Question

4. Effects of rent control

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) Efficient use of housing space results.

b) The quantity of available rental housing units falls.

c) Black markets develop.

d) Landlords earn lower profits from renting housing units, but the rent charged has no effect on either the quantity or quality of rental units.

Answer 1

When binding rent controls are placed on the price of apartments for rent, the quantity demanded exceeds the quantity supplied in the markets.

In the long-run, this leads to inefficient use of housing space as more landlords abstain from renting as they cut down their quantity supplied i.e., the quantity of available renting units falls. This shows that the rent charged has a direct effect on the quantity supplied of the rental units.

This might also lead to the development of the black market as the quantity demanded is high.

Ans:

b) The quantity of available rental housing units falls.

c) Black markets develop.

Answer 2

The Answer also includes:

a) Efficient use of housing space results

Answer 3

The quantity of available rental housing units falls.

Answer 4

The quantity of available rental housing units falls.