Rent control

Alejandro Garay 07/11/11

What would rent control do to the markets for rental housing inthe short run and in the long run?

The government exercises rent control to try to help poor people by placing a price ceiling on rents. The owners of houses or landlords have a maximumprice they can charge to their tenants. The effects of this policy can be divided into two groups, the short run and the long run effects, and they are sometimes counterintuitive.
      
In theshort run, potential tenants are not responsive to changes in rent levels because they often take a long time to make their decision. Also, landlords have a precise number of apartments that cannot beadjusted fast enough to changes in market conditions. Thus, the supply and demand curves are relatively inelastic, which means that the shortage of housing is small. In fact, the main effect in theshort run is the reduction in rents.
     
In the long run things are totally different because people involved with housing rentals respond to market conditions as time passes. Suppliersdecrease the number of rentals as they do not build new houses, and they also stop taking care of their properties. On the demand side, because rental prices are low, more people want to move to their ownapartment and new people come to the city. So both supply and demand curves are more elastic in the long run, and because of that the shortage becomes larger.
     
There are other effectsthat arise out of rent control, like racial discrimination, preferences for some tenants or "under the table payments". These side-effects are nonetheless countered by additional regulations.
     To conclude, although rent control is probably derived out of good intentions, it is an inefficient way of helping people that in the long run can cause important imbalances and problems to...