Rent Control in the Long Run

Rent control in the Short Run and Long Run

It is sometime argued that governments should help the poor find more affordable housing by placing a ceiling on the rents that landlords may charge their tenants. Economists often criticize rent control, arguing that it is a highly inefficient way to help the poor raise their standard of living. One economist called rent control ‘the best way to destroy a city, other than bombing.’

The adverse effects of rent control are less apparent the general population because these effects occur over many years. In the short run, landlords have a fixed numbers of housing units (houses and flats) to rent, and they cannot adjust this number quickly as market conditions change. Moreover, the number of people searching for housing in a city may not be highly responsive to rents in the short run because people take time to adjust their housing arrangements. Therefore, the short-run supply and demand for housing are relatively inelastic.

The long-run story is very different because the buyers and sellers of rental housing respond more to market conditions are time passes. On the supply side, landlords respond to low rents by not building new housing and by failing to maintain existing housing. On the demand side, low rents encourage people to find their own housing (rather than living with their parents or sharing with friends) and induce more people to move into a city. Therefore, both supply and demand are more elastic in the long run.

In the cities with rent control, landlords are various mechanisms to ration housing. Some landlords keep long waiting lists. Others give a preference to tenants without children. Still others discriminate on the basis of race. Sometimes, apartments are allocated to those willing to offer under-the-table payments.