Rent controls force landlords to price apartments below the equilibrium price le
ID: 1103585 • Letter: R
Question
Rent controls force landlords to price apartments below the equilibrium price level. An immediate effect is a shortage (excess demand) of apartments, because the quantity of apartments demanded is greater than the quantity supplied at the regulated price.
When cities prevent landlords from charging market rents, which of the following are common long-run outcomes? Check all that apply.
a. Nonprice methods of rationing emerge.
b. Efficient use of housing space results.
c. Landlords earn lower profits from renting housing units, but the rent charged has no effect on either the quantity or quality of rental units.
d. The quality of rental housing units falls.
Explanation / Answer
Rent Control Acts create both long-term as well as short-term problems. In short-run, Rent Control Act leads to shortage of rental units.
However, the long-term impact of these Acts is more serious.
With no change in rent, the incentive for owners to maintain the quality of rental units and thus charge higher rent gets eliminated. Due to this, they do not maintain their units properly leading to decline in quality of rental units in long-run.
Secondly, shortage of rental units give rise to various non-price rationing methods that owners use to allocate their rental units.
Hence, the correct answer is the option (a) and (d).