Rent Control as a Price Control

Rent Control – Rent Control as a price Control


Price control:
The setting of maximum prices by law. This may affect particular markets, for example domestic rents are often subject to special controls, or apply in an economy generally. As it is administratively impossible to set millions of prices from first principles, price controls have generally worked by covering a limited number of essential goods, and imposing limits or a total ban on price increases. There is a danger that this will induce firms to divert resources towards goods whose prices are not controlled, and to change the specifications of goods to introduce new products to which the rules do not apply.


Rent control:
Government control of rents for houses and flats. This may involve setting the levels of rents, or restricting increases. It has been widely adopted, mainly for motives of income distribution, based on the assumption, often but not always correct, that landlords are richer than tenants, so that controlling rents produces a more equal distribution of real incomes. During inflationary periods lags in adjustment tend to make controlled rents fall below market-clearing levels: this produces excess demand, and necessitates protection of security of tenure for tenants. In the long run rent controls discourage investment in housing for rent, and also discourage maintenance work on rented housing, so that its quality deteriorates. A general situation of excess demand for housing impairs labour mobility, as sitting tenants are unable or unwilling to move.

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