Rent control?

Question

what are the economic consequences of rent control

Answer 1

This is very bad and this was a question on my exam; so here it is. ;)

1. “Reasonable rental housing could be brought within the economic means of all if the government would prevent landlords from charging more than $300 per month rent for a quality three-bedroom house.”  Use the economic way of thinking to evaluate this view.

The $300 dollar price ceiling is both good and bad for the overall consumer. Yes, it makes it more affordable for the average consumer, but the problem is that demand would exceed supply which in turn could create "black markets". When there is a "price ceiling", the landlord loses out on higher revenues that could be achieved had there not been a "price ceiling". Leaving prices for the market to decide is the best option in this case. If there was a price ceiling, affluent and "well to do" families could actually be locked out of the market not because they don't have the money, but because it's almost like a "first come, first serve" opportunity which evens out the market for the wealthy and the poor who can afford the $300 dollar rent. The landlord would be hurt in both the short and the long run. To the landlord, selling rentable housing for $300 dollars is the same as offering it as a "discount" in which he will not reap the benefit of producer surplus. This is just like in today's economy how public universities are cutting enrollment down for this upcoming fall semestor because of budget cuts. A large sum of students will "lose out" not because they aren't smart, but because of crowding out in the market. Some who have a preference for a University might have to revert to a community college and community colleges are filling up fast as well. This creates a disparity because there is a "ceiling" that not even money can buy someone out of.