You must read each slide, and complete any questions on the slide, in sequence.
Suppose it is decided that rent control in New York City will be abolished and that market rents will now prevail. Assume that all rental units are identical and so are offered at the same rent. To address the plight of residents who may be unable to pay the market rent, an income supplement will be paid to all low income households equal to the difference between the old controlled rent and the new market rent.
What effect will the elimination of the rent control have on quantity and quality of rental housing supplied?
A.
B.
C.
D.
0:10
Step 2
What effect will an income supplement policy have on the market. What effect does it have on the market rent and quantity of rental housing supplied in comparison to your answers to part a?
A.
B.
C.
D.
0:10
Step 3
Are tenants better or worse off as a result of these policies? Are landlords better or worse off? Is society as a whole better or worse off?
Landlords are clearly better off as a result of these two policies: more landlords rent out apartments, and at a higher monthly rent. It is not clear whether tenants are better or worse off. Some tenants who previously could not get apartments can now do so, but at a higher rent. In particular, those tenants who do not receive the income supplement and who used to rent cheap apartments under the price ceiling are now worse off. Society as a whole is better off because the deadweight loss caused by a price ceiling has been eliminated: there are now no missed gains from trade. For further review see section, “How a Price Ceiling Causes Inefficiency” (Please link to section in ebook)
Landlords are clearly better off as a result of these two policies: more landlords rent out apartments, and at a higher monthly rent. It is not clear whether tenants are better or worse off. Some tenants who previously could not get apartments can now do so, but at a higher rent. In particular, those tenants who do not receive the income supplement and who used to rent cheap apartments under the price ceiling are now worse off. Society as a whole is better off because the deadweight loss caused by a price ceiling has been eliminated: there are now no missed gains from trade. For further review see section, “How a Price Ceiling Causes Inefficiency” (Please link to section in ebook)
Step 4
From a political standpoint, why do you think cities have been more likely to resort to rent control rather than a policy of income supplements to help low income people pay for housing?
It is likely that tenants who currently live in rent controlled housing are better organized than people who cannot currently find rental housing. And more organized groups can generally exert greater influence over city policy. For further review see section, “So Why Are There Price Ceilings?”
It is likely that tenants who currently live in rent controlled housing are better organized than people who cannot currently find rental housing. And more organized groups can generally exert greater influence over city policy. For further review see section, “So Why Are There Price Ceilings?”