Rent Control: A disaster in disguise?

Rent control is a form of price control that limits the amount a property owner can charge for renting out a home, apartment or other real estate. Rent control acts as a price ceiling by preventing rents either from being charged above a certain level or from increasing at a rate higher than a predetermined percentage. The purpose of rent control regulations is to limit how much money individuals and businesses must spend on renting real property. The amount of rent permitted may vary across jurisdictions and property types, but is generally set at a level considered affordable to renters and fair to property owners. Many historians believe Julius Caesar enacted a law stating a landlord could not charge more than the ancient Roman equivalent of $100 per year for a home in Rome. This came after a Roman senator appealed to the courts claiming his landlord tried to double his rent and he could no longer pay it. That said, the concept of rent control we’re familiar with today, likely started sometime between World War I and World War II. It’s not uncommon to experience a housing shortage after a major war because of the decrease in new developments during the war combined with population growth and the number of U.S. soldiers returning from overseas. To combat this, many countries started government-controlled housing that limited how much a landlord could charge. However, the U.S. didn’t immediately pass such a restriction on a federal level. The growing tension between public landlords and tenants, though, caused a few specific states and cities to implement laws of their own. 

The basic theory of demand and supply works here. By putting a regulation on rent the equilibrium price falls as the demand of houses, due to affordable price increases and at the same time the supply falls substantially. However the effect of rent control has different outcomes in short and long run. In short run the landlords cannot increase their supply of apartments to rent therefore there supply of apartments is fixed but at the same time the demand is also not very responsive as it takes time for people to adjust and move from one place to another. Hence both short run demand and supply are inelastic. Still it creates a bit of shortage in the market as some of the people consider to move. 

 In the long run the story is different where both demand and supply are relatively elastic the aftermath of which is a drastic shortage of houses. Due to low rent the supply side gets affected as the builders get discouraged but on the demand side the people get attracted to moving into new houses and increasing their standard of living. Not only does rent control stop new construction, but by putting a stranglehold on supply it destroys neighbourhoods. Real-life experience with rent control has been predictably awful, with entire neighbourhoods in New York City becoming decayed and abandoned. Because demand outstrips supply, there is little incentive for landlords to keep their properties in a decent state, especially in poor parts of town. It also gives birth to discriminatory practices as owing to shortage, landlords make waiting lists and give priorities to the people of their own caste and colour. Rent control also encourages the existence of underground economy as people are willing to pay bribes in order to get their new houses, it distorts the market and harms both the economy and the people. A classic disadvantage of rent control involves housing quality. Simply put, critics argue that rent control discourages landlords from making repairs and upgrading their properties. In a market without rent control, when a landlord improves her property, she has the option of passing the cost on to her tenant in the form of higher rent. Even though the tenant must pay higher rent, he still stands to benefit from the improvements made to his living quarters. Why should a landlord put in any effort to maintain the quality and living standards of the property when people are willing to move in as it is? The conclusion is that even though the tenants get lower rents, they end up with lower quality living conditions. In India the Rent Control Act provides tenants with security and restricts landlords in their ability to evict their tenants. It eliminates loopholes, which laid both, landlords and consumers, open to the possibility of deceit. The Act ensures that tenants cannot be evicted from the premises, without sufficient cause.The Act contains various protections for tenants facing eviction. Similarly, the Act mandates that no landlord can cut off or withhold any essential supply or service enjoyed by a tenant, without just or sufficient cause. 

 Rent control is one of the most debatable topics the economists face. Various policies are formulated to tackle the ill effects of rent control like the landlords are required to provide minimal living conditions and to avoid the discrimination on the basis of race. However these measures are hard and costly to enforce. A few economists argue that rent control is one of the worst way to control the market outcome calling it the ‘best way to destroy a city, other than bombing’. The government can tackle the problem of rent control by providing subsidies but that will lead to the taxation problem which will come out of the peoples pocket only. Thus real life economics is like a complicated art, each and every step taken has various outcomes and everything comes at a cost. As one of the ten principles of economics says ‘people face trade-offs’. Everything has a cost and in the case of rent control too we can see steps taken to benefit the people comes at the cost of creating problems for them in a different way. The aftermath of lower rent is the shortage of houses and poor living conditions. Thus it still remains as one of the most controversial topic for any economist and has wide implications subjective for every country and region.