The Effects from “Rent Control” Wisarute Srirojanakul “In many cases, rent control appears to be the most efficient technique presently known to destroy a city – except for bombing” Assar Lindbeck Professor of International Economics University of Stockholm, Sweden

Facts of Rent Control Rent control is price control functioning as a price ceiling on residential housing. Rent control is price control functioning as a price ceiling on residential housing. Rent controls were adopted in U.S. after the World War II, when inflation was high. Rent controls were adopted in U.S. after the World War II, when inflation was high. In the United States, many cities such as New York, Washington D.C., New Jersey, and San Jose, California have rent controls. In the United States, many cities such as New York, Washington D.C., New Jersey, and San Jose, California have rent controls. Rent control peaked in the mid-1980s; more than 200 cities, about 20% of the population, are affected by rent controls. Rent control peaked in the mid-1980s; more than 200 cities, about 20% of the population, are affected by rent controls. In recent years, some cities such as Boston and Cambridge have ended their rent controls. In recent years, some cities such as Boston and Cambridge have ended their rent controls.

Supply-Demand Balance Like all other products, market rental price is the price at the equilibrium point where the demand curve passes across the supply curve. Like all other products, market rental price is the price at the equilibrium point where the demand curve passes across the supply curve. Rental Price Quantity of housing units D PEPE QEQE S

Reasons for Rent Control To make housing available and affordable for the elderly and the poor To make housing available and affordable for the elderly and the poor To prevent the landlords from increasing and charging unacceptably high price To prevent the landlords from increasing and charging unacceptably high price To maintain the appropriate combination from all ranges of ages in the community To maintain the appropriate combination from all ranges of ages in the community To sustain job growth To sustain job growth

“Good intensions do not guarantee desirable outcome” “Good intensions do not guarantee desirable outcome” … But …

Direct Effects Because prices are not allowed to meet market equilibrium, the quantity demanded is more than the quantity supplied, creating shortage. Because prices are not allowed to meet market equilibrium, the quantity demanded is more than the quantity supplied, creating shortage. QSQS QDQD PEPE Rental Price Quantity of housing units D S Shortage Price ceiling PCPC

Secondary Effects Black markets develop. Renters are willing to pay under-the-table to secure their housing. Black markets develop. Renters are willing to pay under-the-table to secure their housing. Future supply declines. Owners are discouraged from adding more rental houses. Future supply declines. Owners are discouraged from adding more rental houses. The quality deteriorates. Owners reduce the maintenance service to compensate for ceiling price. The quality deteriorates. Owners reduce the maintenance service to compensate for ceiling price. Non-price methods for getting housing are more important because owners favor their friends or people whom they know first. Non-price methods for getting housing are more important because owners favor their friends or people whom they know first. Space is used inefficiently. Renters cannot easily find a more suitable place for them. Space is used inefficiently. Renters cannot easily find a more suitable place for them.

Conclusion Limit the increasing price with the formula tied to some economic indices such as Income Index or Consumer Price Index. Limit the increasing price with the formula tied to some economic indices such as Income Index or Consumer Price Index. Create affordable housing by government construction and offer subsidies for the elderly and the poor. Create affordable housing by government construction and offer subsidies for the elderly and the poor.

Works Cited Gwartney, James D., et al. Microeconomics: Public and Private Choice. 11 th ed. South- Western College, Gwartney, James D., et al. Microeconomics: Public and Private Choice. 11 th ed. South- Western College, “Rent Control.” The Wikipedia Encyclopedia. 20 Oct Nov “Rent Control.” The Wikipedia Encyclopedia. 20 Oct Nov. 2006

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