Question

In: Economics

Why do advocates of rent control think that a free market enables ?

Why do advocates of rent control think that a free market enables ?

Solutions

Expert Solution

Yes Advocates of rent control think that a free market enables because rent control is a useful tool for fighting segregation.Rent control reduces rents for tenants as long as they remain in their apartment. This creates a tendency of poorer people to remain in their residences even in a city is getting more expensive. This is likely to be the most important way in which rent control can induce poor people to live in an expensive place. One downside of this effect is that it is likely to be concentrated among long-term, older tenants, rather than on the par-ents with young children who are likely to gain most from integration. Rent control interacts with segregation is that it may lower prices for new prospective renters. In this case, these lower prices may lead to increased integration if the people who are allocated rent control apartments are particularly poor in rich places or particularly rich in poor places. However, there is no reason to suspect that the allocation systems that are in place will act in this direction. Just because apartments are renting for below market rents, there is no reason to believe that they will be given to the poor.

Rent control, like all other government-mandated price controls, is a law placing a maximum price, or a “rent ceiling,” on what landlords may charge tenants. If it is to have any effect, the rent level must be set at a rate below that which would otherwise have prevailed.Rent control is not just a simple price control setting the price at which willing renters and landlords are permitted to do business, it is much worse. It is a coercive act that gives landlords no legal option, but to rent to a tenant against his will, often at a financial loss.Rent control adds a non-voluntary burden to landlords which deepens over time because landlords do not have the option to rent to a tenant at below market rates. In effect, rent control grants property rights to renters, that originally belonged to the original property owners. Rent control becomes a redistribution of wealth to rent control tenants away from apartment owners, market apartment renters, and newcomers to the area. Nonetheless, over time the quality of life decreases for all residents of a city where rent control is imposed.


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