Rent Control Turns a Lease Into a Mortgage

In an essay on housing policy, the author argues that rent control is not really a discount. It is a switch from renting to owner-like security, a lease that starts to work like a home loan with a set payment and the right to remain.

He starts from a simple observation. No law stops anyone from seeking that deal on the open market, a set price plus the assurance of staying put. That fixed-price, stay-put bargain is extremely costly, especially where rent control exists, he notes.

Creating that bargain by regulation, he writes, "is basically piecemeal redistribution of a down payment's worth of economic value from the landlord to the tenant." The tenant gets certainty like a mortgage holder enjoys, in a transfer worth about as much as a down payment.

He adds a limit that makes the transfer uneasy. If tenants did not prefer this arrangement in the first place, or would have bought a home to get it, or simply take it for granted, then assigning it to them destroys wealth rather than creating it.

The point, as he puts it, is that handing people something they did not want wastes resources even when the gift itself has value. He explains the problem with a restaurant example. A restaurant that switches your order with another customer's still brings you a plate of food, but, in his words, "if you'd wanted it, you would have ordered it." The same problem, he says, arises when regulation hands stay-put rights to renters who never asked for them, and screening out fortunate and comfortable beneficiaries is difficult, leaving some who are themselves "well-off but lucky."