Rent Control : A Market Model

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Question: In some cities around the world (e.g. Berlin, New York, and Stockholm) rent control is used to ensure housing is affordable. Using the market model, conduct an economic analysis of rent control and use the analysis as a basis for providing recommendations regarding its introduction in London.
Rent control is a price control that limits the amount a property owner can charge for renting out a unit of accommodation. Rent control acts as a price ceiling by preventing rents either from being charged above a certain level or from increasing at a rate higher than a predetermined percentage. Some economist’s interpret rent control to be a market distortion that discourages the construction of new housing as the return for the landlord is reduced, this means that the issue rent control aims to solve (affordable, available housing) is not met. Others believe rent control prevents landowners from rapidly rising prices and exploiting the demand for what is an essential good (accommodation). This essay will analyse from an economic perspective using the market model whether or not introducing rent control in London would be of an economic benefit.

“Fig. 1” shows the impact of rent control in the short term. Left to the free market, the equilibrium would be where the price per rental unit is “P*” and the quantity of rental units would be “Q*”. Left to the free market the consumer and producer surpluses would be “ABG” and “BFGI” (respectively). Under these free
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