maintaining a pipeline of new construction. When St. Paul, Minn., initially implemented a 3 percent cap on rent hikes with no such exemption, construction nearly ground to a halt, according to St. Paul City Council member Chris Tolbert. The city quickly changed course and exempted new construction for 20 years.

Another concession to landlords in Wu’s proposal is the “vacancy decontrol” provision, which allows them to raise rents as much as they want between tenants.

Indeed, Wu’s version of rent control is noticeably more lenient than policies in several of the country’s other most expensive cities. Her proposal, of 6 percent plus the Consumer Price Index, a measure of inflation, would allow rents to grow by 8 percent in a typical year with 2 percent inflation.

In San Francisco, for instance, rent cannot grow even as fast as inflation; Washington, D.C.’s policy caps rent hikes at inflation plus 2 percent. In New York City apartments covered by “rent stabilization,” landlords can raise rents 3.25 percent this year.

Wu’s proposal is similar to a California state law that limits rent increases to 5 percent plus inflation with a 10-percent cap. Oregon’s law allows increases of 7 percent plus inflation, but, notably, does not include a cap for high-inflation years. In 2023, Oregon landlords can hike rents by 14.6 percent.

Wu’s proposal is far less of a blunt instrument than what other cities employ, said Barry Bluestone, a Northeastern University professor and former author of the Greater Boston Housing Report Card.

“None of this stuff is perfect,” he said. “But this is the best rent control proposal I’ve seen in decades.”

Still, Wu’s effort to propose a middle ground has left her with critics on both sides.

Pushback from the real estate industry has been fierce and swift; loath to see any additional restrictions given the uncertain economic outlook and the slew of other fees and regulations Wu has proposed, most developers and landlords oppose rent control in any form.

Meanwhile, tenant advocates note low-income renters could still face big hikes, and urge stricter rules.

Elected officials have also sounded skeptical. Progressives on the City Council argue that Wu’s plan does not go far enough, while the body’s more conservative members warn it goes too far. Councilors could alter Wu’s proposal significantly, or block it entirely.

And if Wu gets the policy through the council, it still faces an uncertain future at the State House. Governor Maura Healey, a Democrat, has said local officials should be able to set their own policies on rent control. But the Legislature has shown little appetite for rent control in the past, and House Speaker Ronald Mariano said recently that he has “questions” about the draft plan.

Still, Dillon, Wu’s housing chief, is optimistic. When she pitches skeptical political leaders, she talks about stopping the most egregious behavior and requiring landlords to have good reason to evict someone. She thinks those ideas are getting through.

“When you talk about it, people nod,” Dillon said. “They understand.”