15_Rent Control Flashcards
What is rent control?
Rent control is a policy that limits the maximum allowable rent for housing units. It can take two forms:
- First-generation rent control – Imposes strict price ceilings on rent.
- Second-generation rent control (rent stabilization) – Limits the size of rent increases over time.
How is rent control typically applied in cities like New York?
In NYC:
- 966,000 units (44% of rental stock) are rent-stabilized.
- 22,000 units (1% of rental stock) are rent-controlled.
Rent control is typically applied to older buildings built before a certain year.
What are some advantages of rent control?
- Large benefits to tenants – Provides lower, stable rents for residents.
- Does not require government subsidies – Reduces pressure on public spending.
- Reaches more households than other affordable housing policies.
- Reduces monopolistic competition – Keeps rents lower in areas with high demand.
What are some disadvantages of rent control?
- Reduces incentives for building maintenance – Landlords may not upkeep properties.
- Discourages new construction – Developers may avoid building in rent-controlled cities.
- Misallocation of housing – Some tenants stay in units larger than they need due to low rent.
- Controlled units depreciate faster – Due to lack of landlord investment.
Why do economists often criticize rent control?
- Causes housing shortages – By capping prices, demand outstrips supply.
- Reduces investment in housing – Developers may avoid rent-controlled markets.
- Encourages black markets – Some landlords charge illegal fees or require ‘key money.’
- Disrupts natural price signals – Prices do not reflect real supply and demand.
What does a basic supply and demand diagram for rent control show?
The market equilibrium price (P)* is where supply and demand intersect.
Rent control (Rc) is set below equilibrium, creating excess demand.
Shortage occurs because Qd (quantity demanded) > Qs (quantity supplied).
How does rent control impact incentives for building maintenance?
Rent control limits allowable rents, reducing landlords’ returns on maintenance, leading them to underinvest in upkeep. Studies (Autor et al. 2014, Sims 2007, Olsen 1982) suggest this is a common issue, especially in weaker housing markets.
How does rent control contribute to the misallocation of households to dwellings?
Rent-controlled units may be occupied inefficiently, with small households occupying larger units than necessary because of low rents. Research by Glaeser and Luttmer (2003) found that single-person households in NYC rent-controlled units often have more bedrooms than larger households.
How does rent control impact new housing development?
If rent control caps rent below equilibrium levels, it discourages new construction by reducing potential returns on investment. This leads to housing shortages over time.
What are the key features of the stock-flow model in housing markets?
Stock: Represents the inelastic supply of existing housing. Demand (D): Determines the rental price based on available housing. Flow (ΔH): The net addition of new housing to the market over time, represented by an upward-sloping supply curve. The model captures the long-term impacts of rent control on housing availability.
What are the main concerns economists have about rent control?
Reduces incentives for new construction, leading to shortages. Reduces incentives for building maintenance, causing property deterioration. Leads to misallocation of households, as people remain in units they do not need to avoid rent increases.
What does empirical research say about the effects of rent control?
Rent-controlled units tend to depreciate faster. Landlords underinvest in maintenance. Housing shortages emerge due to reduced construction.
look at stock flow model week 6
What is rent control?
Rent control is a policy that limits the maximum allowable rents (‘1st generation rent control’) or regulates the size of allowable rent increases (‘2nd generation rent control’).
How does rent stabilization differ from rent control?
Rent stabilization regulates rent increases, while rent control limits maximum rents. Rent stabilization is more common today.
What percentage of NYC’s rental stock is rent stabilized or rent controlled?
Rent stabilized: 44% (966,000 units)
Rent controlled: 1% (22,000 units)
What are the benefits of rent control?
Provides lower rents for tenants
Does not require government subsidies
Can benefit more households than direct government assistance
Increases rental affordability
What are the downsides of rent control?
Reduces incentives for maintenance
Discourages new construction
Causes misallocation of households to units
Can lead to housing shortages
How does rent control cause housing shortages?
By setting rents below the market equilibrium, demand increases while supply decreases, leading to a housing shortage.
What is deadweight loss (DWL) in the context of rent control?
DWL occurs when rent control reduces the number of available units, leading to inefficiencies where potential renters cannot find housing.
How does rent control affect competitive and monopolistic markets differently?
Competitive markets: Rent control creates shortages and deadweight loss.
Monopolistic markets: Rent control can increase output and lower prices by forcing landlords to rent more units.
Why does rent control reduce incentives for developers to build new housing?
It lowers expected returns, making new projects less profitable and leading to fewer new housing developments.
Why does rent control lead to decreased building maintenance?
With capped rents, landlords have lower profits and fewer incentives to invest in property upkeep.
How does rent control lead to inefficient housing allocation?
Larger units may be occupied by smaller households, while larger households struggle to find appropriately sized units.
What does the supply and demand diagram show in a competitive rental market with rent control?
Rent control creates a price ceiling, leading to a shortage, where demand exceeds supply.
How does rent control impact a monopolistic housing market?
It can force monopolists to increase output, potentially reducing deadweight loss and improving affordability.
What happens when rent ceilings are set lower than the equilibrium price?
A more severe shortage occurs, as landlords supply even fewer units while demand continues to rise.
What are the main conclusions about rent control policies?
Effective in reducing rents for current tenants.
Can lead to housing shortages and maintenance issues.
Works differently in monopolistic vs. competitive markets.
Long-term consequences include fewer new developments and misallocation of housing.
look at week 6 diagrams
