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Essay on Micro Economics - Price Control
Rent control is simply another term for a price control as it is applied to rental housing. The simplest supply and demand analysis yields a prediction that effective rent controls will create a housing shortage. After all, when any price, whether it be for rental housing or gasoline, is set below the market-clearing price, it will yield a greater quantity demanded than quantity supplied. The result is often black markets.
Rent control has been in force in a number of major American cities for many decades. The best-known example is New York, which still retains rent controls from the temporary price controls imposed during World War II. But this policy, meant to assist poorer residents, harms far more citizens than it helps, benefits the better-off, and limits the freedom of all citizens (Marks, 1984).
A look at the classified ads in rent-controlled cities reveals that very few moderately priced rental units are actually available. Most advertised units are priced well above the actual median rent. Yet in cities without controls, moderately priced units are universally available.
In many cities, policymakers understand that controls drive out residents and businesses. Thus many exempt significant portions of housing from controls, creating shadow markets. As controls hold down rents for some units’ costs for all other rental housing skyrockets. And tenants in rent-controlled units fear moving to more desirable neighborhoods since the only units available for rent are very high-priced (Marks, 1984).
But the trend in recent years has been toward removal of rent control. The repeal of controls in Massachusetts, for example, did not lead to the widespread evictions and hardships that some predicted. The lesson for the rest of the country is that rent control is policy that never was justified and certainly should be scrapped......
