Rent Control : A Market Model

Some economists would argue the above mentioned examples of why rent control is harmful to

When the recession happened, and the housing market crashed in Los Angeles a few years back many people lost their homes. The foreclosure crisis displaced many homeowners, drove up demand, and rental prices increased. Now, it is almost two years later, and the dramatic rent increases continue to soar. There would be no issue with cost of living increase except; the increases in income have yet to make the same shifts. “In many cities, rent is rising out reach of

This is a result of a demand shift to the left related to a lack of available tenants for the apartments. The property management company has to decrease rental rates allowing the quantity supplied to decrease as well (University of Phoenix, 2012), creating a downward swing in the supply curve. The price of rentals decreased to create less quantity that is available for rent creating equilibrium and a decrease in surplus. This is a difficult decision to lower price significantly but will continue to create revenue for the property management company while decreasing supply of vacancy.

What is known about the dearth of inexpensive living spaces in high-cost, heavy populated areas is its scarcity is a function of supply. Demand remains a non-issue for policy makers as demand has

Furthermore, lack of affordable housing has become an issue for additional reasons. 50,000 new homes were built since 1981 but only 8000 were local authority housing, and only 2000 were low income houses. This was worsened by the implementation of the ‘right to buy’ scheme, creating a surge in house prices (a 1 bedroom apartment now costs around £500,000). It could be suggested that this issue counteracts successes of the scheme, as issues still exist including 3500 homeless people in the area and the housing prices are significantly above the UK average, so they have not achieved their aim to ‘make housing affordable to all.’ However, I believe that the Docklands has been a successful example of regeneration as it is now such a significant part of the capital, with it being London’s finance capital providing not only important economic contributions, but also employment to many people in the skilled sector.

There are several forms of rent control, however they all take the shape of legally imposed below-market rates for rental housing. Most rental ceilings came into being at the end of World War II (1939-1945) to help mitigate expected disruptions in the rental housing market due to the demand shock of veterans returning from overseas service in the war. (Rent Controls, 2008) Rent control can still be seen in larger municipalities, such as New York City, to make housing more affordable for low-income tenants. In the short run, the supply for apartments is inelastic and the quantity of buildings already supplied is constant. Rent control, in the long run, reduces the availability of apartments subsequently causing suppliers not to build more apartments due to not being able to make a profit from their rentals. Shortages of rental homes can lead landlords to discriminate against renters and even demand for renters to pay extra monthly payments under the table. Rent control deters new investments that would have gone to rental housing and has validated that it leads to housing deterioration, fewer repairs, and less maintenance. For In a 1990 poll of 464 economists published in the May 1992 issue of the American Economic Review, 93 percent of U.S. respondents agreed, either completely or with provisos, that “a ceiling on rents reduces the quantity and quality of housing

In San Fransisco there’s a site called Rentberry that allows renters to bid on apartments, similar to Ebay. Renters set a rent price, deposit, and other negotiables and the best offer gets the apartment. Services similar to Rentberry are popping up across the country as Americans who rent property surpassed those who own their own property. In half of the U.S’s 100 largest cities renters make up more than half of the people living in the city. The idea for Rentberry came from the concept that Americans bid on homes to own, so why not bid on rental properties. Critics claim that rent prices will rise 5% because of the expansion of rent-bidding. However, results found that rent actually decreased by 5.1% on average. Economists say that there

“Rent control is government control and regulation of the amounts charged for rented housing” This can help low icome persons or families find housing. The problem with rent control is that it can lower housing construction. With construction getting more epensive there is no drive to continue to build. Rent controlled housing also creates bargaining between tenants and landlords including inflation.

The purpose of this literature review is to explore the issues associated with the private rented sector (PRS), because as noted earlier, this is now becoming a very important tenure in the overall UK housing market. Approximately, 4.9 million households in the UK are in the PRS, which has more than doubled since 2001 (Paragon 2015).

Rent control is a law that places a price ceiling on the amount of rent a landlord can charge a tenant. People from middle and lower income brackets tend to benefit from rent control, while people from the upper income brackets do not. The whole purpose as to why rent control exists is so that tenants from the lower income groups are not exploited by “greedy” landlords through government intervention. Landlords who own property in expensive cities like San Francisco are not able to charge market rates of rent as that would displace many poor people. While rent control was created with good intentions by the government, rent control is overall more harmful to the economy than good.

The pie charts show a comparison between lodging in London in 1990s and lodging in London in the 2010s for people who are age is 25 years. Moreover, the table shows residential buildings in London in 1990s and in 2010 onwards. In 1990s and 2010 a common house was the highest percentage. Living at home and apartment alone was the lowest percentage while common house and flat was the highest percentage in the 2010s. On the other hand in the 1990s the lowest percentage is living at home alone while the highest percentage is living with parents. During the 1990s and the 2010s was decreasing of living at flat alone and living with parents. In the 2010 onward cheaper cost than in the 1990s except living at home contains 3-4 bedrooms. In 2010

Housing quality is major disadvantage of rent control. Since their income is limited due to rent control, landlords have little motivation to make improvements or upgrades on their property. However, a landlord has a specific time period to make repairs and if they do not make the repairs fast enough the tenant can pay for the repairs and take the amount they paid out of their rent (LandlordBlog). A tenant can take advantage by subleasing to other people and charging more than the rent costs, which allows them to make a profit

Rent control is a regulation made by the government that controls the price or amount charged for rented housing. In other words, the main purpose is to make rental units cheaper for tenants. Rent control is like a type of price ceiling, which is the maximum price allowed by law. This prevents people form being charge above a certain level.

For big cities like London, there is certainly a need to regulate the market for rentals to prevent worsening shortage in rental housing. However, regulating Airbnb more strictly may not improve rental housing prospects as expected. There are other causes to this issue, least of which is Airbnb’s share economy methodology. Below I will outline the context surrounding the core issue of rental housing shortage, the role of Airbnb, and present my inference that regulating Airbnb more strictly will not solve the core issue. Alternate solutions that tackle basic income, property rights, and regulation of land and construction may be more suitable.

The average rent on a home is costlier than paying a mortgage in every region of England even after accounting for homeowners’ repairs and maintenance costs [Shelter (The rent trap and the fading dream of owning a home, 2013)]. This is because, house prices are increasing and it is becoming more and more difficult to get a mortgage in the current climate. A cause being the demand outweighs the supply because there are too many people and not enough houses, which then drives up demand in other sectors, PRS in particular thus increasing rent prices.