Question

Suppose the demand and supply curves for rental housing units have the typical shapes and that the rental housing market is in equilibrium. Then, government establishes a rent ceiling below the equilibrium level.

a. What happens to the quantity of housing available

b. What happens to the quality of housing and why?

c. Who benefits from rent control?

d. Who loses from rent control?

e. How do landlords of rent-controlled apartments try to get tenants to leave?

Answer 1

a. What happens to the quantity of housing available

There would be a shortage of housing as the housing units demanded will exceed the supply of housing. The demand for housing would be greater than the demand at the equilibrium rent. Similarly, the supply would be less than at the equilibrium rent.

b. What happens to the quality of housing and why?

The quality of housing would suffer as the landlords would not be interested in improving the quality of housing since the rent they receive is less.

c. Who benefits from rent control?

The tenant benefits from rent control as rent is cheaper than the market rate.

d. Who loses from rent control?

The landlord loses as rent is not the market rate but cheaper. Eviction of tenant can also be difficult.