Question

Lowincomesville is a poor town. The mayor has decided to impose a law to cut all rental rates on apartments in half and to fix them at this level.

What did the mayor implement? Will this help the poor? Why or why not? Be sure to distinguish between the short run and the long run

Answer 1

Rent Control is a program implemented by the corresponding government to their place. As per this program, the owner of a house who is renting his house have a limit to fix the rent. Municipality have the power to reduce rents of their area. Municipal Mayor is the authorized person. This is usually applied in areas where the residents are of lower income group. Thus, this program helps those residents to make their cost of living in an affordable level.

Here, in the question, it is said that Lowincomesville is a poor town and hence the mayor cut the rental rates of apartments by half.

SHORT-RUN

When considering the effect in short-run, this can be useful. People residing in the apartments in that area will gets benefited by these rental cuts by mayor. Definitely, because of this program, the house owners will face a fall in their rental income. Because, when the rental amount is cut to half the amount, they cannot even meet the cost of the house also.

LONG-RUN

Hence, as the rental amount is below the equilibrium value, they will be reduce the letting out of houses gradually. So, in subsequent years, they will reduce the letting out of houses. And the let-out houses will lack cleanliness and quality in order to meet the house owners's equilibrium value. Thus, in a long-run, this rent cutting by mayor negatively affect the poor people out there. They may either will not get a rented house or may get a house with no hygiene and quality. Therefore, the condition of those poor residents will be more worse than the current situation, ie; before rent cuts.

CONCLUSION

The rental cuts by the Mayor will be helpful to the poor people in the short-run. But, in the long-run, it will not be a help. Instead of that, this law will make difficulty to those people as they will not even get a house for rent.