RENT CEILING 3
Arent ceiling is imposed with the anticipation that the rental ratesmay increase to the levels that consumers may not be able to afford.The imposition of rent ceilings will affect both the property ownerand the tenants. The rate costs will affect property owners as thesupply side of the rental market while will affect tenants whocontribute to the demand site (Bulow & Klemperer, 2012). Theproperty owners will seek to let their properties at the highestrates available, but the ceiling will limit their revenue prospects.Therefore, they will seek alternative channels to let their buildingsand if they fail, they will reduce their investments in theconstruction of more properties.
Onthe other hand, the price ceilings will have a positive impact on thetenants, but this outcome will be outlived. Tenants will be more thanthe properties that the owners will be willing to offer to the marketat the ceiling price (Guerrieri et al 2013). According to Bulow andKlemperer (2012), this is because the ceiling rate of rent will belower than the equilibrium rate. As a result, the supply in themarket will be lower than the quantity of properties demanded bytenants.
Theeffect of the rent ceilings on the property owners will have agreater impact on the economy than its effect on the tenants. Whenthe rent ceiling reduces the income prospects, property owners willstick to the current properties and fail to develop more properties(Sims, 2011). For instance, the owner of the 15 luxury-appointed loftresidential property in New York will shy away from investing in therevenue from the property into another property. Reduction ininvestment will lower the country’s supply of commercial andresidential properties, leading to a housing crisis and homelessness.
Bulow,J., & Klemperer, P. (2012). “Regulated Prices, Rent-Seeking,and Consumer Surplus.” Journalof Political Economics120 (1): 160–86
Guerrieri,V., Hartley, D., & Hurst, E. (2013). “Endogenous Gentrifi-cation and Housing Price Dynamics.” Journalof Public Economics.100, (4): 45–60.
Sims,D.P. (2011). “Rent Control Rationing and Community Composition:Evidence from Massachusetts.” B.E.J. Econ. Analysis and Policy,Vol.11, 2011, (1): 1-30