Rent Controls Demand and Supply Concepts

Question: Do rent controls work? Answer: Introduction In a period where there is population explosion, a widening gap between the rich and the poor and most importantly a soaring house rent prices, rent control is a very popular policy. Landlords on their part are as well unpopular thanks to an increasing rent which has made paying rent a highly resented act. Generally, controlling rent divides opinion with regard to whether it carries any benefit along with it or not. While the two sides of the divide have pretty compelling conceptualization regarding the application of rent controls, this paper undertakes an analytical perspective while employing the economic concepts in providing a stand on the this issue. Most importantly, it connects with these concepts in establishing the level of materiality or immateriality concerning the rent controls. The paper also delves into providing comparison perspective in cities where this policy has been applied and the extent and the resulting implication it created to try and determine if the genera lization is worth on concluding this argument eventually. The Influence of Demand and Supply Concepts Rent controls basically cut the supply of housing in urban areas much against the population explosion in these areas. Demand for houses is essentially dictated by the population growth which goes on to push up the prices of houses. An increase in the demand for houses naturally opens up the need to meet this demand. It therefore means the supply has to move earnestly to meet the market demand (Singh, 2016). Housing market works just like any other demand and supply influenced products and so it is only through this that an equilibrium is achieved. Putting a cap on the amount that landlords charge for renting the houses will destabilize the quest to meet the demand. Producers and in this case landlords will fail to seek incentives to build more houses to overcome the high demand that is created by the population growth in most of these cities. According to the Economist (2015), the mushrooming level of urban centers is likely to take a downturn because of the cap in the rent charge. This will likely affect other business activities that spring out of the housing market. As a result, it will exacerbate it further. A restrictive price ceiling is capable of reducing the supply of property to the market as indicated by the movement from Q1 to Q3. Having prices capped means that people let alone the landlords have little to no incentive to fix up and proceed to rent their basement property or alternatively build a rental property. As a result, the rent prices will skyrocket from the maximum rent chargeable. The movement from max rent to P1 shows the soaring prices. This will mean that supply is reduced in the long run when the costs outpace the benefits from investments. The importance of the housing market will therefore dissipate which will extend into the entire economy. Eventually, a slower growth in supply will exacerbate the price crunch. The Cost Factor Introducing caps on rent means that the cost of constructing houses will rise more than the expected returns. As a result, investment in the housing market will fall flat creating a lack of competition in the market as well. In all industries, competition is an important aspect of investment because it creates quality in terms of the goods in the market. This is similar to the housing market. According to Schweiker Grob (2016) a situation where the cost is higher the benefits that can be reaped means that it becomes a worthless investment. Landlords will not be perturbed to ensure that maintenance of the houses is a priority. This is because they will be incurring an additional cost which they cannot recover. More so, landlords who end up renting their properties are bound to ignore maintenance altogether because supply too and the turnover in the market are basically limited in the entire market by the presence of the rent caps, landlords have lesser incentives to compete amongst t hemselves to attract tenants. Moreover, the presence of these caps point at an eventuality in which landlords are likely to be a lot more choosier such that tenants may be forced to stay in the same place for a long time. When tenants have an established level of comfort, it kills the aspect of improvisation and overall development in the housing market. The rest is the revenue collection will also fall flat. Lack of the Tenants Income Growth There is a closer relationship between the level of tenants rent payment scale and their overall income. People who tend to live in expensive rent are characterized as being either middle class or wealthy. Paying higher rent is in itself an incentive to encourage the quest for an increase in income. Economic growth is intensified by the significant growth in the housing market. This growth is primarily based on the fact that landlords are able to charge their own market fair house rent prices (Busom, Lopez-Mayan Panads, 2017). For instance, some evidence points at the prospects of most people who live in rent-controlled flats in New York are characterized with high median income as compared to those who decide to rent market-rate apartments. The reason for this could be down to the fact that wealthier people are able to track down the rent-stabilized properties. The case for adoption of this policy in Germany alludes to the fact that it is an imperfect market. This is because most of the cities in Germany have seen a major decline in the population of German cities as well as a falling house market prices in the past couple of years even though it is now changing (Yglesias Schuster, 2012). The increasing number of immigration in major cities such as London has heightened the problem (Hass, et al 2014). This new population has been important in driving up the demand for the housing properties. In reality terms however, the issue of bringing down the rent rates is basically down to political meddling which is seeking to get an upper hand in this debate and eventual succession. The fact that the education sector has grown recently points to an increase in the number of students. The number of students has increased tenfold in the last few years which has then had an effect in increasing the rent at home. However, an increase in the students ha s therefore had a reactionary approach to the prices of the houses. Interest and Inflation Rates In Britain for example the Office of the National Statistics indicates that the price of rental buildings have been rising. However, his increase has been lesser than the rate of inflation since in 2006. This implies that the rent rates are actually getting cheaper by the real terms of which I have been able to should that burden together (Asquith, 2010) The real interest rates have clearly been reducing and since the cost of capital is identified as the main expense for landlords implying that rent falls in real terms. Most important is the aspect of some areas having completely different rates. These areas have seen an adoption, a greater revolution. Conclusion In summary, the above essay indicates that rent controls are not particularly important in controlling the perceived exorbitant rates by the landlords on the tenants. The interplay of demand and supply is important in establishing the level of quantity demanded and the price in the market. More so, introducing rent controls only aggravates the problem. It leads to a lower incentive by the landlords to invest in the product as well. During this time, quality of the houses will fall while the quantity will follow suit as well. A higher demand is likely to be generated which again does not meet the quality. All in all, new houses should be built instead of destroying the once in place. References Asquith, B. J. (2016). Rent Control and Evictions: Evidence from San Francisco. In 2016 Fall Conference: The Role of Research in Making Government More Effective. Appam. Deschermeier, P., Haas, H., Hude, M., Voigtlnder, M. (2016). A first analysis of the new German rent regulation. International Journal of Housing Policy, 16(3), 293-315. Singh, J. (2016). Affordability or Displacement: The Contemporary Housing Problem. Busom, I., Lopez-Mayan, C., Panads, J. (2017). Students' persistent preconceptions and learning economic principles. The Journal of Economic Education, 48(2), 74-92. Schweiker, M., Gro, M. (2017). Organizational environments and bonus payments: Rent destruction or rent sharing? Research in Social Stratification and Mobility, 47, 7-19. Yglesias, M. Schsuter, S. (2012). The Rent is too damn high: What to do about it and why it matters more than you think. New York, NY: Simon and Schuster. The Economist (2015). Do rent controls work? Retrieved from: https://www.economist.com/blogs/economist-explains/2015/08/economist-explains-19