Pros And Cons Of Rent Controls

1. Introduction

Rent controls, also known as rent regulations, were introduced in the 20th century and are still a serious issue in several countries. The introduction of rent controls came about as a result of historical events and evolved throughout decades. “The controls imposed during the 1970s differed significantly from the first-generation rent control programs. They have been termed variously ’soft Rent Control’, ’second-generation’ rent control, rent review and rent regulation” (Arnott, 1995, p.101). The reasons for which governments might choose to implement rent controls cannot be globally standardized and depend on many factors, such as demographic and geographic characteristics as well as the overall national economic prosperity.

The purpose of this paper is to examine the positive and negative impacts of the implementation of rent controls in New York (USA) on both the social and the economical level.

This paper starts by giving a clear overview of the background of rent controls. Secondly, the economic theory is introduced, including an appropriate model for rent controls which is applied to New York’s market. Thirdly, the effects of rent controls are researched, then evaluated and subsequently applied to the city of New York. Finally, this paper summarizes the positive and negative effects of rent controls and concludes with respect to the chosen example.

2. Theoretical background of rent controls

After World War II, most large cities in the U.S. were partly to completely destroyed, demanding a massive reallocation of the national labour force. The urban migration of the U.S. workers resulted in an extreme increase in the demand for renting apartments in larger cities, especially in New York. Consequently, the average monthly rent rose dramatically, making life in New York unaffordable for the majority. “Rent controls began in New York City in November 1943 when rents for all units in the city were

This example refers to a family renting an apartment in a perfectly unregulated market. Once the rent freeze system is introduced, the married couple has no incentive to move into a smaller apartment, due to the protective rent control. However, the fact that their children had already moved out, results in excess capacity (space, heat, water).
In addition, however unfortunate and ironic it may be, landlords tend to reduce their offerings of rental units on the housing market as a result of rent control measures, leading to further shortages in the supply. Many pre-existing objects located in New York are attached to high values, since they are scarce remainders of World War II. These objects require high amounts of investment to maintain them, but without an adequate return on investment (monthly rental fees) there is a low incentive to purchase and invest in these