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Rent control hands out unordered mortgages
Nothing stops anyone from getting the bargain rent control offers: a fixed price, and certainty that your home will be yours. That is what buying with a mortgage provides, and in places with rent control it is murderously expensive. Slowly giving a subset of leases the economic characteristics of a mortgage is piecemeal redistribution of a down payment's worth of value.
If tenants didn't prefer this in the first place, or would have bought if they did, or treat it as a default expectation, the transfer destroys wealth. Society produced a resource, the right to stay somewhere at a given price even if market rent rises, and rent control hands it to someone who doesn't want it. A restaurant that switched your order with another customer's would do the same thing: you're getting something, but if you'd wanted it, you would have ordered it. It is also hard to ensure that the recipients aren't themselves well-off but lucky.
Why is the 30-year fixed mortgage unusual?
Before the 1930s, most American mortgages ran five to ten years and ended with a large lump-sum payment. Federal programs created during the New Deal, including the Home Owners' Loan Corporation and the Federal Housing Administration, helped make long, fully amortizing loans standard. Later, Fannie Mae and Freddie Mac bought and guaranteed such loans, which kept long fixed rates widely available. Many other countries rely mostly on adjustable rates or fixed rates that last only a few years.
How badly does rent control misallocate apartments?
Economists Edward Glaeser and Erzo Luttmer studied New York City in a 2003 paper in the American Economic Review. They estimated that about 20 percent of apartments were occupied by someone other than the household that would have lived there in an unregulated market. Their analysis compared the number of rooms in each unit with the size of the household living in it.
How did Cambridge's end of rent control affect values?
Massachusetts voters ended rent control statewide in 1994 by ballot measure, and Cambridge was one of three cities that had it, along with Boston and Brookline. Economists David Autor, Christopher Palmer, and Parag Pathak studied the effect in a 2014 paper in the Journal of Political Economy. They found that decontrol raised the value of Cambridge's previously controlled properties and also lifted the value of nearby uncontrolled ones. Their estimate was that decontrol added about $2 billion to the city's housing values between 1994 and 2004.
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