AS Micro Rent Controls in Housing

Rent ControlsAS Micro:

Government Intervention in

Markets

Economics of Rent Controls

Housing shortages – a structural economic problem

Renting has become more expensive

Region Average Rent (Sept 2012, £s per week)

London £1,092

South West £638

Yorkshire £542

North West £594

Wales £556

South East £776

England and Wales £741

Rent per month (£)

Quantity of rented property

O

Demand 1

Supply 1

Q1

P1

With the help of an appropriate diagram show how the

introductionof a maximum rent might affect the market for rental properties

1. Define a maximum rent2. Explain where a maximum

price must be to change the free-market equilibrium price

3. Use a clear supply and demand diagram to help

4. Include some evaluation

Maximum rents – rising demandRental Market with a Maximum Rent

Rent per month (£)

Quantity of rented property

O

Demand 1

Supply 1

Q1

P1

With the help of an appropriate diagram show how the

introductionof a maximum rent might affect the market for rental properties

1. Max rent is a price ceiling2. Must be set below normal free

market equilibrium3. In diagram – set at rent P2

Maximum rents – rising demandRental Market with a Maximum Rent

P2ceiling

Rent per month (£)

Quantity of rented property

O

Demand 1

Supply 1

Q1

P1

With the help of an appropriate diagram show how the

introductionof a maximum rent might affect the market for rental properties

1. Max rent is a price ceiling2. Must be set below normal free

market equilibrium3. In diagram – set at rent P24. P2 (ceteris paribus) creates an

excess demand or shortage = Q3-Q2

Maximum rents – rising demandRental Market with a Maximum Rent

P2ceiling

Q2Q3

Rent per month (£)

Quantity of rented property

O

Demand 1

Supply 1

Q1

P1

With the help of an appropriate diagram show how the

introductionof a maximum rent might affect the market for rental properties

1. Max rent is a price ceiling2. Must be set below normal free

market equilibrium3. In diagram – set at rent P24. P2 (ceteris paribus) creates an

excess demand or shortage = Q3-Q2

5. Shortage may lead to a shadow market developing – some people willing to pay P3

Maximum rents – rising demandRental Market with a Maximum Rent

P2ceiling

Q2Q3

P3

Rent per month (£)

Quantity of rented property

Demand 1

Supply 1

Q1

P1

With the help of an appropriate diagram show how the

introductionof a maximum rent might affect the market for rental properties

Evaluating possible effects on market for rental properties

1. Extent of contraction in rental housing supply is uncertain

2. Will there be a long run decline in supply?

3. Possible reduction in quality of rental housing available

4. How will max rent respond to shifts in demand?

Maximum rents – rising demandRental Market with a Maximum Rent

P2ceiling

Q2Q3

P3

Evaluate the case for and the case against the introduction of maximum rents in the market for

rented properties in the UK

Evaluate the case for and the case against the introduction of maximum rents in the market for

rented properties in the UKBigger picture – long term shortage of available rented property

Efficiency – does a price ceiling improve the market outcome?

Equality – is a max rent equitable - helping those in most need?

Scope – how low would the ceiling be? National? Regional?

Time – long term effects of holding down market rents

Effectiveness – unintended consequences? Better alternatives?

Prioritise arguments – what is your main argument and why?

Scale – Significance – wider importance of the rented sector

Improving rented housing supply

Improving rented housing supply

Relaxation of planning

controls

Tax incentives for “build to rent”

Incentives for building innovation

Release of surplus

land

Build more social

housing