Rents Are Soaring Across the U.S.

EconEye Admin

4 years ago

Shanti Singh, legislative director of the non-profit Tenants Together, says that rent prices are soaring. Many people are behind on their rent and under severe financial strain. Some are being evicted. “We need rent control,” says Singh.—theguardian.com

Answer the following questions to check your understanding of the story.

If governments agree with Singh, and set a rent ceiling below the equilibrium rent, what is the outcome?

a) Everyone benefits from the rent ceiling.

b) The would-be renter’s opportunity cost of searching for rental housing falls.

c) Landlords have an incentive to supply more rental housing because they know that a shortage of rental housing exists.

d) People who are lucky enough to rent housing benefit, but those who can’t are still searching and might have an incentive to trade illegally in the housing market.

Wrong! - When a rent ceiling is set below the equilibrium rent, can everyone who wants rental housing find it? Do renters benefit? Do landlords have an incentive to supply more rental housing? What is the would-be renter’s opportunity cost of searching for rental housing?

Good Job! - When a rent ceiling is set below the equilibrium rent, a shortage of rental housing arises. The people who can find rental housing benefit from the lower rent. But those who are unable to find housing are still searching. Illegal trading in the housing market might arise if those still searching for housing are willing to pay more than the rent ceiling.

If Singh is successful in convincing governments to set effective rent ceilings, is the outcome fair?

The outcome _______________.

a) is fair because a rent ceiling is a better way to allocate housing other than market price

b) is fair because people will experience less financial strain and the number of evictions will decrease

c) isn’t fair because some would-be renters are willing to trade illegally to obtain rented housing

d) isn’t fair because the rent ceiling blocks voluntary exchange, and the poorest people aren’t necessarily the ones who receive housing

Wrong! - When we consider fairness, we consider the rule and the result. Is a rent ceiling rule fair? Is a rent ceiling result fair? How does a rent ceiling allocate the scarce quantity of housing? What is the outcome? Who gets the housing?

Correct! - A rent ceiling set below the equilibrium rent isn’t fair because the rent ceiling blocks voluntary exchange. People who want but cannot find rented housing and who are willing to pay the market equilibrium rent are still searching for housing. A rent ceiling would be fair if it allocated scarce housing to the poorest people, but they aren’t necessarily the ones who receive housing.

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