Home > B1 > Rent Control in New York City

Rent Control in New York City

In our studies so far in Economics, price ceilings have interested me. These well-intended government actions often have unforeseen negative consequences. In this post, I will explore the effects of price ceilings, specifically on housing in New York.

 

Price ceilings are programs implemented by the government that dictates the maximum price that something can be sold for. In the case of apartments, this is called rent control. In New York City, rent control keeps prices low for long-time residents and controls price increases for regulated apartments.

This practice, in theory, should serve to help lower-income individuals and families afford housing in New York City despite skyrocketing demand. However, the fact that the current laws keep the price of apartments below equilibrium creates dangerous repercussions.

 

The first consequence of rent control is the creation of a shortage. When lower prices are mandated, apartment suppliers are unable to make as much profit and may be discouraged to the point of leaving the market, causing a downward shift in quantity supplied. Additionally, the lower prices bring about an upward shift in quantity demanded. These two factors combine to cause a shortage of apartments.


Screen Shot 2013-04-22 at 8.35.07 PM

Another consequence of rent control is a decreased incentive for suppliers to improve their product. Because they are forced to rent apartments at a lower price, leading to decreased revenue, landlords have less reason to spend money on improvements to their units and buildings. In fact, regulated buildings in New York City are 9% more likely to have become structurally unsound than similar unregulated buildings.

 

Overall, while price ceilings may help provide housing to individuals who would not be able to pay the market price, resisting the invisible hand of the market and setting prices below equilibrium certainly comes with tradeoffs.

Advertisements
  1. No comments yet.
  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: