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Rent controls are often a popular market intervention, particularly in periods of inflation and where tenants outnumber owners. Analyse the short-run and long-run implications of introducing such controls.

How would I go about analysing this?

Thanks :)

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1 Answer

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A rent control is a price ceiling on rent prices ("where tenants outnumber owners", hence pushing up the free market equilibrium price).

Under the short-run, you are expected to analyse the effects on supply + demand with the price ceiling. (The usual supply and demand analysis)

Under the long-run, you are expected to think beyond the simple supply + demand model, and think about 'soft' economic consequences of the model. Good examples are:


Black markets (renting 'under the table')
Poor maintenance (people will invest less in maintenance since the returns are low)


Avoid:


Irrelevant rants and banter about the socio-political consequences. Some people take this as an opportunity to get on their political soapbox ("how it will help the poor", for example). I've marked many economics assignments with a question like this. If you do make a claim like that, it must be driven by clear economic thought. We want economic thinking, not political thinking.


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