Aresidential building in New York City contains 15 luxury-appointedlofts in a highly desirable location. How do rent ceilings affect theproperty owner (supply) and potential tenants (demand)? Which has thegreater effect on the overall economy? Why?
Arent ceiling is also known as rent control, and is among the types ofprice ceilings. These ceilings are often put into use by largemunicipals such as those in New York City. Rent ceilings lessen theburden of rent for those with low incomes. Howbeit, it is importantto realize that rent ceilings have an effect on both the supply, anddemand of the houses (Sexton, 2010).
Rentceilings affect the supply of houses as landlords cease to build moreof them. It is illogical for them to continue building houses whenthey do not obtain substantial profits. Additionally, due to the rentceilings landlords do not see the need to maintain the houses. Theyaim at saving funds, and maintaining the houses will incur costshere, and there (Baumol & Blinder, 2012).
Rentceilings yield positive returns in regard to the demand. In fact,this is among the reasons as to why landlords do not worry about thedemand of the houses. Controlling the rent has a massive effect ondemand (Sexton, 2010). However, it is also important to note the factthat a shortage of houses will ensue due to the same (McDonald &McMillen, 2011). Low supply does not only come from the excessivedemand but, also the fact that landlords are not building any morehouses, as aforementioned. The excessive demand and low supply willautomatically result in a shortage of houses.
Theeffect of rent ceilings on the supply has a greater effect on theeconomy. Through the houses, the government of New York City benefitsfrom the taxes incurred. When there’s a shortage in supply, itaffects the government and this is translated to the overall economyof the United States (Sexton, 2010).
Baumol,W. J., & Blinder, A. S. (2012). Macroeconomics:Principles & policy.Mason, OH: South Western, Cengage Learning.
McDonald,J. F., & McMillen, D. P. (2011). Urbaneconomics and real estate: Theory and policy.Hoboken, NJ: Wiley.
Sexton,R. L. (2010). Exploringeconomics.Mason, OH: Cengage.