3. Effects of rent control Rent controls force landlords to price apartments bel

Question

3. 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 Efficient use of housing space results. The quality of rental housing units falls. The future supply of rental housing units increases. Black markets develop.

Explanation / Answer

Price control creates distortion in market and leads to inefficiency.

Same is true of the rent control as well.

The most common long-term outcome of rent control are as follows -

1. Rent control prohibit apartment owners from raising the rent. This discourages apartment owners from maintaining apartments in good stead as their returns will not increase proprtionately. This leads to fall in quality of housing units.

2. Apartment owners may resort to non-monetary appratus to benefit. Also, rent control give rise to black market.

3. Inefficient use of housing space results as people may cling to larger house even though they do not need such large space due to low rent.

Hence, the correct answer is the option (2) and (4) [The quality of rental housing units fall and the Black market develops].

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