Rent controls place price ceilings on rents at levels below market equilibrium r
ID: 1182596 • Letter: R
Question
Rent controls place price ceilings on rents at levels below market equilibrium rental rates for the stated purpose of making housing more affordable for low-income families. Using demand and supply analysis, answer the following questions: How does imposing rent controls affect the number of housing units available to low-income families? Illustrate your response using graphs. Under rent controls, can all low-income families get rent-controlled housing? Who gains from rent controls? Who loses? What alternative policy would you propose to make plenty of housing available to low-income families that would not be subject to the problems of rent controls? Illustrate the effects on supply and demand from part 1.Explanation / Answer
The rent controls have been used extensively in city areas of many countries as a device to hold the housing costs in check for low- income groups. In the year 1970, more than two hundred United State cities have responded with the rent controls. For example, in New York City, which had rent controls in effect during that period of World War II. In addition, in the country Paris (France)also facing the same issue. To this problem, the poor people and their advocates have pledge local government that the rents are too high . With the high rents, they are disagree to make housing prohibitively expensive for the poor and leaving them homeless. In this cases, the rent controls are a price ceiling- a maximum limit imposed on the price of a goods or services. So, through an examination of housing demand, supply and pricing will helps to evaluate the housing problems of the poor.
The Demand And Supply Of Rent Control
Rent control is an ordinance to set the price control on the rental of residential housing and it is functioning to the price ceiling. As well, rent controls have a very visible effect in making housing more affordable, but still some controls are in disequilibrium prices and this situation will change the housing decision in less visible and unintended ways. In New York City (USA) and Paris (France), some of the people are on the end of the demand curve (below the equilibrium price), they do not have extra or enough income to pay the equilibrium rent. Through this problem, they may be homeless .So that, to cure this situation, the city government will imposes a rent ceiling that is below than the equilibrium price. Following for this lower price will makes the housing more affordable for everyone than before. At the controls price, the people are willing to consumer more housing and this will cause the quantity demanded increase. On another hand, to the supplied, the rent controls do not increase the number of housing units available. Hence, on the contrary, the price controls will tend to have an opposite effect. For the example, the builders in New York City (USA) and Paris (France) will decide that the rent controls made a new construction less profitable. Through this situation, they slowly but still surely the quantity of housing will declines than before and this will be less housing for everyone when the rent controls are imposed to make housing more affordable for some. Besides that, the rent ceiling has created a housing shortage- a gap between the quantity demanded and quantity supplier. The markets will allocating available units to those consumers who are willing and able to pay the rent at equilibrium price. Thus, the price ceilings have three predictable effect, they are increase the quantity demanded and decrease the quantity supplier and this will cause or create a market shortage.
Effective and Efficient Housing Policies
As a matter of economics, long-term housing prices in any region are driven by the long-term
stock of housing. To improve housing affordability we need to consider how the supply of
housing can be expanded.
Some government policies attack the supply-side constraint directly by providing incentives for
increased private construction or by providing public housing itself. The problem with these
policies, however, is that housing stock is not a simple homogeneous commodity. There is a
hierarchy of dwellings in terms of quality and interventions and improving supply in one submarket
has flow-on effects to other sub-markets. In some situations, this flow-on can be a
good thing with improvements in high quality housing filtering back to the price of other
dwellings. In other situations, the flow-on can move stock in the quality hierarchy in ways that
offset any reduction in lower housing prices, short-circuiting the objective of the policy. Thus,
any supply-side intervention must be assessed as to its overall impact on housing prices for low
income households; is the policy encouraging increased housing stock availability at the lower
end of the quality hierarchy of housing submarkets?
Alternatively, constraints on the stock of housing can be tackled indirectly through demandside
policies. By improving the ability of low income households to pay for housing, in the
long-run, investors will have an incentive to provide housing that satisfies this additional
demand. However, this type of policy involves two key choices. First, on what basis are
demand-side policies provided? Are they awarded on the basis of a close examination of need
or are they an entitlement? Current rent assistance policy requires close micromanagement of
eligibility while the first home owners