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Rent ControlsAS Micro:
Government Intervention in
Markets
Economics of Rent Controls
Housing shortages – a structural economic problem
Renting has become more expensive
Region Average Rent (Sept 2012, £s per week)
London £1,092
South West £638
Yorkshire £542
North West £594
Wales £556
South East £776
England and Wales £741
Rent per month (£)
Quantity of rented property
O
Demand 1
Supply 1
Q1
P1
With the help of an appropriate diagram show how the
introductionof a maximum rent might affect the market for rental properties
1. Define a maximum rent2. Explain where a maximum
price must be to change the free-market equilibrium price
3. Use a clear supply and demand diagram to help
4. Include some evaluation
Maximum rents – rising demandRental Market with a Maximum Rent
Rent per month (£)
Quantity of rented property
O
Demand 1
Supply 1
Q1
P1
With the help of an appropriate diagram show how the
introductionof a maximum rent might affect the market for rental properties
1. Max rent is a price ceiling2. Must be set below normal free
market equilibrium3. In diagram – set at rent P2
Maximum rents – rising demandRental Market with a Maximum Rent
P2ceiling
Rent per month (£)
Quantity of rented property
O
Demand 1
Supply 1
Q1
P1
With the help of an appropriate diagram show how the
introductionof a maximum rent might affect the market for rental properties
1. Max rent is a price ceiling2. Must be set below normal free
market equilibrium3. In diagram – set at rent P24. P2 (ceteris paribus) creates an
excess demand or shortage = Q3-Q2
Maximum rents – rising demandRental Market with a Maximum Rent
P2ceiling
Q2Q3
Rent per month (£)
Quantity of rented property
O
Demand 1
Supply 1
Q1
P1
With the help of an appropriate diagram show how the
introductionof a maximum rent might affect the market for rental properties
1. Max rent is a price ceiling2. Must be set below normal free
market equilibrium3. In diagram – set at rent P24. P2 (ceteris paribus) creates an
excess demand or shortage = Q3-Q2
5. Shortage may lead to a shadow market developing – some people willing to pay P3
Maximum rents – rising demandRental Market with a Maximum Rent
P2ceiling
Q2Q3
P3
Rent per month (£)
Quantity of rented property
Demand 1
Supply 1
Q1
P1
With the help of an appropriate diagram show how the
introductionof a maximum rent might affect the market for rental properties
Evaluating possible effects on market for rental properties
1. Extent of contraction in rental housing supply is uncertain
2. Will there be a long run decline in supply?
3. Possible reduction in quality of rental housing available
4. How will max rent respond to shifts in demand?
Maximum rents – rising demandRental Market with a Maximum Rent
P2ceiling
Q2Q3
P3
Evaluate the case for and the case against the introduction of maximum rents in the market for
rented properties in the UK
Evaluate the case for and the case against the introduction of maximum rents in the market for
rented properties in the UKBigger picture – long term shortage of available rented property
Efficiency – does a price ceiling improve the market outcome?
Equality – is a max rent equitable - helping those in most need?
Scope – how low would the ceiling be? National? Regional?
Time – long term effects of holding down market rents
Effectiveness – unintended consequences? Better alternatives?
Prioritise arguments – what is your main argument and why?
Scale – Significance – wider importance of the rented sector
Improving rented housing supply
Improving rented housing supply
Relaxation of planning
controls
Tax incentives for “build to rent”
Incentives for building innovation
Release of surplus
land
Build more social
housing
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