Supply and Demand in the Rent Control - Essay Example

Rent control, the worst planning by governments lacking courage and vision, has been spearheaded by upstate lawmakers such as Assemblyman Sheldon Silver, who represents the 64th Assembly District. Rent control regulations are actually codified in legislative enactments of New York State (Walter 2006). The consequences of price control on apartments are that entrepreneurs who see an inadequate return on their investment are not motivated to invest in rental housing; landlords whose rent do not cover the cost of operations stop maintain units or abandon them; despite rent controls, New York City renters pay the higher average rents in the country; demand for excessive space remains high because rents are artificially low, and rent control does not provide affordable housing for low to moderate-income tenants.

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. To have any effect, the rent level must be set at a rate below that which would otherwise have prevailed. And if rents are established at less than their equilibrium levels, demand will necessarily exceed supply, and rent control will lead to a shortage of dwelling spaces. In the absence of controls on prices, the amount of a commodity or service demanded is larger than the amount supplied, prices rise to eliminate the shortage (by both bringing forth new supply and by reducing the amount demanded).

But controls prevent rents from attaining market-clearing levels and shortages result. Existing rental units fare poorly under rent control. Even with the best will in the world, the landlord cannot afford to pay his escalating fuel, labor, and materials bills, to say nothing of refinancing his mortgage, out of the rent increase he can legally charge. Under rent controls he lacks the best will; the incentive he had under free-market conditions to supply tenant services is severely reduced. However, tenants outnumber landlords and are usually convinced that rent control is in their best interests, they are likely to invest considerable political energy in maintaining rent control.

The sitting tenant is "protected" by rent control but, in many cases, receives no real rental bargain because of improper maintenance, poor repairs and painting, and grudging provision of services. The enjoyment he can derive out of his dwelling space ultimately tends to be reduced to a level commensurate with his controlled rent. If the government wanted to help the poor and constrained to keep rent controls, it would do better to tightly control rents on luxury unit rentals and to eliminate rent controls on more modest dwellings.

Then, builders' incentives would be turned around. Instead of erecting luxury dwellings, which are now exempt, they would be led to create housing for the poor and middle classes (Walter 2006). It may seem absurd to many people that the best way to help tenants is to grant economic freedom to landlords. Hundreds of cities have gone through the conversion from government control to a free market, most recently Cambridge, MA. For rent control advocates, this shatters the tenant rights movement, it has solved the scarcity problems by attracting developers into the cities and rents now reflect a balance between supply and demand that is not artificially inflated.

For renters who can't afford market rates, governments have stepped in with subsidy programs.