Question

Read carefully the attached document and then post your comments bearing in mind the following questions:

1- What are the pros and cons of rent controls?

2- Why economists disagree on the usefulness of rent control?

3- Do you believe rent control can help the poor?

Do rent controls work_ - The Economist explains.pdf

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Do rent controls work? Publication info: The Economist (Online) ; London (Aug 30, 2015). ProQuest document link ABSTRACT The number of houses being built each year in Britain peaked in 1968 (at 352,540 dwellings). Since 2008 there has been a particularly bad slump, while a constrictive "green belt" around the edges of the city restricts growth. According to McKinsey, some 45% of land which is due to be developed in London remains idle. FULL TEXT AT THE end of July about 1,000 people packed into an auditorium in Seattle for a two-hour long debate on rent controls. The idea of controlling rentacurrently illegal in Washington stateahas found fans among several council members there, who argue that it would help fix a housing market which they argue is broken. These Seattleites are not alone in their thinking: in New York, Bill de Blasio, the mayor, has campaigned vigorously for rent freezes on rent-stabilised apartments. In London, several mayoral hopefuls have mooted the idea of introducing some form of rental control to the city. Why are rent controls popular, and would they work? Politicians, particularly those on the centre-left, and some policy wonks favour forms of rent regulation, such as rent control (which is the placing of a cap on the rent that can be charged) or rent stabilisation (which sets limits on how much rent can be raised over time). Supporters argue that introducing controls helps ensure that the nonrich are not squeezed out of cities in which housing costs are soaring. In many booming cities, growth pressures have pushed up housing rents, and over time the composition of many neighbourhoods has changed in favour of those who can afford the higher prices. Speaking to the Guardian, Carl Weisbrod, the chairman of the New York City planning permission, argued that regulating rent ais essential for the future of the citya. Supporters of rent control often point to Germany, where the charging of rent 20% higher than that on similar properties is often illegal. Around 50% of people rent in Germany; almost 90% of all Berliners do, many in pleasingly spacious, well looked-after apartments. Soaring rents around the rich world have driven interest in rent-control policies. In the ten years to 2014 the proportion of British households headed by someone aged between 25-34 which rented privately rose from 22% to 44%. In Seattle, rents for one-bedroom apartments increased by nearly 11% between 2010 and 2013. A case could be made that rent controls provide long-term security for renters, and also tilt the balance of power away from landlords towards tenants. That, some reckon, makes for a more just urban housing market, in which households with lower incomes cannot easily be pushed aside by landlords keen to "gentrify" the neighbourhood. But economists, on both the left and the right, tend to disagree. As Paul Krugman wrote in the New York Times in 2000, rent control is "among the best-understood issues in all of economics, andaamong economists, anywayaone of the least controversial". Economists reckon a restrictive price ceiling reduces the supply of properties on the market. When prices are capped, people have less incentive to fix up and rent out their basement flat, or to build rental property. Slower supply growth actually exacerbates the price crunch. Those landlords who do rent out their properties might not bother to maintain it, since both supply and turnover in the market are limited by rent caps; landlords have little incentive to compete to attract willing tenants. Landlords may also become choosier, and tenants may stay in properties longer than makes sense. Interestingly some evidence shows that those living in rent-controlled flats in New York also tend to have higher median incomes than those who rent market-rate

apartments. That may be partly down to the fact that controlling rent does not mean that those with more resources are not better positioned to find good housing; households of means may in some cases find it easier to track down and secure rent-stabilised properties. The example of Germany is also an imperfect one: many cities there have seen declining populations and low (or falling) house prices over the past two decades, although the latter is now changing in several cities. In places where demand to live in the city is rising (as in London, New York and Seattle) a more effective policy would be to build more housing. The number of houses being built each year in Britain peaked in 1968 (at 352,540 dwellings). Since 2008 there has been a particularly bad slump, while a constrictive "green belt" around the edges of the city restricts growth. Meanwhile many developers sit on the land, watching its value grow. According to McKinsey, some 45% of land which is due to be developed in London remains idle. House-building rates are even lower in Germany, says Kath Scanlon of the London School of Economics. Restrictive zoning laws, in places such as San Francisco (which also has rent control) could also be loosened, while others in Seattle have called for the council to build more low-cost housing. In order to keep a city liveable politicians will have to take on the NIMBYs, not just the landlords. Dig deeper:

Land-use restrictions are a costly constraint on growth (April 2015)

Neighbourhood change can benefit poor as well as rich (February 2015)

Answer 1

Ans

The pros are poor are saved from excessive rents. This inturn means they can reside close to their working areas and thus transport congestion, travel cost etc reduces.

The cons are- it reduces maintenance of rented property. Supply of housing doesn't rise as there is not much incentive to invest since profits are low. Thks inturn means rent doesn't fall as supply doesn't shift rightwards and thus people may actually have to pay more in than longrun than without rent control.

2 Due to the cons mentioned above

3 It can help provided Govt also takes care of investment in housing E. G by giving tax benefits for investment in housi g